<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 31, 1997.
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
CENTENNIAL HEALTHCARE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
GEORGIA 8051 58-1839701
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
400 Perimeter Center Terrace, Suite 650, Atlanta, Georgia 30346
(770) 698-9040
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------
Alan C. Dahl
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
Centennial HealthCare Corporation
400 Perimeter Center Terrace, Suite 650
Atlanta, Georgia 30346
(770) 698-9040
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------
Copies of all communications, including copies of all communications sent to
agent for service, should be sent to:
<TABLE>
<S> <C>
Paul A. Quiros, Esq. J. Chase Cole, Esq.
Nelson Mullins Riley & Scarborough, L.L.P. Waller Lansden Dortch & Davis, P.L.L.C.
999 Peachtree Street, N.E., Suite 1400 511 Union Street, Suite 2100
Atlanta, Georgia 30309 Nashville, Tennessee 37219
(404) 817-6000 (615) 244-6380
(404) 817-6050 (Fax) (615) 244-5686 (Fax)
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
----------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AGGREGATE
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED (1) (1) REGISTRATION FEE
<S> <C> <C> <C>
Common Stock, $.01 par value............................ $70,725,000 $70,725,000 $21,432
</TABLE>
(1) Estimated in accordance with Rule 457(a) solely for the purpose of
calculating the registration fee.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION
MARCH 31, 1997
SHARES
[LOGO]
COMMON STOCK
---------
All of the shares of Common Stock offered hereby are being sold by
Centennial HealthCare Corporation ("Centennial" or the "Company"). Prior to the
offering, there has been no public market for the Common Stock of the Company.
It is currently estimated that the initial public offering price will be between
$ and $ per share. See "Underwriting" for the factors to be considered
in determining the initial offering price. The Common Stock has been approved
for quotation on the Nasdaq National Market under the symbol CTEN.
--------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 8 HEREOF.
-------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS COMPANY(1)
<S> <C> <C> <C>
Per Share................................ $ $ $
Total(2)................................. $ $ $
</TABLE>
(1) Before deducting expenses of the offering estimated at $1,300,000.
(2) The Company has granted the Underwriters a 30-day option to purchase up to
additional shares of Common Stock solely to cover over-allotments, if
any. To the extent that the option is exercised, the Underwriters will offer
the additional shares at the Price to Public shown above. If the option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
--------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the offices
of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about
, 1997.
ALEX. BROWN & SONS
INCORPORATED
DEAN WITTER REYNOLDS INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
EQUITABLE SECURITIES CORPORATION
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
[MAP]
--------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
SECURITIES AND THE IMPOSITION OF A PENALTY BID, DURING AND AFTER THE OFFERING.
SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS.
THE COMPANY
Centennial HealthCare Corporation is a leading provider of a broad range of
long-term healthcare services to meet the medical needs of elderly and
post-acute patients. The Company provides these services through geographically
concentrated networks located in metropolitan and secondary markets throughout
the United States. Centennial currently operates 78 owned, leased and managed
skilled nursing facilities with 8,369 beds in 19 states, with its largest
concentration of facilities in North Carolina, Indiana and Michigan. The Company
provides basic and specialty healthcare services. Basic services include skilled
nursing and support, housekeeping, laundry, dietary, recreational and social
services. Specialty services include comprehensive rehabilitation therapy
(including physical, occupational and speech therapy), respiratory therapy,
ventilator care, infusion therapy, wound care, home healthcare and other
subacute and specialty services. As a component of its specialty services,
Centennial currently provides rehabilitation therapy services on a contract
basis to third-party and Company-operated skilled nursing facilities in 13
states pursuant to 58 contracts.
In recent years, the long-term care industry has experienced significant
growth. Revenues in the long-term care industry have increased in the United
States from approximately $18 billion in 1980 to approximately $80 billion in
1995. The number of patients in long-term care facilities is expected to grow to
2.1 million by the year 2025, a significant increase from the current level of
1.5 million. Industry growth has been driven primarily by the following factors:
(i) aging of the population; (ii) cost-containment pressures that drive
post-acute patients from acute care hospitals to lower-cost settings; (iii)
advances in medical technology that enable sophisticated long-term care
providers to care for higher acuity patients; and (iv) demand for post-acute and
specialty services in secondary markets. In addition, consolidation
opportunities in the long-term care industry have enabled leading providers to
build market share in order to compete more effectively. Current ownership of
long-term care facilities is highly fragmented, with approximately 70% of all
facilities owned by independent providers or companies with less than 20
facilities. The increasing medical complexity of long-term care patients,
cost-containment pressures and government regulation make it difficult for
smaller providers without access to capital, sophisticated information systems
and economies of scale to compete with larger regional and national providers.
Long-term care facilities are increasingly becoming an integral part of
community-based, vertically integrated healthcare delivery systems that are
capable of providing a full range of traditional basic services and specialty
services.
Centennial's objective is to continue to enhance its market position as a
leading provider of long-term basic and specialty services in selected
metropolitan and secondary markets. The Company seeks to control significant
components of the non-acute healthcare system in its markets thereby
diversifying its sources of revenue and positioning itself to respond to the
requirements of a variety of payors. In addition, the Company seeks to increase
the range of services it provides within its facilities and tailors its
healthcare services to address the specific needs within each of its markets. To
meet its objective, the Company is pursuing the following strategies: (i)
achieve operating leverage through the continued development of regionally
concentrated networks; (ii) implement market-specific operating plans in
response to the diverse needs of the Company's metropolitan and secondary
markets; (iii) emphasize specialty services to enhance the Company's position as
a broad-based provider of healthcare services; (iv) manage operations through
sophisticated information systems that enhance efficiency; and (v) pursue
strategic acquisitions of long-term care facilities and related service
providers.
3
<PAGE>
Over the last three years, the Company has aggressively grown its operating
base through both acquisitions and internal growth. Revenues increased from
$41.5 million for the fiscal year ended May 31, 1994 to $246.3 million for the
fiscal year ended December 31, 1996, representing a compounded annual growth
rate of 99.2%. Licensed available beds increased from 3,470 to 8,113 during the
same period, representing a compounded annual growth rate of 38.9%. The
Company's revenue quality mix (Medicare, private pay, management fees and other)
improved from 41.3% for the fiscal year ended December 31, 1995 to 55.9% for the
fiscal year ended December 31, 1996, and the Company's revenues from specialty
services increased from 15.1% for the fiscal year ended December 31, 1995 to
34.6% for the fiscal year ended December 31, 1996, reflecting the Company's
focus on providing specialty services to higher-acuity patients.
As part of its growth strategy, the Company regularly reviews possible
acquisitions in the long-term care continuum. Effective December 31, 1995, the
Company completed an important strategic acquisition by merging with
Transitional Health Services, Inc. ("Transitional"), which operated 36 skilled
nursing facilities with 3,776 beds in Arkansas, North Carolina, Indiana,
Kentucky and Michigan and a contract rehabilitation therapy business (the
"Transitional Merger"). Since the Transitional Merger, the Company has expanded
its operations through the addition of 11 facility management agreements, the
acquisition of two facilities previously managed by the Company and the lease of
a rural hospital and three home healthcare offices. Each of these transactions
has strengthened the Company's position in its regional markets.
Centennial is currently pursuing three strategic transactions in its
existing markets pursuant to non-binding letters of intent to: (i) acquire the
operations of a home healthcare services provider (the "Home Health
Acquisition"); (ii) acquire a rehabilitation therapy company (the "Therapy
Acquisition"); and (iii) manage a long-term healthcare facility (the "Facility
Transaction") (collectively, the "Potential Transactions"). The Potential
Transactions, if consummated, would allow the Company to increase its range of
services in three markets in which the Company already has a strong operating
presence. Each of the Potential Transactions is subject to the negotiation of a
definitive agreement and receipt of all necessary consents and approvals.
Centennial was incorporated in the State of Georgia in 1989. Unless the
context otherwise requires, all references in this Prospectus to Centennial or
the Company include Centennial HealthCare Corporation and its subsidiaries.
Centennial's principal executive office is located at 400 Perimeter Center
Terrace, Suite 650, Atlanta, Georgia 30346, and its telephone number is (770)
698-9040.
4
<PAGE>
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk. See "Risk
Factors."
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company................. shares
Common Stock to be outstanding after the offering... shares(1)
Use of proceeds..................................... Repay the Subordinated Debt ($25.3
million); redeem the Company's Series E
Redeemable Preferred Stock ($5.0
million); repay a portion of the
amounts outstanding under its Senior
Credit Facility ($
million); and repay a portion of the
Facility Debt ($5.0 million). See "Use
of Proceeds."
Nasdaq National Market symbol....................... CTEN
</TABLE>
- --------------
(1) Based on the number of shares outstanding as of March 1, 1997. Excludes
555,877 shares of Common Stock issuable upon exercise of stock options
outstanding as of March 1, 1997, at a weighted average exercise price of
$ per share. See "Capitalization" and "Management -- Stock Plans."
EXCEPT AS OTHERWISE SPECIFIED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES:
(I) NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION; (II) A .7143-FOR-1.0
REVERSE STOCK SPLIT WITH RESPECT TO THE COMMON STOCK TO BE EFFECTED PRIOR TO THE
COMPLETION OF THE OFFERING (THE "REVERSE STOCK SPLIT"); (III) THE CONVERSION
INTO 3,047,326 SHARES OF COMMON STOCK (REFLECTING THE REVERSE STOCK SPLIT) OF
ALL OF THE COMPANY'S SPECIAL VOTING COMMON STOCK ON THE CLOSING OF THE OFFERING;
(IV) THE CONVERSION INTO 886,626 SHARES OF COMMON STOCK (REFLECTING THE REVERSE
STOCK SPLIT) OF ALL OF THE COMPANY'S SERIES A CONVERTIBLE PREFERRED STOCK AND
SERIES B CONVERTIBLE PREFERRED STOCK (TOGETHER, THE "SERIES A AND B PREFERRED
STOCK") ON THE CLOSING OF THE OFFERING; (V) THE CONVERSION INTO SHARES
OF COMMON STOCK (REFLECTING THE REVERSE STOCK SPLIT) OF ALL OF THE COMPANY'S
SERIES C CONVERTIBLE PREFERRED STOCK (THE "SERIES C PREFERRED STOCK") ON THE
CLOSING OF THE OFFERING; AND (VI) THE CONVERSION INTO 425,173 SHARES OF COMMON
STOCK (REFLECTING THE REVERSE STOCK SPLIT) OF ALL OF THE COMPANY'S SERIES D
CONVERTIBLE PREFERRED STOCK (THE "SERIES D PREFERRED STOCK") ON THE CLOSING OF
THE OFFERING. SEE "DESCRIPTION OF CAPITAL STOCK" AND "UNDERWRITING." THE
OFFERING OF THE SHARES OF COMMON STOCK HEREBY IS REFERRED TO AS THE "OFFERING."
5
<PAGE>
SUMMARY FINANCIAL AND STATISTICAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND STATISTICAL DATA)
<TABLE>
<CAPTION>
YEARS ENDED MAY 31, YEARS ENDED DECEMBER
31,
-------------------- ----------------------
1994 1995 1995 (1) 1996
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues..................................................... $ 41,499 $ 65,218 $ 75,226 $ 246,272
Operating income before net interest expense and equity in income
(loss) of unconsolidated partnerships............................ 4,157 5,758 3,194 14,394
Equity in income (loss) of unconsolidated partnerships (2)......... 4,272 366 449 (108)
Income before income taxes and minority interest................... 8,560 6,182 3,466 4,470
Net income......................................................... $ 5,389 $ 3,725 $ 1,876 $ 2,437
Net income per common share........................................ $ 2.20 $ 1.40 $ 0.70 $ 0.05
Weighted average number of common and common stock equivalents
outstanding...................................................... 2,448 2,668 2,694 4,949
STATISTICAL DATA:
Facilities owned/leased............................................ 14 17 18 54
Facilities managed................................................. 17 15 21 22
--------- --------- ----------- ---------
Total facilities................................................. 31 32 39 76
Number of beds owned/leased (3).................................... 1,584 2,054 2,131 5,831
Number of beds managed (3)......................................... 1,886 1,603 2,171 2,282
--------- --------- ----------- ---------
Total number of beds (3)......................................... 3,470 3,657 4,302 8,113
Percentage of total revenues from:
Medicare......................................................... 6.3% 12.8% 17.7% 25.6%
Private pay, management fees and other........................... 20.1 21.7 23.6 30.3
--------- --------- ----------- ---------
26.4% 34.5% 41.3% 55.9%
Medicaid......................................................... 73.6% 65.5% 58.7% 44.1%
Percentage of total revenues from:
Basic services................................................... -- -- 80.4% 63.6%
Specialty services............................................... -- -- 15.1% 34.6%
Management fees.................................................. -- -- 4.5% 1.8%
Revenue per patient day (4)........................................ -- -- $ 100.30 $ 108.91
Occupancy rate (5)................................................. 97% 95% 96% 92%
Number of rehabilitation therapy contracts (6)..................... 22 35 38 58
Number of rehabilitation therapists (6)(7)......................... 82 164 159 434
Average revenue per rehabilitation contract per month (6).......... $ 53,200 $ 48,800 $ 50,400 $ 52,300
Number of home healthcare offices.................................. -- 2 2 5
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------
PRO FORMA
ACTUAL PRO FORMA (8) AS ADJUSTED (8)(9)
--------- -------------- ------------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................................. $ 8,845 $ 18,845 $ --
Total assets.................................................... 204,271 214,271 --
Long-term debt and subordinated debt, less current maturities... 116,714 -- --
Preferred stock................................................. 21,305 -- --(10)
Net shareholders' equity........................................ 11,610 -- --
</TABLE>
See accompanying notes on following page.
6
<PAGE>
(1) During 1995, the Company changed its fiscal year-end from May 31 to December
31. Accordingly, the Company has restated its operating results for the year
ended December 31, 1995.
(2) Includes equity in income (loss) of unconsolidated partnerships for all
years. The Company's sale in January 1997 of certain subsidiaries serving as
general partners of the unconsolidated partnerships will eliminate this
income (loss) going forward. Without giving effect to this income (loss) and
its related tax effects, the Company's net earnings would have been $2,699
and $3,634 in years ended May 31, 1994 and 1995, respectively, and $1,607
and $2,500 in the years ended December 31, 1995 and 1996, respectively. See
Note 6 and Note 7 of the Notes to Consolidated Financial Statements for the
years ended December 31, 1995 and 1996 and May 31, 1994 and 1995,
respectively and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(3) Represents licensed available beds.
(4) Calculated as net patient service revenues earned at the Company's leased
and owned facilities, divided by total patient days for those facilities.
(5) Occupancy is computed by dividing annual patient day census by annual
patient days available in licensed available operating beds.
(6) Centennial acquired the rehabilitation therapy service provider that was a
party to these contracts and which employed these therapists in the
Transitional Merger, effective December 31, 1995.
(7) Represents therapists (includes licensed therapists and rehabilitation
technicians) employed by the Company. Of the 58 contracts at December 31,
1996, 20 were with the Company's leased and owned facilities.
(8) Pro forma to give effect to the January 31, 1997 issuance of the Series D
Preferred Stock and Series E Redeemable Preferred Stock and 66,109 shares of
Common Stock. Also pro forma to give effect to the conversion of the Special
Voting Common Stock, the Series A and B Preferred Stock, the Series C
Preferred Stock and the Series D Preferred Stock into shares of Common
Stock. Net shareholders' equity includes accrual of dividends on the Series
C Preferred Stock through of $ .
(9) As further adjusted to give effect to the sale by the Company of
shares of Common Stock offered hereby at an initial offering price of $
per share, after deducting the underwriting discounts and commissions and
estimated offering expenses payable by the Company, the application of
estimated net proceeds therefrom, and the sale of 248,415 shares of treasury
stock.
(10) Upon the closing of the Offering, the Series C Preferred Stock, which is
held by Welsh, Carson, Anderson & Stowe VI, L.P. ("WCAS VI"), WCAS
Healthcare Partners, L.P. ("WCAS Healthcare"), CID Equity Capital III, L.P.
("CID Equity") and certain other shareholders, will convert into shares of
Common Stock based on the Price to Public. To the extent the Underwriters
exercise their over-allotment option, a portion of these shares of Common
Stock will be repurchased pro rata at the Price to Public by the Company
with the net proceeds from such exercise. See "Risk Factors -- Benefits of
the Offering to Certain Directors and Significant Shareholders."
7
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN SHARES OF
THE COMMON STOCK OFFERED BY THIS PROSPECTUS. THIS DISCUSSION ALSO IDENTIFIES
IMPORTANT CAUTIONARY FACTORS THAT COULD CAUSE THE COMPANY'S ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE DESCRIBED IN FORWARD-LOOKING STATEMENTS MADE BY, OR
ON BEHALF OF, THE COMPANY. IN PARTICULAR, THE COMPANY'S FORWARD-LOOKING
STATEMENTS, INCLUDING THOSE REGARDING THE ACQUISITION OF ADDITIONAL LONG-TERM
CARE FACILITIES AND RELATED OPERATING COMPANIES, THE ADEQUACY OF THE COMPANY'S
CAPITAL RESOURCES AND OTHER STATEMENTS REGARDING TRENDS, COULD BE AFFECTED BY A
NUMBER OF RISKS AND UNCERTAINTIES INCLUDING THOSE DESCRIBED BELOW.
RISKS ASSOCIATED WITH ACQUISITION STRATEGY. The Company intends to expand
its business, in part, through the selective acquisition of additional long-term
care facility operations and related service providers. The Company's prospects
for growth are directly affected by its ability to acquire long-term care
facility operations. There can be no assurance that suitable acquisitions will
be identified, that acquisitions can be consummated, or that the acquired
facility operations can be integrated successfully into the Company's
operations. The Company's ability to acquire long-term care facilities will
depend, among other factors, upon its ability to obtain financing, government
licenses and approvals and upon the competitive environment for acquisitions.
The nature of such licenses and approvals, and the timing and likelihood of
obtaining them vary widely from state to state, depending upon the facility or
operation and the type of services provided. In making acquisitions, the Company
competes with other providers, some of which have greater financial resources
than the Company. The various risks associated with the Company's acquisition of
long-term care facility operations and uncertainties regarding the profitability
of such operations may affect the Company's financial performance in any given
period. Several of the leased or managed facilities that the Company acquired
through the Transitional Merger experienced operating losses in 1996. There can
be no assurance that such losses will not continue at some or all of these
facilities. Continued losses at these facilities could adversely affect the
Company's results of operation or financial condition. In addition, Centennial
has entered into three non-binding letters of intent relating to the Potential
Transactions. No assurance can be given, however, that the Company will complete
any or all of the Potential Transactions or that it will be able to integrate
these operations successfully or that such operations will not adversely affect
the Company's profitability. See "Business -- Acquisitions and Potential
Transactions," "-- Business Strategy," "-- Acquisition Opportunities" and "--
Government Regulation" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
IMPACT OF HEALTHCARE REFORM AND LIMITS ON GOVERNMENT REIMBURSEMENT AND OTHER
PAYMENTS. Both the federal government and various states are considering
proposals to limit the amounts of funding available for various healthcare
services. Proposals have been introduced in Congress to reduce the rate of
Medicare growth through cost saving measures, including proposals to pay
providers of home healthcare and long-term care providers on a prospective
payment system similar to the DRG system under which hospitals are reimbursed
for acute care services. Proposals have also been made to limit Medicare
reimbursement for speech and occupational therapy services, which could have an
adverse effect on the Company. Proposals to fund the Medicaid program through
federal block grants, if adopted by Congress, would likely result in a revision
of existing state Medicaid programs resulting in new requirements and/or payment
rates. Medicare and Medicaid certification is a critical factor contributing to
the revenues and profitability of long-term care facilities and home healthcare
providers. Changes in certification and participation requirements of the
Medicare and Medicaid programs have restricted, and are likely to continue to
further restrict, eligibility for reimbursement under those programs. Failure to
obtain and maintain Medicare and Medicaid certification at the Company's current
and newly acquired facilities could result in significant loss of revenue. In
addition, private payors, including managed care payors, increasingly are
demanding that providers accept discounted fees or assume all or a portion of
the financial risk for the delivery of healthcare services. Such measures may
include capitated payments
8
<PAGE>
whereby the Company is responsible for providing, for a fixed fee, all services
needed by certain patients. Capitated payments can result in significant losses
if patients require expensive treatment not adequately covered by the capitated
rate. Efforts to impose reduced payments, greater discounts and more stringent
cost controls by government and other payors are expected to continue. The
Company is unable to predict what reform proposals or reimbursement limitations
will be adopted in the future or the effect such changes will have on its
operations. No assurance can be given that such reforms will not have a material
adverse effect on the Company. See "Business -- Source of Revenues and Payor
Mix" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
GOVERNMENT REGULATION. The federal government and all states in which the
Company operates regulate various aspects of its business. Various federal and
state laws regulate relationships among providers of services, including
employment or service contracts and investment relationships. The operation of
home healthcare providers and long-term care facilities and the provision of
services are also subject to federal, state and local laws relating to, among
other things, the adequacy of medical care, distribution of pharmaceuticals,
equipment, personnel, operating policies, fire prevention and compliance with
building codes. Long-term care facilities are also subject to periodic
inspection to assure continued compliance with various standards and licensing
requirements under state law. The failure to obtain or renew any required
regulatory approvals or licenses could adversely affect the Company's growth and
could prevent it from offering its existing or additional services. In addition,
healthcare is an area of extensive and frequent regulatory change. Changes in
the laws or new interpretations of existing laws can have a significant effect
on methods and costs of doing business and amounts of payments received from
governmental and other payors. The Company's operations could be adversely
affected by, among other things, regulatory developments such as mandatory
increases in the scope and quality of care to be afforded patients and revisions
in licensing and certification standards. Government regulators recently
announced plans to impose new regulations on home healthcare providers and to
increase regulatory enforcement activities. The Company at all times attempts to
comply with all applicable laws; however, there can be no assurance that
administrative or judicial interpretation of existing laws or regulations will
not have a material adverse effect on the Company's operations or financial
condition. Also, there can be no assurance that federal, state or local laws or
regulatory procedures which might adversely affect the Company's business,
financial condition, results of operations or prospects will not be expanded or
imposed. Most states have adopted certificate of need ("CON") or similar laws
that generally require that the appropriate state agency approve certain
acquisitions and determine that a need exists for certain new services, the
addition of beds and capital expenditures or other changes. To the extent that
CON or other similar approvals are required for expansion of the Company's
operations, either through facility acquisitions or expansion or provision of
new services or other changes, such expansion could be adversely affected by the
failure or inability to obtain the necessary approvals, changes in standards
applicable to such approvals and possible delays and expenses associated with
obtaining such approvals. CON laws are also subject to being repealed or
modified which could increase competition by lowering competitors' barriers to
enter certain markets. Healthcare facilities receiving government reimbursement
are also subject to periodic audits of amounts received through such
reimbursement programs. There can be no assurance that any amounts required to
be repaid by the Company as a result of any such audit will not exceed reserves
or provisions established for such contingencies. See "Business -- Government
Regulation."
CONCENTRATION OF FACILITIES IN CERTAIN STATES. At March 1, 1997, the
Company operated 33 owned or leased facilities with 3,341 beds and managed 12
facilities with 1,312 beds in the states of North Carolina, Michigan and
Indiana, representing 57% of the Company's owned or leased beds and 52% of the
Company's managed beds, respectively. This concentration of facilities in these
states makes the Company vulnerable to changes in federal or state legislation
or budgetary controls that may negatively impact the amount and method of
Medicaid payments by such states and to increased competition.
9
<PAGE>
There can be no assurance that increased competition, changes in the laws,
regulations, agency procedures or budgetary controls relating to the Medicaid
program in such states, if enacted or adopted, would not have a material adverse
effect on the Company. See "Business -- Facilities."
COMPETITION. The long-term care industry is highly competitive, and the
Company faces direct competition for the acquisition and/or management of
facilities. In turn, its facilities face competition for employees and patients.
Some of the Company's present and potential competitors are significantly larger
and have or may obtain greater financial and marketing resources than those of
the Company. The Company competes for patients with other long-term care
facilities and, to a lesser extent, with acute care hospitals, physician
practice groups, home healthcare providers, community-based service programs,
retirement communities and assisted living centers. In addition, competition may
increase from new market entrants, including companies focusing primarily on
specific components of the Company's various services. There can be no assurance
that the Company will not encounter increased competition in the future, which
could limit its ability to attract patients or expand its business and could
have a material adverse effect on its business or decrease its market share. See
"Business -- Competition."
LEVERAGE. The Company's long-term debt obligations, after giving effect to
the use of proceeds from the Offering, will total approximately $ million,
including the Senior Credit Facility, Facility Debt, capital lease obligations
and other debt characterized as long-term. The Company is also the lessee under
long-term operating leases for long-term care facilities, equipment and office
space which had aggregate rent payments of $19.9 million in 1996 and which
generally provide for annual rent increases and payment by the Company of taxes,
insurance and other obligations. After giving effect to the use of proceeds from
the Offering, the Company's total shareholders' equity will be $
million. The degree to which the Company is and will be leveraged and subject to
significant lease obligations could have important consequences to the Company,
including limiting the Company's ability to obtain additional financing in the
future for working capital, capital expenditures, facility acquisitions,
expansions or developments and/or the refinancing of existing debt. In addition,
a substantial portion of the Company's cash flows from operations may be
dedicated to the payment of principal and interest on its indebtedness and rent
expense, thereby reducing the funds available to the Company for its operations
and to support its growth. Certain of the Company's current debt and lease
agreements contain cross-collateral and cross-default provisions and financial
and other restrictive covenants, including restrictions on the incurrence of
additional indebtedness, the creation of liens, the payment of dividends and the
sale of assets. Certain lenders to lessors of the Company's leased facilities
have rights upon default in lease provisions that could adversely affect the
Company's rights to continue as lessee. There can be no assurance that the
Company's operating results will be sufficient to support the payment of the
Company's indebtedness and rent expense. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Business -- Facilities."
REVENUES FROM MANAGED FACILITIES. Income from managing long-term facilities
pursuant to management agreements between the Company and certain affiliated or
third parties presently comprises a material portion of the Company's net
income. All management agreements may be terminated only for cause, except for
five agreements with public limited partnerships that may be terminated upon
sixty days notice. In most instances, management fees are subordinate to debt
service payments and the managed facilities could be subject to foreclosure by
lenders. The terms of these management agreements range from five to 20 years,
and contain renewal provisions. The loss of these management agreements could
have a material adverse effect on the Company.
DEPENDENCE ON KEY PERSONNEL. The Company believes that it has benefited
substantially from the leadership of J. Stephen Eaton, the Company's Chairman of
the Board, Chief Executive Officer and President, and that the loss of his
services would have a material adverse effect on the Company's business and
future operations. The Company's success and its growth strategy also depend
upon the continued contributions of the Company's other executive management
including, Alan C. Dahl, Kent C.
10
<PAGE>
Fosha, Sr. and Randall J. Bufford. See "Management -- Executive Officers, Key
Employees and Directors."
STAFFING ISSUES. The Company's growth strategy is dependent in large part
on its ability to attract and retain management, marketing and other personnel
at its facilities. The Company competes with general acute care hospitals,
rehabilitation facilities, nursing homes, ambulatory care facilities and other
providers for the services of registered nurses, therapists and other
professional personnel. From time to time, there have been shortages in the
supply of available registered nurses, certified nursing assistants and various
types of therapists. There can be no assurance that the Company will be able to
attract and retain the qualified personnel necessary for its business and
planned growth. The long-term care industry is experiencing increased union
activities that could have a material adverse effect by requiring the Company to
negotiate higher wages and/or benefits for its employees. Increases in the
minimum wage could also have a material adverse effect on the Company. See
"Business -- Personnel."
POTENTIAL CONFLICTS OF INTEREST. Mr. Eaton owns all of the outstanding
stock of certain corporations, formerly indirect subsidiaries of the Company,
that serve as general partners of partnerships owning five facilities managed by
the Company. In this corporate general partner role, Mr. Eaton, acting on behalf
of such corporations, could have a conflict of interest with Centennial with
respect to these management agreements. See "Certain Transactions."
BENEFITS OF THE OFFERING TO CERTAIN DIRECTORS AND SIGNIFICANT
SHAREHOLDERS. Certain partnerships for which two of the Company's directors
serve as general partners of the sole general partner hold over 96.2% of the
Subordinated Debt, 82.3% of the Series C Preferred Stock and 88.5% of the Series
E Redeemable Preferred Stock. These two directors also hold in their individual
capacities 716 shares of Series C Preferred Stock which is convertible into
shares of Common Stock upon the closing of the Offering. The Company plans
to use a portion of the proceeds of the Offering to repay the Subordinated Debt
and redeem the Series E Redeemable Preferred Stock and, to the extent that
additional net proceeds attributable to the sale of shares of Common Stock
pursuant to the exercise of the Underwriters' over-allotment option are
realized, to acquire at the Price to Public shares of Common Stock pro rata from
certain former holders of the Series C Preferred Stock in accordance with a
stock repurchase agreement (the "Stock Repurchase Agreement") among the Company
and certain former holders of the Series C Preferred Stock (the "Former
Holders"). If the Underwriters exercise their over-allotment option in full, the
Company will repurchase shares of Common Stock from the Former Holders.
This contemplated use of proceeds will directly benefit the two directors
individually, as well as these partnerships and the two directors as general
partners thereof. See "Use of Proceeds" and "Certain Transactions."
LIABILITY AND INSURANCE. The provision of healthcare services entails an
inherent risk of liability. In recent years, long-term care providers have
become subject to an increasing number of lawsuits alleging medical malpractice,
wrongful death, wrongful termination of employment or other related legal
theories, many of which involve large claims and significant defense costs. It
is expected that the Company from time to time will be subject to such suits as
a result of the nature of its business. The Company currently maintains
liability insurance intended to cover such claims which it believes is in
keeping with industry standards. There can be no assurance, however, that claims
in excess of the Company's insurance coverage or claims not covered by the
Company's insurance coverage (e.g., claims for punitive damages) will not arise.
A successful claim against the Company in excess of the Company's insurance
coverage could have a material adverse effect upon the Company and its financial
condition. Claims against the Company, regardless of their merit or eventual
outcome, may also have a material adverse effect upon the Company's ability to
attract patients or expand its business. In addition, the Company's insurance
policies must be renewed annually. There can be no assurance that the Company
will be able to obtain liability insurance coverage in the future on acceptable
terms, if at all. See "Business -- Insurance."
11
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS. Sales of Common Stock
in the public market following the Offering could adversely affect prevailing
market prices. Several of the Company's principal shareholders hold a
significant portion of the Company's outstanding Common Stock and a decision by
one or more of these shareholders to sell their shares could adversely affect
the market price of the Common Stock. Holders of shares of Common Stock
which will be outstanding upon the completion of the Offering have agreed not to
sell or otherwise dispose of any shares of Common Stock for a period of 180 days
after the date of this Prospectus without the prior written consent of Alex.
Brown & Sons Incorporated (the "Lock-up Agreements"). Subject to the foregoing
restrictions, commencing 90 days following the date of this Prospectus,
shares of Common Stock will become eligible for sale pursuant to Rule
144 promulgated under the Securities Act ("Rule 144"), subject to compliance
with the volume limitation and other requirements of Rule 144 or compliance with
Rule 701 promulgated under the Securities Act ("Rule 701") with respect to
shares issuable upon exercise of options and one or more registration statements
on Form S-8 (as described below). Additional shares of Common Stock, including
additional shares issuable upon the exercise of options, will also become
eligible for sale in the public market from time to time in the future. In
addition, the Company intends to register on Form S-8, within 30 days after the
date of this Prospectus or as soon as practicable, a total of shares of
Common Stock which are subject to outstanding options or reserved for issuance
under Centennial's stock option plans. After 180 days from the date of this
Prospectus, certain shareholders, who hold approximately shares of
Common Stock, will be entitled to certain demand and piggyback registration
rights with respect to such shares. If these shareholders, by exercising their
registration rights, cause a large number of shares to be registered and sold in
the public market, such sales could have a material adverse effect on the market
price for the Common Stock. See "Management -- Stock Plans," "Shares Eligible
for Future Sale -- Registration Rights" and "Underwriting."
DILUTION. The existing shareholders of the Company acquired their shares of
Common Stock at an average cost substantially below the offering price set forth
on the cover page of this Prospectus. Accordingly, purchasers of the shares of
Common Stock offered hereby will experience immediate and substantial dilution
in pro forma net tangible book value per share of approximately $
(assuming a public offering price of $ per share). See "Dilution."
CONTROL BY EXECUTIVE OFFICERS AND DIRECTORS. Upon completion of the
Offering, the Company's executive officers and directors and their affiliates
will beneficially own approximately % of the outstanding shares of the
Common Stock and a right to purchase an additional % of the
outstanding Common Stock through the exercise of currently exercisable options
( % and %, respectively, if the Underwriters' over-allotment
option is exercised in full). As a result, these shareholders, acting together,
would be able to exert substantial influence over the Company and matters
requiring approval by the shareholders of the Company, including the election of
the directors. The voting power of these shareholders under certain
circumstances could have the effect of delaying or preventing a change in
control of the Company. See "Management" and "Principal Shareholders."
POTENTIAL ANTI-TAKEOVER EFFECTS OF ARTICLES AND BYLAW PROVISIONS, THE
GEORGIA ACT AND EMPLOYMENT AGREEMENTS. Certain provisions of Georgia law and
certain provisions of the Company's Third Amended and Restated Articles of
Incorporation (the "Articles") and the Company's Bylaws (the "Bylaws") could
delay or impede the removal of incumbent directors and could make it more
difficult for a third-party to acquire, or could discourage a third-party from
attempting to acquire, control of the Company. Such provisions could limit the
price that certain investors might be willing to pay in the future for shares of
the Company's Common Stock. The Articles and Bylaws impose various procedural
and other requirements (including a staggered board of directors, a shareholder
rights plan and the issuance of preferred stock as described below) that could
make it more difficult for shareholders to effect certain corporate actions. The
Articles give the Company's Board of Directors the authority to issue up to 50
million shares of preferred stock and to determine the price, rights,
preferences and restrictions,
12
<PAGE>
including the voting rights of such shares, without any further vote or action
by the Company's shareholders. The rights of holders of Common Stock will be
subject to, and may be adversely affected by, the rights of any preferred stock
issued in the future. The Company has no current plans to issue such preferred
stock. The "fair price" and "business combinations" statutes under Georgia law
may restrict certain business combinations by interested shareholders. See
"Description of Capital Stock -- Certain Provisions of the Articles, Bylaws and
Georgia Law." The Company's executive officers have entered into employment
agreements with the Company which contain change in control provisions. The
change in control provisions may hinder, delay, deter or prevent a tender offer,
proxy contest or other attempted takeover because the covered employees can
terminate their employment and receive payments for twelve to 24 months after
termination pursuant to their respective agreements. See "Management --
Employment Agreements and Change of Control Arrangements."
ABSENCE OF PREVIOUS MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK
PRICES; OFFERING PRICE DETERMINED BY NEGOTIATION. Prior to the Offering, there
has been no public market for the Common Stock, and although the Common Stock
has been approved for quotation on the Nasdaq National Market, there can be no
assurance that an active trading market will develop or be sustained after the
Offering. After completion of the Offering, the market price of the Common Stock
could be subject to significant fluctuations in response to various factors and
events, including the depth and liquidity of the market for the Common Stock,
variations in the Company's operating results, litigation, new statutes or
regulations or changes in the interpretation of existing statutes or regulations
affecting the healthcare industry generally or the long-term care business in
particular or changes in general market conditions. The Company, in negotiation
with the representatives of the Underwriters, has determined the public offering
price based on the historical performance of the Company, its projected future
performance and the market conditions as they exist on the date of this
Prospectus. There may be no relationship between the offering price of the
Common Stock and the price at which the Common Stock will trade after completion
of the Offering. See "Underwriting."
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of
Common Stock offered by the Company are estimated to be $ million ($
million if the Underwriters' over-allotment option is exercised in full),
assuming an initial offering price of $ per share and after deducting
estimated underwriting discounts and commissions and Offering expenses.
The Company intends to use the net proceeds of the Offering to repay two
subordinated promissory notes accruing interest at 10.8% and 11.7% per annum
(the "Subordinated Debt") ($25.3 million); to redeem the Series E Redeemable
Preferred Stock (the "Series E Redeemable Preferred Stock") ($5.0 million); to
repay a portion of the outstanding principal balance of its Senior Credit
Facility (as defined below) ($ million); and to repay a portion of the debt
on facilities owned by the Company (the "Facility Debt") ($5.0 million). Amounts
repaid under the Company's Senior Credit Facility with CoreStates Bank, N.A.
("CoreStates") as agent (the "Senior Credit Facility") are available for
reborrowing for acquisitions and general corporate purposes.
Upon the closing of the Offering, the Series C Preferred Stock, which is
held by WCAS VI, WCAS Healthcare, CID Equity and certain other shareholders,
will convert into shares of Common Stock based on the Price to Public. To the
extent the Underwriters exercise their over-allotment option, a portion of these
shares of Common Stock will be repurchased at the Price to Public by the Company
with the net proceeds from such exercise. Assuming exercise in full of the
Underwriters' over-allotment option, $ million of the net proceeds from
such exercise will be used to repurchase at the Price to Public shares of Common
Stock pro rata from the Former Holders.
The terms of the Senior Credit Facility require that the Company use 50% of
the net cash proceeds of the Offering, after the elimination of the Subordinated
Debt and the redemption of the Series E Redeemable Preferred Stock, to repay a
portion of the outstanding principal balance of the Senior Credit Facility. The
Senior Credit Facility provides for advances to the Company of up to a maximum
of $65.0 million and is repayable in 15 quarterly installments beginning on
March 15, 1999, with repayment in full on or before September 30, 2002, if not
earlier accelerated. Amounts outstanding under the Senior Credit Facility accrue
interest at varying rates applicable at the time of each advance. The Company
can elect a rate tied to either the prime rate of CoreStates or LIBOR, each
increased by the "applicable margin," as defined in the Senior Credit Facility,
which is dependent upon the ratio of debt to earnings before interest, taxes,
depreciation, amortization and operating lease expense. The Company has
approximately $47.0 million borrowed and currently outstanding under the Senior
Credit Facility bearing interest at a weighted average rate of 8.1% per annum.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." Pending such uses, the net
proceeds will be invested in short-term, investment-grade interest-bearing
securities.
DIVIDEND POLICY
Since inception, the Company has not declared or paid any cash dividends on
its Common Stock. The Company has paid dividends on the Series A Preferred Stock
since April 1, 1993 and the Series B Preferred Stock since the third fiscal
quarter of 1993 and dividends have accrued on the Series C Preferred Stock since
January 5, 1996. In addition, the Company has paid dividends on the Series E
Redeemable Preferred Stock since January 31, 1997. The Company will no longer
pay or accrue dividends to the holders of such Preferred Stock upon the
completion of the Offering as a result of the conversion of such Preferred Stock
into Common Stock or the redemption of such Preferred Stock. The Company issued
a stock dividend, effective January 6, 1996, to all of its shareholders and
optionholders as a condition to the Transitional Merger. In lieu of cash
dividends on its Common Stock, the Company intends to retain earnings to finance
operations and expand the Company's business. Additionally, the terms of certain
credit facilities the Company has with its lenders, including the Senior Credit
Facility, restrict the payment of cash dividends to the holders of Common Stock.
The payment of any cash dividends on the Common Stock is unlikely in the
foreseeable future. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company: (i) as of
December 31, 1996; (ii) on a pro forma basis to give effect to the January 31,
1997 issuance of the Series D Preferred Stock, Series E Redeemable Preferred
Stock and 66,109 shares of Common Stock and the subsequent conversion of the
Special Voting Common Stock, Series A and B Preferred Stock, Series C Preferred
Stock and Series D Preferred Stock into Common Stock; and (iii) on an as
adjusted basis to reflect the sale by the Company of shares of Common
Stock offered hereby at an initial offering price of $ per share,
including the sale of 248,415 shares of treasury stock, and the application of
the estimated net proceeds therefrom as described in "Use of Proceeds."
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
---------------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA (1) ADJUSTED (1)
--------- -------------- ------------------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE DATA)
Long-term debt:
Senior Credit Facility............................................ $ 47,000 $ 47,000 --
Subordinated Debt (2)............................................. 24,357 24,357 --
Facility Debt..................................................... 26,139 26,139 --
Obligations under capital leases less current maturities.......... 18,521 18,521 --
Other debt........................................................ 697 697 --
--------- -------------- ----------
Total long-term debt.......................................... 116,714 116,714 --
--------- -------------- ----------
Preferred Stock:
Series A Preferred Stock, par value $11.01 per share; 205,541
shares authorized and outstanding, actual; no shares outstanding,
pro forma and pro forma as adjusted.............................. 2,187 -- --
Series B Preferred Stock, par value $8.7377 per share; 328,892
shares authorized and outstanding, actual; no shares outstanding,
pro forma and pro forma as adjusted.............................. 2,691 -- --
Series C Preferred Stock, par value $1.00 per share; 144,086
shares authorized and outstanding, actual; no shares outstanding,
pro forma and pro forma as adjusted.............................. 16,427 -- --
Series D Preferred Stock, par value $1.00 per share; 50,000 shares
authorized and outstanding, actual; no shares outstanding, pro
forma and pro forma as adjusted.................................. -- -- --
Series E Redeemable Preferred Stock, par value $1.00 per share;
50,000 shares authorized and outstanding, actual; shares
issued and outstanding, pro forma; no shares outstanding, pro
forma as adjusted................................................ -- -- --
--------- -------------- ----------
Total preferred stock....................................... 21,305 -- --
--------- -------------- ----------
Shareholders' equity:
Common stock, $.01 par value per share; 50,000,000 shares
authorized; shares issued and outstanding, actual;
shares issued and outstanding, pro forma;
shares issued and outstanding, pro forma as adjusted............. 21 -- --
Special voting common stock, no par value; 5,000,000 shares
authorized; 3,046,205 shares issued and outstanding actual; no
shares outstanding, pro forma and pro forma as adjusted.......... -- -- --
Paid-in capital................................................... 5,707 -- --
Retained earnings................................................. 7,897 -- --
Less: treasury stock (248,415 shares actual; none as
adjusted)..................................................... (1,487) -- --
--------- -------------- ----------
12,138 -- --
Note receivable from shareholder.............................. -- --
--------- -------------- ----------
Net shareholders' equity.................................... 11,610 -- --
--------- -------------- ----------
Total capitalization...................................... $ 149,629 $ -- $ --
--------- -------------- ----------
--------- -------------- ----------
</TABLE>
- ------------------
(1) Includes accrual of dividends on the Series C Preferred Stock through
of $ . The accrual of dividends has been included as a
charge to Retained Earnings.
(2) Subordinated Debt is shown net of a discount on issuance of $942,603.
15
<PAGE>
DILUTION
The historical net tangible book value of the Company at December 31, 1996
was approximately $ , or approximately $ per share.
The pro forma net tangible book value of the Company at December 31, 1996 was
approximately $ , or approximately $ per share. Pro
forma net tangible book value per share represents the amount of total assets,
excluding intangibles (excess of cost over fair value of net assets acquired),
less total liabilities, divided by the aggregate number of shares of Common
Stock outstanding as of December 31, 1996 (on a pro forma basis after giving
effect to the conversion of the Special Voting Common Stock, Series A and B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock into
shares of Common Stock and the issuance of the Series E Redeemable
Preferred Stock). Dilution per share represents the difference between the
amount per share paid by purchasers of shares of Common Stock in the Offering
and the pro forma net tangible book value per share of Common Stock immediately
after completion of the Offering. After giving effect to the sale of
shares of Common Stock in the Offering and the application of the net proceeds
therefrom as described in "Use of Proceeds," and after deducting the estimated
underwriting discounts and offering expenses to be paid by the Company, the pro
forma net tangible book value of the Company at December 31, 1996 would have
been $ , or $ per share of Common Stock. This
represents an immediate increase in net tangible book value per share of
$ to existing shareholders and an immediate dilution in net
tangible book value of $ per share to new investors purchasing
shares in the Offering. Investors participating in the Offering will incur
immediate dilution. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share.................. $ --
Historical net tangible book value per share........... $ --
Pro forma net tangible book value per share at December
31, 1996............................................. --
Increase per share attributable to new investors..... --
---------
Pro forma net tangible book value per share after the
Offering............................................... --
---------
Dilution per share to new investors...................... $ --
---------
---------
</TABLE>
The following table sets forth, on a pro forma basis, as of December 31,
1996 (giving pro forma effect to the conversion of the Special Voting Common
Stock, Series A and B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock into Common Stock and the issuance of the Series E Redeemable
Preferred Stock as of such date), the number of shares of Common Stock purchased
from the Company, the total consideration paid to the Company and the average
price per share paid by existing shareholders and by the new investors
purchasing shares of Common Stock from the Company in the Offering (before
deducting underwriting discounts and estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED (1) TOTAL CONSIDERATION
----------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders............................. -- -- $ -- -- $ --
New investors..................................... -- -- -- -- $ --
----------- ----- ----------- -----
Total....................................... -- 100.0% $ -- 100.0%
----------- ----- ----------- -----
----------- ----- ----------- -----
</TABLE>
- ------------------
(1) The foregoing tables assume no exercise of options outstanding at December
31, 1996. As of December 31, 1996, there were outstanding options to
purchase 555,877 shares of Common Stock at a weighted average exercise price
of $ per share. To the extent that outstanding options are
exercised in the future, there will be further dilution to new investors.
See "Management -- Stock Plans" and Note 11 to Consolidated Financial
Statements.
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table summarizes certain selected consolidated financial data
and is qualified by reference to and should be read in conjunction with the
Consolidated Financial Statements and the notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus. The selected consolidated financial data
for the years ended December 31, 1995 and December 31, 1996, has been derived
from the Company's Consolidated Financial Statements, which have been audited by
Coopers & Lybrand L.L.P., independent accountants. The selected financial data
for the years ended May 31, 1992, 1993, 1994 and 1995 has been derived from the
Company's Consolidated Financial Statements, which have been audited by BDO
Seidman, LLP, independent accountants.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
YEARS ENDED MAY 31, 31,
------------------------------------------ --------------------
1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net patient service revenues............................. $ -- $ 6,863 $ 38,115 $ 61,856 $ 71,862 $ 241,814
Management fee and other revenues........................ 2,669 4,435 3,384 3,362 3,364 4,458
--------- --------- --------- --------- --------- ---------
Total revenues....................................... 2,669 11,298 41,499 65,218 75,226 246,272
Facility operating expenses.............................. -- 5,331 29,510 48,872 58,566 195,216
Lease expense............................................ 67 927 4,823 6,901 7,701 19,901
Corporate administrative costs........................... 1,567 3,004 2,927 3,396 5,027 11,400
Depreciation and amortization............................ 28 48 82 290 738 5,361
--------- --------- --------- --------- --------- ---------
Operating income before net interest expense and
equity in income (loss) of unconsolidated
partnerships....................................... 1,007 1,988 4,157 5,759 3,194 14,394
Interest income (expense), net........................... (23) 31 131 57 (177) (9,816)
Equity in income (loss) of unconsolidated partnerships... (421) (2,765) 4,272 366 449 (108)
--------- --------- --------- --------- --------- ---------
Income (loss) before income taxes and minority
interest........................................... 563 (746) 8,560 6,182 3,466 4,470
Provision (benefit) for income taxes..................... 233 (160) 3,171 2,250 1,389 1,850
--------- --------- --------- --------- --------- ---------
Income (loss) before minority interest................... $ 330 $ (586) $ 5,389 $ 3,932 $ 2,077 $ 2,620
Minority interest in net income of subsidiary............ -- -- -- (207) (201) (183)
--------- --------- --------- --------- --------- ---------
Net income (loss)........................................ $ 330 $ (586) $ 5,389 $ 3,725 $ 1,876 $ 2,437
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Net income (loss) per common share....................... $ .15 $ (.25) $ 2.20 $ 1.40 $ .70 $ .05
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Weighted average number of common and common stock
equivalents outstanding................................ 2,189 2,348 2,448 2,668 2,694 4,949
<CAPTION>
YEARS ENDED DECEMBER
YEARS ENDED MAY 31, 31,
------------------------------------------ --------------------
1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital.......................................... $ 724 $ 4,208 $ 5,540 $ 4,805 $ 3,984 $ 8,845
Total assets............................................. 2,122 4,392 14,172 25,499 155,018 204,271
Long-term debt and subordinated debt, less current
maturities............................................. 176 264 676 4,558 83,559 116,714
Preferred stock (1)...................................... -- 1,650 4,300 9,187 19,455 21,305
Net shareholders' equity (deficit)....................... 1,355 (1,051) 1,527 2,082 10,869 11,610
</TABLE>
- ------------------
(1) Carried at estimated redemption value with accretion of dividends charged
against shareholders' equity.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONNECTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND THE NOTES THERETO INCLUDED ELSEWHERE IN THE PROSPECTUS.
DURING 1995, THE COMPANY CHANGED ITS FISCAL YEAR-END FROM MAY 31 TO DECEMBER 31.
ACCORDINGLY, THE COMPANY HAS RESTATED ITS OPERATING RESULTS FOR THE YEAR ENDED
DECEMBER 31, 1995 FOR PRESENTATION PURPOSES. REFERENCES TO FISCAL PERIODS FOR
THE COMPANY ARE FOR CALENDAR YEARS ENDING DECEMBER 31 UNLESS OTHERWISE NOTED.
THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE
SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK
FACTORS."
OVERVIEW
COMPANY BACKGROUND
Prior to January 1993, the Company's primary growth strategy focused on
obtaining long-term management contracts for facilities, including, in some
cases, a right of first refusal to acquire the facilities. These management
contracts allowed the Company to establish a profitable base of operations
providing cash flow without requiring significant capital. The Company invested
its cash flow into developing its management infrastructure, including
attracting quality management personnel at the corporate and facility level and
developing a sophisticated information system to support and enhance its growth.
In many cases, the Company assumed management responsibilities for facilities
that were producing operating losses or were generally underperforming and, in
some cases, had a history of licensure and regulatory problems. After assuming
management of these facilities, the Company improved financial performance and
facility operations, and enhanced the quality of patient care, thereby bringing
all of these facilities into regulatory compliance.
TRANSITION TO OWNER/OPERATOR
In 1993, the Company expanded its strategy to include the acquisition of
facilities and their operations through direct ownership or facility leases. The
Company's managed facilities represented strong candidates for acquisition by
Centennial, because the Company's information systems and management strategies
had already been implemented at these facilities.
The following table illustrates the Company's shift from managed toward
owned and leased facilities:
<TABLE>
<CAPTION>
AT MAY 31, AT DECEMBER 31,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
Number of facilities:
Owned.................................................. 0 0 1 2 8
Leased................................................. 1 14 16 16 46
--------- --------- --------- --------- ---------
Subtotal............................................. 1 14 17 18 54
Managed................................................ 29 17 15 21 22
--------- --------- --------- --------- ---------
Total................................................ 30 31 32 39 76
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Number of licensed available beds:
Owned.................................................. 0 0 154 231 837
Leased................................................. 296 1,584 1,900 1,900 4,994
--------- --------- --------- --------- ---------
Subtotal............................................. 296 1,584 2,054 2,131 5,831
Managed................................................ 3,050 1,886 1,603 2,171 2,282
--------- --------- --------- --------- ---------
Total................................................ 3,346 3,470 3,657 4,302 8,113
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
18
<PAGE>
INCREASED EMPHASIS ON SPECIALTY SERVICES
The Company seeks to expand the provision of specialty services at its
facilities in order to serve higher acuity patients. Historically, many of the
Company's facilities provided only basic services and limited specialty services
to their patients. Beginning in 1993, the Company emphasized new specialty
services and expanded existing services.
Centennial's revenues are derived primarily from providing basic and
specialty services through local healthcare delivery networks and management of
these networks. The Company's basic services include skilled nursing and
support, housekeeping, laundry, dietary, recreational and social services.
Specialty services include comprehensive rehabilitation therapy (including
physical, occupational and speech therapy), respiratory therapy, ventilator
care, infusion therapy, wound care, home healthcare and other subacute and
specialty services. The Company's growth in revenues is attributable to three
principal factors: (i) expansion of specialty services in markets served by the
Company's owned, leased and managed facilities; (ii) improved payor mix and
operational performance; and (iii) the strategic acquisition of long-term
healthcare facilities and related healthcare businesses. As a result of the
Transitional Merger and these efforts, the Company has significantly increased
its revenues from specialty services:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1995 1996
-------------------- ----------------------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Revenues:
Basic services..................................................... $ 60,479 80.4% $ 156,656 63.6%
Specialty services................................................. 11,383 15.1 85,158 34.6
Management fees.................................................... 3,364 4.5 4,458 1.8
--------- --------- ----------- ---------
Total............................................................ $ 75,226 100.0% $ 246,272 100.0%
--------- --------- ----------- ---------
--------- --------- ----------- ---------
</TABLE>
IMPROVEMENT IN PAYOR MIX AND OPERATIONAL PERFORMANCE
The Company's focus on higher acuity patients and increased emphasis on
providing specialty services has enabled the Company to improve its payor mix.
In particular, the percentage of revenues for Medicare has increased from 3.0%
for the fiscal year ended May 31, 1993 to 25.6% for the fiscal year ended
December 31, 1996. The Company's percentages of revenues from various payors are
as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
YEARS ENDED MAY 31, 31,
---------------------------------- ----------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
Medicare................................................ 3.0% 6.3% 12.8% 17.7% 25.6%
Private pay, management fees and other.................. 43.6 20.1 21.7 23.6 30.3
----- ----- ----- ----- -----
46.6 26.4 34.5 41.3 55.9
Medicaid................................................ 53.4 73.6 65.5 58.7 44.1
----- ----- ----- ----- -----
Total............................................... 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
19
<PAGE>
The Company's percentages of census from various payors are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
<S> <C> <C> <C> <C>
1993 1994 1995 1996
--------- --------- --------- ---------
Census data by payor type (1):
Medicare......................................................... 2.4% 3.5% 6.8% 8.6%
Private pay, other............................................... 9.8 14.0 20.8 23.9
--------- --------- --------- ---------
12.2% 17.5% 27.6% 32.5%
Medicaid......................................................... 87.8% 82.5% 72.4% 67.5%
</TABLE>
- ------------------
(1) Census data is computed by dividing total patient days by particular payor
type by total patient days for all payor types.
The Company closely monitors the following key measures of operational
performance at its leased and owned facilities:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
<S> <C> <C> <C> <C>
1993 1994 1995 1996
--------- --------- --------- ---------
Revenue per patient day (1)........................................ -- $87.35 $ 100.30 $ 108.91
Occupancy rate (2)................................................. 96% 97% 96% 92%
Number of rehabilitation therapy contracts (3)..................... 20 25 38 58
Number of rehabilitation therapists (3)(4)......................... 53 94 159 434
Average revenue per rehabilitation contract per month (3).......... $ 57,900 $ 46,600 $ 50,400 $ 52,300
Number of home healthcare offices.................................. -- -- 2 5
</TABLE>
- ------------------
(1) Calculated as net patient service revenues earned at the Company's leased
and owned facilities, divided by total patient days for those facilities.
During the first nine months of 1993, Centennial had only one leased
facility and that facility was located in the District of Columbia. The
District of Columbia's Medicaid reimbursement rate greatly exceeds the
national average.
(2) Occupancy is computed by dividing annual patient day census by annual
patient days available in licensed available operating beds.
(3) Centennial acquired the rehabilitation therapy service provider that was a
party to these contracts and which employed these therapists in the
Transitional Merger, effective December 31, 1995.
(4) Represents therapists (includes licensed therapists and rehabilitation
technicians) employed by the Company. Of the 58 contracts at December 31,
1996, 20 were with the Company's leased and owned facilities.
STRATEGIC ACQUISITIONS
Effective December 31, 1995, the Company acquired all of the issued and
outstanding capital stock of Transitional through the Transitional Merger for
total consideration of approximately $96.8 million, including assumed debt of
approximately $77.8 million. Through the Transitional Merger, the Company added
to its operations 36 skilled nursing facilities with 3,776 beds located in
Arkansas, North Carolina, Indiana, Kentucky and Michigan. Of these 36
facilities, four were owned, 31 were leased and one was managed. In the
Transitional Merger, the Company acquired a contract rehabilitation therapy
business that provides physical, occupational and speech therapy for 38 skilled
nursing facilities in 12 states. The transaction was accounted for as a purchase
and the Company's financial results include Transitional's results since the
date of the Transitional Merger.
At the time of the Transitional Merger, some of Transitional's facilities
were underperforming. During 1995, Transitional's facility operations suffered a
downturn while Transitional was for sale. In conjunction with the Transitional
Merger, the Company closed Transitional's corporate offices, initiated plans to
dispose of two of Transitional's facilities, integrated the Company's
information systems, implemented the Company's management plan and objectives,
realigned the Company's operational structure and regions to complement the
additional facilities and integrated certain key personnel of Transitional into
the Company's management team. As a result, during the second quarter of 1996,
Transitional's facility operations began to stabilize.
20
<PAGE>
Since the Transitional Merger, the Company expanded its operations through
the addition of 11 facility management agreements, the acquisition of two
facilities previously managed by the Company and the lease of a rural hospital
and three home healthcare offices. Each of these transactions has strengthened
the Company's position in its regional markets. In March 1996, the Company
entered into long-term management agreements with NCHC, Inc. ("NCHC") to manage
four of its leased North Carolina facilities with a total of 480 beds. One of
the four facilities, the Oaks at Sweeten Creek ("Sweeten Creek") was under
construction and opened in July 1996. The Company initially began managing these
facilities in November 1995 for the then lessee, Evangeline Healthcare, Inc.
("Evangeline"). NCHC acquired the leasehold interests of three of the facilities
in March 1996 and the remaining facility in July 1996, from an affiliated entity
for approximately $2.8 million.
In July 1996, the Company entered into long-term management agreements with
NC Health Care, Inc. ("NCI") to manage four of its North Carolina facilities
with a total of 328 beds (the "NCI Transaction"). In November 1995, the Company
entered into management agreements with Evangeline on seven of its long-term
healthcare facilities located in North Carolina with a total of 688 beds. In
connection with these agreements, the Company advanced Evangeline $1.2 million,
which was repaid in connection with the NCI Transaction.
In October 1996, the Company acquired substantially all of the assets of a
63 bed long-term healthcare facility located in Hancock, Michigan ("Cypress")
and a 122 bed long-term healthcare facility located in Ishpeming, Michigan
("Mather") for approximately $9.1 million. The Company had managed these
facilities under long-term management contracts for the seller since 1991. These
acquisitions were financed with borrowings under the Prior CoreStates Credit
Facility (as defined below).
In October 1996, the Company entered into a management agreement for a 36
bed hospital with three licensed home healthcare offices based in Blountstown,
Florida ("Calhoun"). Calhoun is located in close proximity to a newly
constructed 81 bed long-term care facility managed by the Company. The Calhoun
transaction allows the Company to strategically leverage its existing operations
and create a continuum of care in the Blountstown community. The Company is
managing Calhoun pending the transfer of necessary licenses, at which time the
Company will operate Calhoun under a long-term lease agreement.
Effective February 1, 1997, the Company assumed the management of a 112 bed
facility located in Farmington Hills, Michigan and a 144 bed facility located in
Novi, Michigan. The management agreement expires on January 31, 2017, with two
ten year renewal options. In addition, the Company has a right of first refusal
to purchase these facilities.
ACCOUNTING FOR ACQUISITIONS
Although Centennial manages four facilities leased by NCHC, Centennial has
made certain advances to NCHC pursuant to long-term notes receivable, which were
used to fund NCHC's purchase of leasehold interests of and working capital
requirements for these facilities, and, for accounting purposes, Centennial has
treated these facilities as if it had acquired the leasehold interests of three
of the facilities in March 1996 and one facility in July 1996, eliminating all
intercompany transactions and balances after these dates. The Company is not,
however, liable for the leases or other obligations of NCHC. The Company
recognized NCHC's leasehold interest purchase price of $2.8 million in its
financial statements, which amount is classified as lease acquisition costs. In
addition, the financial statements reflect the negative operating results of
Sweeten Creek, which did not open until July 1996 and was in its start-up phase.
Although Centennial manages four facilities owned by NCI, Centennial has
made certain advances to NCI pursuant to long-term notes receivable, which were
used to fund NCI's purchase of and working capital for these facilities, and,
for accounting purposes, Centennial has treated these facilities as if it had
acquired the facilities in July 1996, thereby eliminating all intercompany
transactions and balances. The
21
<PAGE>
Company recognized $14.0 million as consideration for these facilities,
including NCI's long-term mortgage debt of approximately $9.0 million.
Centennial is not liable for NCI's obligations, including such mortgage debt.
Centennial has included the operating results of Calhoun in its consolidated
financial statements beginning in October 1996, although the lease agreement for
Calhoun is pending until the transfer of necessary licenses, because the Company
has funded operations and receives all of the operating cash flows.
In December 1996, Centennial assigned its lease of a 130 bed facility
located in Charlotte, North Carolina to an unaffiliated party and entered into a
management agreement with this new lessee. The Company had identified this
facility as a facility held for disposition in connection with the Transitional
Merger. Beginning in January 1997, only management fees will be included in the
Company's financial statements.
ACCOUNTING FOR INCOME/LOSS FROM UNCONSOLIDATED PARTNERSHIPS
Certain former indirect subsidiaries of the Company served as a general
partner of certain unconsolidated partnerships and recorded their share of the
net liabilities of these partnerships at an amount greater than the Company's
proportional ownership interest. The income or loss from the changes in the
partnerships' net liabilities from period to period generated significant
changes in the Company's net income or loss not related to the principal
operations of the Company. Income and losses from these changes in net
liabilities are included in other income (loss) in the Company's Statement of
Operations. The Company's sale of these corporate general partners in January
1997 will eliminate this income and loss going forward. The following pro forma
information excludes the effects of these losses:
<TABLE>
<CAPTION>
YEARS ENDED YEARS ENDED
MAY 31, DECEMBER 31,
-------------------- --------------------
<S> <C> <C> <C> <C>
1994 1995 1995 1996
--------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C>
As reported:
Pre-tax income before income taxes and minority
interest................................................ $ 8,560 $ 6,182 $ 3,466 $ 4,470
Net income................................................ 5,389 3,725 1,876 2,437
Income (loss) from unconsolidated partnerships.............. 4,272 366 449 (108)
Pro forma:
Pre-tax income before income taxes and minority
interest................................................ 4,288 5,816 3,017 4,578
Net income................................................ 2,699 3,634 1,607 2,500
</TABLE>
In January 1997, the Company sold the stock of these former indirect
subsidiaries that served as general partners and recognized a net pre-tax loss
of approximately $250,000 on these sales in 1996 for financial statement
purposes.
CERTAIN NONRECURRING CHARGES
During 1996, the assimilation of the Transitional's operations and financial
structure with the Company resulted in additional expenses to the Company. The
closing of Transitional's Louisville, Kentucky corporate office was completed in
April 1996.
In connection with Sweeten Creek, a start-up facility, the Company's 1996
results include pre-tax losses of approximately $500,000 generated by that
facility. The start-up phase for the Sweeten Creek facility should be completed
and the operating results stabilized in 1997.
22
<PAGE>
In 1995, the Company wrote-off approximately $670,000 in uncollectible 1995
and prior year advances to a facility no longer managed by the Company. Also in
1995, the Company increased its general reserves for patient accounts receivable
by $600,000, wrote-off capitalized transactional costs of approximately $350,000
and increased certain accrued expense reserves by approximately $300,000.
In December 1996, the Company replaced its Prior CoreStates Credit Facility
with an expanded $65.0 million Senior Credit Facility placed with multiple
lenders whose senior coordinating syndicate bank is CoreStates. With a portion
of the proceeds of the Senior Credit Facility, the Company repaid both its
existing borrowings outstanding under its Prior CoreStates Credit Facility and
the medical claims facility and short-term loan with Heller Financial, Inc.
assumed in connection with the Transitional Merger (the "Heller Line"). The
repayment of the Heller Line resulted in a one-time charge of approximately
$160,000 related to the write-off of loan closing costs.
RESULTS OF OPERATIONS
The following table sets forth certain consolidated financial data included
in the Company's consolidated statements of income, as a percentage of total net
revenues for the two years ended May 31, 1994 and 1995 and the two years ended
December 31, 1995 and 1996.
<TABLE>
<CAPTION>
YEARS ENDED YEARS ENDED
MAY 31, DECEMBER 31,
-------------------- --------------------
STATEMENT OF OPERATIONS DATA: 1994 1995 1995 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net patient service revenues................................................ 91.8% 94.8% 95.5% 98.2%
Management fee and other revenues........................................... 8.2 5.2 4.5 1.8
--------- --------- --------- ---------
Total revenues............................................................ 100.0 100.0 100.0 100.0
Facility operating expenses................................................. 71.1 74.9 77.9 79.3
Lease expense............................................................... 11.6 10.6 10.2 8.1
Corporate administrative costs.............................................. 7.1 5.2 6.7 4.6
Depreciation and amortization............................................... * * 1.0 2.2
--------- --------- --------- ---------
Operating income before net interest expense and equity in income (loss)
of unconsolidated partnerships.......................................... 10.0 8.8 4.2 5.8
Interest income (expense), net.............................................. * * * (4.0)
Equity in income (loss) of unconsolidated partnerships...................... 10.3 * * *
--------- --------- --------- ---------
Income before income taxes and minority interest.......................... 20.6 9.5 4.6 1.8
Provision for income taxes.................................................. 7.6 3.5 1.8 *
Income (loss) before minority interest...................................... 13.0 6.0 2.8 1.1
--------- --------- --------- ---------
Minority interest in net income of subsidiary............................... * * * *
Net income.................................................................. 13.0% 5.7% 2.5% 1.0%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
- --------------
* Less than 1.0%
YEARS ENDED DECEMBER 31, 1996 AND 1995
NET PATIENT SERVICE REVENUES. Net patient service revenues increased from
$71.9 million in 1995 to $241.8 million in 1996, an increase of $169.9 million
or 236.3%, of which $146.8 million was attributable to the Transitional Merger,
$18.7 million was attributable to other acquisitions, and $4.4 million was
attributable to growth in existing facility revenues that resulted primarily
from a shift in payor mix from Medicaid to Medicare and general rate increases.
Occupancy levels at the Company's existing facilities in 1996 experienced
changes as compared to 1995 as a result of the Transitional Merger.
MANAGEMENT FEE AND OTHER REVENUES. Management fee and other revenues
increased from $3.4 million in 1995 to $4.5 million in 1996, an increase of $1.1
million or 32.4%, of which approximately $500,000 was attributable to the
addition of two management agreements, one of which was acquired in the
Transitional Merger. An additional $400,000 of the increase was attributable to
the recognition of
23
<PAGE>
management fees for a portion of 1996 for seven facilities, as compared to only
two months of recognized management fees in 1995 for those facilities. The
remaining increase resulted from increased revenues over the prior year in the
Company's existing managed facilities.
FACILITY OPERATING EXPENSES. Facility operating expenses increased from
$58.6 million in 1995 to $195.2 million in 1996, an increase of $136.6 million
or 233.1% of which approximately $123.9 million was attributable to the
Transitional Merger. On a consolidated basis, expenses incurred by the Company's
therapy business acquired in connection with the Transitional Merger are
eliminated.
CORPORATE ADMINISTRATIVE COSTS. Corporate administrative costs increased
from $5.0 million in 1995 to $11.4 million in 1996, an increase of $6.4 million
or 128.0%, of which approximately $3.5 million resulted from overhead related to
the Company's acquired rehabilitation contract therapy business. The remaining
$2.9 million was primarily attributable to the integration of Transitional and
the addition of corporate personnel.
LEASE EXPENSE. Lease expense increased from $7.7 million in 1995 to $19.9
million in 1996, an increase of $12.2 million or 158.4% of which approximately
$10.3 million was attributable to the Transitional Merger, and a portion of the
remaining increase was attributable to the Company's relocation and expansion to
its new corporate offices and sublease of its previous space.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased from $738,000 in 1995 to $5.4 million in 1996, an increase of $4.7
million of which approximately $3.9 million was attributable to the Transitional
Merger. The remaining amount was attributable to acquisitions and general
corporate costs.
INTEREST EXPENSE. Interest expense increased from $590,000 in 1995 to $10.5
million in 1996, an increase of $9.9 million of which approximately $8.4 million
was attributable to the Transitional Merger (whereby the Company assumed
approximately $77.8 million in debt), and the remainder was attributable to
additional borrowings and general corporate purposes.
PROVISION FOR INCOME TAXES. The Company's effective tax rate increased from
40.1% in 1995 to 41.4% in 1996, an increase of 1.3%. This increase was primarily
attributable to the Company expanding its operations into additional states.
YEARS ENDED MAY 31, 1995 AND 1994
NET PATIENT SERVICE REVENUES. Net patient service revenues increased from
$38.1 million in 1994 to $61.9 million in 1995, an increase of $23.8 million or
62.6%. Of this $23.7 million increase, $9.5 million was attributable to the
addition during 1995 of two leased facilities and one owned facility.
Approximately $14.2 million of this increase was due to the addition during 1994
of 13 leased facilities having only a partial year of revenue in 1994, growth in
existing facility revenues that resulted primarily from a shift in payor mix
from Medicaid to Medicare and general rate increases. Census levels in the
Company's existing facilities in 1995 experienced no significant changes as
compared to 1994.
MANAGEMENT FEE AND OTHER REVENUES. Management fee and other revenues
remained substantially unchanged at $3.4 million.
FACILITY OPERATING EXPENSES. Facility operating expenses increased from
$29.5 million in 1994 to $48.9 million in 1995, an increase of $19.4 million or
65.8%. Of this $19.4 million increase, $7.8 million was attributable to the
addition of two leased facilities and one owned facility. Approximately $11.6
million of this increase was attributable to the addition of 13 leased
facilities having only a partial year of operating expense in 1994 and
additional facility operating expenses associated with increased Medicare
census.
CORPORATE ADMINISTRATIVE COSTS. Corporate administrative costs increased
from $2.9 million in 1994 to $3.4 million in 1995, an increase of approximately
$500,000 or 17.2%, which was attributable to an increase in corporate staffing,
increased acquisition expenses and normal wage increases.
24
<PAGE>
LEASE EXPENSE. Lease expense increased from $4.8 million in 1994 to $6.9
million in 1995, an increase of $2.1 million or 43.8%. Of this $2.1 million
increase, $900,000 was attributable to the addition during 1995 of two leased
facilities. Approximately $1.2 million of this increase was attributable to the
addition of 13 leased facilities which had only a partial year of lease expense
in 1994.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased from $82,000 in 1994 to $290,000 in 1995, an increase of $208,000
which was attributable primarily to the Company's consolidation of a limited
partnership beginning in December 1994.
INTEREST EXPENSE. Interest expense increased from $32,000 in 1994 to
$325,000 in 1995, an increase of $293,000, which was attributable to the
Company's consolidation beginning in December 1994 of a limited partnership.
PROVISION FOR INCOME TAXES. The Company's effective tax rate increased to
37.6% in 1995 from 37.1% in 1994. This increase was due primarily to an increase
in state taxes attributable to changes in the allocation of the Company's income
amount in certain states in which it operates.
SELECTED QUARTERLY OPERATING RESULTS
The following table sets forth certain unaudited quarterly operating results
for 1995 and 1996. The Company believes that this unaudited information has been
prepared on the same basis as the annual financial statements and includes all
adjustments necessary for a fair presentation of the information for the
quarters presented when read in conjunction with the Consolidated Financial
Statements included elsewhere in this Prospectus. The operating results for any
quarter are not necessarily indicative of results for any subsequent quarter.
The Company's results of operations are not significantly affected by
seasonality factors. The Company has excluded the effect of equity in income or
loss from unconsolidated partnerships in this presentation. Results of
operations for any particular quarter are not necessarily indicative of results
of operations for a full year or any other quarter.
<TABLE>
<CAPTION>
1995 1996
------------------------------------------ ------------------------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Total revenues.................... $ 18,217 $ 18,605 $ 19,007 $ 19,397 $ 55,935 $ 58,624 $ 62,999 $ 68,714
Operating income before net
interest expense and equity in
income (loss) of unconsolidated
partnerships..................... 724 767 1,013 690 1,989 4,028 3,465 4,912
Income (loss) before income taxes
and minority interest............ 692 738 977 1,059 (99) 1,771 872 1,926
Net income (loss)................. 371 377 524 604 (86) 993 456 1,074
</TABLE>
During the first quarter of 1996, the Company's total revenues were
positively impacted as a result of the Transitional Merger, which added 35 owned
or leased facilities and one managed facility to the Company's operations. As a
result, total revenues increased from $19.4 million for the quarter ended
December 31, 1995 to $55.9 million for the quarter ended March 31,1996. Some of
the Transitional facilities were experiencing significant operating losses at
the time of the Transitional Merger and, as a result, income before income taxes
and minority interest was adversely affected during the quarter ended March 31,
1996. By the end of the quarter ended June 30, 1996, the operations of the
facilities added in the Transitional Merger began to stabilize.
The Company's operating results were negatively impacted during the quarter
ended September 30, 1996 as a result of the addition of five new North Carolina
facilities, one in an initial start-up phase.
25
<PAGE>
During the quarter ended December 31, 1996, the Company acquired two
long-term care facilities, previously managed by the Company and assumed the
operations of a rural hospital with home healthcare offices. In addition,
operations and occupancy improved at the five North Carolina facilities and
operations improved at the Transitional facilities. As a result, total revenues
increased from $63.0 million for the quarter ended September 30, 1996 to $68.7
million for the quarter ended December 31, 1996 and operating income before
income taxes and minority interest and net income increased significantly.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of cash have been cash flow from operations,
proceeds from the sales of its preferred stock and borrowings under its credit
facilities, including the Senior Credit Facility. Cash has been used by the
Company for the acquisition of long-term facilities, capital improvements at
several existing facilities and the day-to-day operations of the Company's
business. The Company anticipates that continued growth will be accomplished
through the operation of additional long-term care facilities, the acquisition
of related service providers, the improved operations of its existing facilities
and the development of specialty services in certain metropolitan and secondary
markets served by its facilities.
The Company believes its operating cash flows should be sufficient to fund
its operations during the next year, however, the impact of acquisitions,
expansion of specialty services and reimbursement policy changes made by federal
and state programs could have a significant impact on the Company's operating
cash flows.
As of December 31, 1996, the Company had future minimum annual operating
commitments under existing facility leases and related equipment and office
leases of approximately $217.4 million over the next 15 years, including
approximately $22.2 million for 1997. The Company expects to satisfy these
commitments with funds generated by the operations of its leased facilities.
During the next 12 months, the Company plans to perform capital improvements
at some of its owned and leased facilities for expansion of specialty services
and general improvements to its existing facilities. These improvement projects
will be funded from cash flow from operations, cash reserves, restricted cash
and borrowings under the Senior Credit Facility.
On December 18, 1996, Centennial entered into the Senior Credit Facility
with certain lenders and CoreStates, as agent for the lenders. This Senior
Credit Facility provides for advances to the Company up to a maximum of $65.0
million evidenced by promissory notes from the Company, which replaced and
superceded the notes relating to Centennial's prior $25.0 million secured
revolving credit facility with CoreStates (the "Prior CoreStates Credit
Facility"). Subject to certain restrictions, advances may be used solely for (i)
working capital needs, (ii) capital expenditures and general corporate purposes,
(iii) reimbursement of draws under letters of credit subject to the Senior
Credit Facility, (iv) financing permitted acquisitions, (v) advancing working
capital financing to parties to management agreements with the Company, (vi)
repaying the Company's prior medical claims revolving credit facility and a
prior short-term loan agreement with Heller Financial, Inc., and (vii)
refinancing the Company's Prior CoreStates Credit Facility. The Senior Credit
Facility is payable in 15 quarterly payments commencing on March 31, 1999, with
the balance payable in full on or before September 30, 2002, if not earlier
accelerated. The Senior Credit Facility provides for varying interest rates
applicable at the time of each advance. The Company can elect a rate tied to
either the prime rate of CoreStates or LIBOR, increased in each case by the
"applicable margin," as defined in the Senior Credit Facility, which is
dependent upon the ratio of debt to earnings before interest, taxes,
depreciation, amortization and operating lease expense. The Company has
approximately $47 million currently outstanding under the Senior Credit Facility
bearing interest at a blended rate of 8.1% per annum. Certain events, including
the Offering,
26
<PAGE>
require mandatory repayments, however, amounts repaid before December 18, 1998
may be reborrowed. The Senior Credit Facility is subject to customary covenants
and restrictions including requirements that the Company continue to meet
certain financial ratios. Failure to meet such ratios would limit the
availability of the proceeds of the Senior Credit Facility for the Company's
use. In addition, an event of default occurs if Mr. Eaton ceases to own at least
10.0% of the outstanding Common Stock or ceases to serve as the Company's Chief
Executive Officer or if any person other than Mr. Eaton; South Atlantic Venture
Fund II, Limited Partnership; South Atlantic Venture Fund III, Limited
Partnership; or WCAS VI or its affiliates or related entities owns more than
10.0% of the outstanding Common Stock.
In certain instances, Centennial provides advances for working capital to
the owners or lessees of facilities that it manages. These advances are in most
cases subordinate to the repayment of debt on the facilities and therefore the
Company is at risk for the amounts advanced. The Company uses the Senior Credit
Facility to fund such advances. At December 31, 1996, Centennial had advanced
$8.5 million pursuant to such arrangements to NCHC and NCI which are
consolidated in the Company's financial statements.
At December 31, 1996, the Company had $18.1 million of Facility Debt
outstanding on five of its owned facilities. This Facility Debt requires monthly
payments of principal and interest of approximately $170,000. Remaining terms of
these debt agreements range from two to 25 years with amortization periods of 20
to 25 years. Interest rates on the Facility Debt ranged from 8.8% to 10.5% as of
December 31, 1996. Approximately $4 million of the Facility Debt matures in 1997
and the Company expects to refinance this debt at or before maturity. The
Company believes it will be able to repay or refinance this and other mortgage
obligations on its facilities as they come due, however, there can be no
assurance that the Company will be able to repay such amounts or be successful
with respect to any such refinancing. The Company intends to repay approximately
$5 million of Facility Debt with a portion of the proceeds of the Offering.
In January 1997, the Company received $10.0 million as proceeds from the
issuance of the Series D Preferred Stock and units of Series E Redeemable
Preferred Stock and Common Stock. These proceeds are available to the Company
for acquisitions and working capital. The Company plans to use a portion of the
proceeds of the Offering to redeem the Series E Redeemable Preferred Stock and
the Series D Preferred Stock will be converted into Common Stock on the closing
of the Offering.
The aggregate consideration for the Potential Transactions will be
approximately $14 million, comprised of $2 million of convertible debt and $12
million in cash, to be funded by cash reserves and borrowings under the Senior
Credit Facility.
Centennial believes that the net proceeds from the Offering, together with
the funds available under the Senior Credit Facility, cash on hand and cash flow
from its operations, will be sufficient to meet its working capital needs and to
finance anticipated growth over the next 12 months.
INFLATION
The healthcare industry is labor intensive, with wages and other labor
related costs especially sensitive to inflation. Certain of Centennial's other
expense items, such as supplies and real estate costs, are also sensitive to
inflationary pressures. Shortages in the labor market or general inflationary
pressure could have a material adverse effect on the Company. In addition,
suppliers generally pass along rising costs to the Company in the form of higher
prices. When faced with increases in operating costs, the Company seeks to
increase its charges for services and its requests for reimbursement from
government programs. In certain markets, Centennial's private pay customers and
third-party reimbursement sources may be less able to absorb increased prices
for the Company's services. As a result, the Company's operations could be
adversely affected if it is unable to recover future cost increases or
experiences significant delays in increasing rates of reimbursement of its labor
or other costs from Medicare and Medicaid revenue sources.
27
<PAGE>
BUSINESS
THE COMPANY
Centennial HealthCare Corporation is a leading provider of a broad range of
long-term healthcare services to meet the medical needs of elderly and
post-acute patients. The Company provides these services through geographically
concentrated networks located in metropolitan and secondary markets throughout
the United States. Centennial currently operates 78 owned, leased and managed
skilled nursing facilities with 8,369 beds in 19 states, with its largest
concentration of facilities in North Carolina, Indiana and Michigan. The Company
provides basic and specialty healthcare services. Basic services include skilled
nursing and support, housekeeping, laundry, dietary, recreational and social
services. Specialty services include comprehensive rehabilitation therapy
(including physical, occupational and speech therapy), respiratory therapy,
ventilator care, infusion therapy, wound care, home healthcare and other
subacute and specialty services. As a component of its specialty services,
Centennial currently provides rehabilitation therapy services on a contract
basis to third-party and Company-operated skilled nursing facilities in 13
states pursuant to 58 contracts.
Centennial's objective is to continue to enhance its market position as a
leading provider of long-term basic and specialty services in selected
metropolitan and secondary markets. The Company seeks to control significant
components of the non-acute healthcare system in its markets thereby
diversifying its sources of revenue and positioning itself to respond to the
requirements of a variety of payors. In addition, the Company seeks to increase
the range of services it provides within its facilities and tailors its
healthcare services to address the specific needs within each of its markets. To
meet its objective, the Company is pursuing the following strategies: (i)
achieve operating leverage through the continued development of regionally
concentrated networks; (ii) implement market-specific operating plans in
response to the diverse needs of the Company's metropolitan and secondary
markets; (iii) emphasize specialty services to enhance the Company's position as
a broad-based provider of healthcare services; (iv) manage operations through
sophisticated information systems that enhance efficiency; and (v) pursue
strategic acquisitions of long-term care facilities and related service
providers.
Over the last three years, the Company has aggressively grown its operating
base both through acquisitions and internal growth. Revenues increased from
$41.5 million for the fiscal year ended May 31, 1994 to $246.3 million for the
fiscal year ended December 31, 1996, representing a compounded annual growth
rate of 99.2%. Licensed available beds increased from 3,470 to 8,113 during the
same period, representing a compounded annual growth rate of 38.9%. The
Company's revenue quality mix (Medicare, private pay, management fees and other)
improved from 41.3% for the fiscal year ended December 31, 1995 to 55.9% for the
fiscal year ended December 31, 1996, and the Company's revenues from specialty
services increased from 15.1% for the fiscal year ended December 31, 1995 to
34.6% for the fiscal year ended December 31, 1996, reflecting the Company's
focus on providing specialty services to higher acuity patients.
ACQUISITIONS AND POTENTIAL TRANSACTIONS
As part of its growth strategy, the Company regularly reviews possible
acquisitions in the long-term care continuum. Effective December 31, 1996, the
Company completed an important strategic acquisition by merging with
Transitional. Since the Transitional Merger, the Company expanded its operations
through the addition of 11 facility management agreements, the acquisition of
two facilities previously managed by the Company and the lease of a rural
hospital and three home healthcare offices. Each of these transactions has
strengthened the Company's position in its regional markets.
Centennial is currently pursuing the Potential Transactions pursuant to
non-binding letters of intent. In connection with the proposed Home Health
Acquisition, the Company entered into a letter of intent on February 27, 1997,
to acquire the operations of a home healthcare provider. If completed, this
acquisition would increase Centennial's home healthcare visits by over 300,000
annually from its current
28
<PAGE>
level of approximately 42,000 annualized visits. In connection with the Therapy
Acquisition, Centennial entered into a letter of intent on February 15, 1997, to
acquire the assets of a rehabilitation therapy company providing physical,
occupational and speech therapy services. If this acquisition is completed,
Centennial will add approximately 50 therapy contracts. With respect to the
Facility Transaction, the Company entered into a letter of intent on February
19, 1997, to manage a long-term care facility providing nursing home and
hospital services. If this transaction is completed, Centennial would receive a
management fee based on the facility's gross revenues and would provide an
advance for working capital needs pursuant to a management agreement and a loan
agreement. The Potential Transactions, if consummated, would allow the Company
to increase its range of services in markets in which the Company already has a
strong operating presence. There can be no assurance, however, that the parties
will negotiate definitive agreements or receive the consents or approvals
necessary for any or all of these transactions to be completed. See "Risk
Factors -- Risks Associated with Acquisition Strategy."
THE LONG-TERM CARE INDUSTRY
The long-term care industry provides a broad range of services to post-acute
patients and patients with medically complex and special needs who do not
require treatment in an acute care hospital setting. Long-term care facilities
offer basic services, which include skilled nursing and support, housekeeping,
laundry, dietary, recreational and social services. In addition, long-term care
facilities may provide a broad range of specialty services such as comprehensive
rehabilitation therapy (including physical, occupational and speech therapy),
respiratory therapy, ventilator care, infusion therapy, wound care, home
healthcare, tracheostomy care, pharmaceutical services, Alzheimer's care and
other specialty services. Long-term care facilities are increasingly becoming an
integral part of community-based, vertically-integrated extended care delivery
systems that are capable of providing a full range of traditional basic care and
specialty services.
In recent years, long-term care services have experienced significant
growth. According to industry sources, revenues in the long-term care industry
have increased from approximately $18 billion in 1980 to approximately $80
billion in 1995. Continuing growth of the industry has been driven by a number
of factors, including: (i) aging of the population; (ii) cost-containment
pressures that are driving post-acute patients from acute care hospitals to
lower-cost settings such as long-term care facilities; (iii) advances in medical
technology enabling sophisticated long-term care providers to care for higher
acuity patients; and (iv) demand for post-acute and specialty services in
secondary markets.
The Company believes that the following industry trends will continue to
provide opportunities for the Company to grow and enhance its profitability:
AGING POPULATION. According to the U.S. Bureau of the Census, approximately
90% of all patients in long-term care facilities are persons over 65 years of
age, and this age group has been growing significantly faster than the overall
population. The over 65 age group suffers from a greater incidence of chronic
illness and disabilities than other age groups and currently accounts for more
than two-thirds of total healthcare expenditures in the United States. As the
number of Americans over age 65 increases, the need for long-term care services
is also expected to increase. The U.S. Bureau of the Census estimates that the
U.S. population over age 65 will increase from approximately 31 million in 1990
to approximately 35 million in 2000. In particular, the segment of the U.S.
population over 85 years of age, which comprises 45% to 53% of residents at
long-term care facilities nationwide, is projected to increase by more than 33%,
from approximately 3 million in 1990, to more than 4 million in 2000.
COST-CONTAINMENT PRESSURES. In response to rising costs, government and
private pay sources have implemented cost-containment measures designed to
reduce lengths of stay in acute care hospitals. As a result, the average length
of hospital stays has been decreased, thereby increasing the number of patients
discharged from acute care hospital settings who require continuing medical
care. Long-term care facilities represent an attractive alternative setting for
these discharged patients because many of the
29
<PAGE>
post-acute services required by patients can be provided on a cost-effective
basis by clinically sophisticated long-term care providers.
ADVANCES IN MEDICAL TECHNOLOGY. The increasing availability of advanced
medical technology has increased life expectancies and enhanced the ability of
long-term providers to offer, on a cost-effective basis, quality services
previously provided only by acute care hospitals. As a result, a growing number
of higher-acuity patients with specialized needs can be treated in long-term
care settings.
DEMAND FOR POST-ACUTE AND SPECIALTY SERVICES IN SECONDARY MARKETS. A major
challenge for persons requiring medical care in secondary markets is the
distance that often exists between a patient's home and regional centers that
offer primary care, rehabilitation therapy and other specialty services.
Individuals residing in secondary markets in need of services are often left
with the choice of temporarily or permanently relocating, spending extended
periods of time away from their families or commuting significant distances. As
a result, the provision of post-acute and specialty services in secondary
markets represents a significant opportunity for the long-term care industry to
grow and enhance profitability.
INDUSTRY CONSOLIDATION
The long-term care industry is undergoing consolidation as providers seek to
build market share and compete more effectively. Current ownership of long-term
care facilities is highly fragmented, with approximately 70% of all facilities
owned by independent providers or companies operating less than 20 facilities.
The increased burdens of various cost-containment measures, increasing acuity of
long-term care patients and increasing complexity of government regulation pose
significant challenges to long-term care providers that lack sophisticated
information systems, breadth of management experience and economies-of-scale.
Small providers with limited access to capital and an inability to provide
specialty services to higher acuity patients are finding it difficult to compete
against larger regional and national providers. In addition, there is a limited
supply of long-term care facilities due to the following factors: (i) state CON
legislation, which restricts the number of facilities that can be constructed
within a market; (ii) high construction costs; (iii) limitations on government
reimbursement for the full cost of construction; and (iv) extensive start-up
expenses. As a result of these factors, providers that have a strong reputation
within the community for providing high quality service have become attractive
acquisition targets for providers seeking to reach critical mass.
BUSINESS STRATEGY
Centennial's objective is to continue to enhance its position as a leading
provider of basic and specialty services in both metropolitan and secondary
markets within its established regions. To achieve this objective, the Company
will focus on the following strategies:
- Achieve Operating Leverage Through Regional Development
- Implement Market-Specific Operating Plans
- Emphasize Specialty Services
- Use Information Technology to Manage Operations
- Pursue Strategic Acquisitions
ACHIEVE OPERATING LEVERAGE THROUGH REGIONAL DEVELOPMENT. The Company's
expansion efforts to date have been structured to integrate additional
facilities and services within nine regions. By focusing on regional
development, the Company is well-positioned to manage facility operations,
allocate managerial and administrative costs over a larger revenue base,
capitalize on its reputation in existing markets, provide more effective
training of facility personnel and closely monitor the implementation of
facility specific operating plans. The Company's regional structure allows it to
successfully build the critical mass necessary to create networks for providing
specialty services on a direct basis and successfully contract with managed care
and other third-party payors.
30
<PAGE>
IMPLEMENT MARKET-SPECIFIC OPERATING PLANS. The Company tailors its services
based on the needs of each market. In its metropolitan markets, the Company
generally focuses on providing a specific range of services and enhances market
share by integrating its operations with those of recognized delivery networks
and other providers. In secondary markets, the Company's goal is to play a
leading role in local delivery of healthcare by providing a broader range of
services. In order to adapt itself to potential changes in third-party payment
methodologies and the growth of various forms of prospective payment systems,
the Company seeks, in certain secondary markets, to provide many significant
components of care within integrated healthcare networks and to manage the flow
of patients to the most appropriate, cost-effective site of care. The continued
formation of these integrated healthcare networks will position the Company to
respond to prospective payment systems or other managed care systems.
EMPHASIZE SPECIALTY SERVICES. The Company provides a broad range of
specialty services including comprehensive rehabilitation therapy (including
physical, occupational and speech therapy), respiratory therapy, ventilator
care, infusion therapy, wound care, home healthcare and other subacute and
specialty services at certain of its facilities and continues to expand its
program of outpatient and home healthcare services. In addition, the Company
intends to emphasize growth and expansion of its third-party physical,
occupational and speech therapy services. The Company believes the
implementation and expansion of such services will allow the Company's
facilities to serve as full-service providers of specialty services to patients
in its markets.
USE INFORMATION TECHNOLOGY TO MANAGE OPERATIONS. The Company believes its
management information systems distinguish it from its competitors and enable it
to gain significant operational efficiency. The ability to generate "real-time"
operating data is becoming increasingly critical for success in the long-term
care industry. The Company has expended significant resources in the development
of these information tools and has placed a high priority on developing systems
to assess patient care, track financial and operational controls, analyze labor
utilization and monitor reimbursement. In addition, the Company's information
technology enables it to integrate acquired facilities or operations on a timely
and cost-effective basis with minimal disruption to operations and positions the
Company to efficiently operate in a managed care environment. See "Business --
Management Information Systems."
PURSUE STRATEGIC ACQUISITIONS. The Company targets for acquisition
facilities, operating companies and related businesses that have the capacity to
be leading providers of healthcare services to higher-acuity patients in their
respective markets and that represent opportunities for the Company to realize
additional operating leverage through regional operating efficiencies. In
addition to outright purchases, the Company enters into lease or management
agreements with certain facilities which generally include a right of first
refusal to purchase the facilities. In many cases, these arrangements present
the Company with excellent acquisition opportunities following the
implementation of the Company's operating strategies which enhance facility
profitability. In addition to facility acquisitions, the Company seeks to expand
the rehabilitation therapy services, pharmacy and home healthcare segments of
its operations through the purchase of businesses offering such specialty
services. See "Business -- Acquisition Opportunities."
PATIENT SERVICES
BASIC SERVICES
Basic services are those traditionally provided to elderly patients in
long-term care facilities, including skilled nursing and support, housekeeping,
laundry, dietary, recreational and social services. The Company provides 24-hour
skilled nursing care by registered nurses, licensed practical nurses and
certified nursing aides in all of its facilities. Each facility is managed by a
licensed administrator who is responsible for the day-to-day operation of the
facility. Although treatment of patients is the responsibility of their own
attending physicians, who are not employed by the Company, each facility engages
a physician medical director who monitors all aspects of the delivery of care.
In addition, each facility offers
31
<PAGE>
a number of individualized therapeutic activities designed to enhance the
quality of life of its patients. These activities include entertainment events,
musical productions, trips, arts and crafts, volunteer and other programs that
encourage social interaction among patients as well as community involvement.
SPECIALTY SERVICES
Specialty services are those provided to patients with medically complex
needs, who generally require more complex treatment and a higher level of
skilled nursing care. These services typically generate higher revenues per
patient day than basic services as a result of the higher cost associated with
treating a higher acuity patient. The Company intends to expand the scope and
range of its specialty services in order to further enhance revenues,
profitability and the reputation of its facilities for providing comprehensive
quality care. Set forth below are descriptions of the specialty services offered
by the Company.
REHABILITATION THERAPY. The Company provides a broad range of
rehabilitation therapy services to its facilities and other third-party
providers. These services include physical, occupational and speech therapy in
the long-term care facility setting. As of March 1, 1997, the Company has
contracted to provide rehabilitation therapy services to patients in 20 of its
owned or leased facilities, 11 of its managed facilities and 27 non-affiliated
long-term care facilities.
SUBACUTE CARE. Since 1993, the Company has developed its subacute care
program in which distinct units within certain of its long-term care facilities
are dedicated to the care of medically complex patients who do not require the
services of an acute care hospital. Subacute services provided or arranged by
the Company's facilities include, but are not limited to, ventilator care,
respiratory care, traumatic injury recuperation, post-cardiac rehabilitation,
HIV care, IV therapy, wound care, post-stroke care, hospice care, post-surgical
orthopedic rehabilitation and perontoneal dialysis services. An important aspect
of providing these services is the establishment of relationships with local
healthcare providers, including hospitals, physicians and other acute care
providers in order to strategically position the Company's facilities in their
markets. The Company believes that there is significant demand for subacute care
and that this segment of the market offers continued opportunities for
integrating services.
HOME HEALTHCARE. Centennial operates five home healthcare offices,
affording the recipients of such care an alternative to a hospital or long-term
care facility setting. Such services delivered into the home setting include
skilled nursing, physical, occupational and speech therapy and subacute care. In
addition, personal care services are available from home healthcare aides who
assist patients with their activities of daily living. The Company may acquire
additional home healthcare services in its markets, including the Home Health
Acquisition. See "Business -- Acquisitions and Potential Transactions."
OPERATIONS
GENERAL. The Company's facilities are organized into nine operating regions
and the Company's organizational structure and operations support staff provide
its facilities with the resources needed to operate effectively in these
regions. The operations of the facilities in each region are directed by a
regional director who reports directly to one of two Divisional Vice Presidents
who in turn report to the Executive Vice President of Operations. Each region
has a nurse consultant with responsibility for providing guidance on patient
care issues, conducting quality assurance audits, training in clinical software
and assuring compliance with applicable state and federal regulations. The
Company provides additional operational support through a corporate team of
professionals in financial accounting, reimbursement, managed care pricing,
quality assurance, human resources, regulatory compliance, marketing, health
systems development and other areas. This support allows each facility to
deliver high quality nursing care and specialty services, attain and retain
quality skilled employees, maximize reimbursement from third-party payors,
market expanded services, and maximize operating results.
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<PAGE>
For all of its facilities, the Company actively manages personnel costs,
which represent the largest expense incurred in the operation of a long-term
care facility. The Company emphasizes attracting and retaining quality
personnel, including administrators and skilled nursing staff, through a number
of programs which include on-going training and education classes, employee
recognition programs, and competitive wages and benefits. In addition, the
Company has an incentive program for administrators based on the achievement of
certain Company goals related to quality of care and financial performance. As
the trend of nursing facilities accepting patients with medically complex care
issues continues, on-going training and other programs designed to enhance
employee skills and retention will prove increasingly important in allowing the
Company's facilities to provide for these types of patients.
QUALITY ASSURANCE AND REGULATORY COMPLIANCE. The Company has developed a
comprehensive quality assurance program that is designed to monitor, evaluate
and improve the delivery of patient care. This program is supervised by a
registered nurse, who serves as the Company's director of professional services.
Pursuant to its quality control system, the Company routinely collects
information from patients, family members, employees and state survey agencies
that is then compiled, analyzed and distributed throughout the Company in order
to monitor the quality of care and services provided and the satisfaction of the
residents and their families with such services.
MARKETING. The Company's in-house marketing department works directly with
its facilities in their efforts to market services in their respective
communities. The emphasis of the Company's marketing department is to assist
each facility in achieving a desired quality mix of revenues through increased
Medicare, private and managed care census. The Company works with each facility
to establish monthly, quarterly and annual census and payor mix goals and each
facility is responsible for an on-going marketing plan. The Company's Vice
President of Marketing directs the efforts of its marketing support team, which
provides guidance in conducting competitive positioning assessments and needs
analyses, and developing goal-oriented marketing plans, as well as providing
assistance with media relations.
The Company's marketing efforts are concentrated at the local level to allow
each facility to promote its specific services as related to the needs of its
community. At most of the Company's facilities, the admissions staff is
responsible for marketing the facility's services to physicians, discharge
planners, individual patients and their families, and community referral
sources. Based on the market and patient acuity mix, a facility may employ a
case manager or marketing director to assist in the promotion of services to
managed care organizations, as well as other referral sources.
The Company focuses on securing relationships with managed care
organizations and insurance carriers in the markets served by its facilities. At
present, many of the Company's facilities have contractual relationships with
such organizations. The Company's emphasis on attracting and securing such
relationships with these network providers will continue to be an important part
of its growth strategy.
MANAGEMENT INFORMATION SYSTEMS
The Company's Chief Information Officer develops, implements and maintains a
comprehensive system of management and financial controls which is designed to
enable the Company to closely monitor operating costs and quickly distribute
financial and other operational information to appropriate levels of management.
Each facility utilizes PC-based, networked computer systems for processing
operating data on a "real-time" basis as well as financial and patient care
data. The Company has established an internal network linking its facilities,
operating subsidiaries, regional managers and nurse consultants with its
corporate computer network.
The Company utilizes commercially available as well as internally developed
software in its information systems. The Company has established on-line
electronic billing with Medicare as well as with several state Medicaid programs
and produces interim cost reports for Medicare and certain state Medicaid
programs. In addition, at each facility, the system generates computer-assisted
medical records
33
<PAGE>
that allow for the creation of individualized care plans, physician orders and
administrative and observation records.
The Company's information systems are easily adaptable to newly acquired
facilities and related companies. The Company was able to fully integrate its
financial information systems into the 36 facilities acquired through the
Transitional Merger and to expand each facility's management information system
through training and program implementation over a six-month period. The
Company's ability to convert acquired facilities quickly to its management
information system enables management to significantly impact each facility's
financial and operating performance within a short period of time.
ACQUISITION OPPORTUNITIES
The Company maintains an active acquisition program in order to increase its
penetration of existing regions and to capitalize on the consolidation trends in
the long-term care industry. The Company pursues the acquisition and development
of long-term care facilities and specialty services providers that complement
and expand the ongoing operations of the Company. The Company evaluates
potential acquisitions on the basis of existing profitability, long-term profit
potential, specialty services opportunities, facility location, payor mix and
patient census. Specifically, the Company targets facilities that have the
capacity to be leading providers of higher acuity services in their respective
markets and that represent opportunities for the Company to realize additional
operating leverage through regional economies of scale and provide more
profitable specialty services. In addition, the Company enters into lease or
management agreements with certain facilities which generally include a right of
first refusal. In many cases these lease or management arrangements present
acquisition opportunities following the implementation of the Company's
operating strategies while enhancing facility profitability. As evidence of its
ability to acquire previously managed facilities, the Company currently leases
or owns seventeen facilities that it previously managed.
The Company's internal acquisition team consists of several members of
management who meet on a weekly basis to evaluate potential acquisition
candidates. This team identifies long-term facilities and related service
providers that will integrate efficiently into the Company's existing operations
and complement the Company's strategy of providing additional specialty services
and enhancing the Company's operational and financial growth. Utilizing the
Company's in-house team of professionals in the areas of human resources,
nursing, regulatory compliance and management information systems, a detailed
due diligence review is conducted on each potential acquisition. Acquisitions
are integrated efficiently into the Company's operations through the Company's
business integration procedures. Centennial's management believes that this team
will continue to be successful in the identification and acquisition of
additional long-term care facilities and related specialty service providers.
See "Risk Factors -- Risks Associated with Acquisition Strategy."
FACILITIES
Centennial currently operates 78 owned, leased and managed skilled nursing
facilities with 8,369 beds in 19 states and the District of Columbia. Of this
number, Centennial owns 8 facilities with 837 beds, leases 46 facilities with
4,994 beds and manages 24 facilities with 2,538 beds. The Company's owned,
leased and managed facilities had an average of 107 beds and an occupancy rate
of 90% as of March 1, 1997.
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The following table lists the Company's owned, leased and managed facilities
by location, including the number of licensed available beds and the occupancy
rate as of March 1, 1997:
<TABLE>
<CAPTION>
FACILITIES
NUMBER OF ------------------------------------------------------
STATE BEDS OWNED LEASED MANAGED TOTAL
- ------------------------------------------------ ----------- ------------- ----------- ------------- -----
<S> <C> <C> <C> <C> <C>
North Carolina.................................. 1,988 2 8 9 19
Indiana......................................... 1,381 -- 13 -- 13
Michigan........................................ 1,284 3 7 3 13
Mississippi..................................... 540 -- 5 -- 5
Louisiana....................................... 507 1 3 1 5
Kansas.......................................... 377 -- 2 2 4
Kentucky........................................ 356 1 2 -- 3
Florida......................................... 139 -- -- 2 2
Idaho........................................... 170 -- 2 -- 2
Texas........................................... 227 -- 1 1 2
Arkansas........................................ 70 -- -- 1 1
Georgia......................................... 157 -- 1 -- 1
Illinois........................................ 108 -- -- 1 1
Montana......................................... 100 -- 1 -- 1
Nebraska........................................ 154 1 -- -- 1
New Mexico...................................... 96 -- -- 1 1
Tennessee....................................... 119 -- -- 1 1
Washington...................................... 104 -- -- 1 1
Wisconsin....................................... 196 -- -- 1 1
Washington, D.C................................. 296 -- 1 -- 1
-- -- -- --
-----
Totals........................................ 8,369 8 46 24 78
-- -- -- --
-- -- -- --
-----
-----
<CAPTION>
STATE OCCUPANCY (1)
- ------------------------------------------------ -----------------
<S> <C>
North Carolina.................................. 94%
Indiana......................................... 86
Michigan........................................ 93
Mississippi..................................... 99
Louisiana....................................... 89
Kansas.......................................... 81
Kentucky........................................ 92
Florida......................................... 97
Idaho........................................... 87
Texas........................................... 87
Arkansas........................................ --
Georgia......................................... 92
Illinois........................................ 77
Montana......................................... 94
Nebraska........................................ 91
New Mexico...................................... 83(2)
Tennessee....................................... 90
Washington...................................... 77
Wisconsin....................................... 94
Washington, D.C................................. 97
---
Totals........................................ 90%
---
---
</TABLE>
- ------------------
(1) Occupancy is computed by dividing annual patient day census by annual
patient days available in licensed available operating beds. Does not
include facilities in the start-up phase during 1996 (The Oaks at Sweeten
Creek (North Carolina), Blountstown Health & Rehabilitation Center (Florida)
and Chenal Rehabilitation and Healthcare Center (Arkansas)).
(2) Facility under construction for expansion and renovation.
LEASED FACILITIES. The Company leases 46 facilities pursuant to long-term
leases with various lessors, thirty-two of which are with four lessors. The
Company's lease arrangements are "triple net" leases, requiring the Company, at
its own expense, to maintain the premises and pay taxes, utilities and
insurance. In most cases, the leases are subordinate to certain security
interests in the facilities granted by the lessors to third-party lenders, but
the Company makes the debt repayments collateralized by such security interests
directly to the lenders and deducts it from the lease payments made to the
lessors. Centennial has a right of first refusal to purchase most of the leased
facilities.
Thirteen leases with one lessor have initial terms ranging from ten to 14
years and include options for two additional five-year terms at appraised market
rates. Six of these leases have fixed payments, with the rest varying indirectly
with changes in the prime rate. The Company leases an additional 15 facilities
from various lessors with terms ranging from five to 27 years and lease payments
with annual increases based on the CPI, revenue growth and/or fixed formulas.
Eight leases have 20-year initial terms, with options to renew for five
additional years. These leases average 15-year remaining terms. These leases
provide for minimum rents with annual increases. Six additional leases with
another lessor provide for initial terms of 20 years with options to renew for
two successive five-year terms. These leases provide for base rent and
additional rent based on a percentage of any increase in each facility's gross
revenues over the prior year, or the increase in the Consumer Price Index. Five
leases with another lessor provide for initial terms of ten years and options to
renew for two successive five-year terms, with a base rent plus additional rent
equal to the greater of 5% of the increase
35
<PAGE>
in each facility's net revenue over the prior year's net revenues, or 3% of the
prior year's total base rent and additional rent.
In connection with the leasing of eight facilities located in Louisiana and
Mississippi, Magnolia Management Corporation ("Magnolia"), a former owner and an
unaffiliated nursing home provider, provides local consulting and field
supervision services to such facilities pursuant to certain agreements that
terminate in 2007 and were entered into by the prior owners of these facilities
in 1987. Services provided by Magnolia include expertise in employee matters and
local reimbursement and regulatory issues at a cost to the Company of three
percent of the gross revenues of these facilities. The Company paid Magnolia
$628,751 for these services in 1996.
MANAGED FACILITIES. The Company operates 24 facilities under long-term
management contracts. Revenues from management contracts account for
approximately 1.8% of the Company's total revenues for the fiscal year ended
December 31, 1996. Pursuant to these management contracts, the Company performs
day-to-day management functions and provides certain corporate services,
including group contract purchasing, employee training and development, quality
assurance audits, human resource management, assistance in obtaining third-party
reimbursement, financial and accounting functions, policy development, system
design and development, and marketing support. The Company's information system
monitors certain key data for each managed facility, such as payroll, admissions
and discharges, cash collections, net patient service revenues, staff trend
analysis, and measurement of operational data on a per patient day basis. In
addition, the Company manages five facilities for three public limited
partnerships. See "Certain Transactions." These management contracts provide for
monthly management fees of six percent of net revenues, have initial terms of 20
years and are subject to termination without cause upon 60 days notice. Of these
managed facilities, the Company manages 19 facilities pursuant to management
contracts with independent third parties, which provide for monthly management
fees equal to six percent of net revenues, with initial terms ranging from five
to 20 years and that can be terminated only for cause. Certain of the agreements
provide for the subordination of the management fees to the payment of the
owner's debt service. The Company has a right of first refusal to acquire
certain of these managed facilities.
CONTRACT REHABILITATION SERVICES. Centennial provides contract
rehabilitation services under 58 contracts in facilities in 13 states, including
17 facilities in North Carolina, 13 facilities in Florida and seven facilities
in Arkansas. Twenty of the agreements are with the Company's owned or leased
facilities, 11 are with the Company's managed facilities and 27 are with
unaffiliated third-parties. Most of these agreements have initial terms of five
years with automatic renewal provisions for five successive additional terms of
five years each, unless terminated earlier upon 90 days prior notice, and are
subject to termination without cause upon 60 days prior written notice. Pursuant
to these agreements, the Company provides comprehensive rehabilitation services,
including physical, occupational and speech therapy. In addition, the Company
provides administrative services including policy formulation, licensure
compliance, training, staffing, quality control, financial report preparation
and patient census preparation. Therapy services, except for physical therapy
services, are billed per unit of therapy service provided at rates set forth in
the therapy service agreement. Physical therapy services are billed at the
current Medicare published salary equivalency rate. Non-therapy services are
either billed per unit of service provided or at a flat monthly rate set forth
in the individual therapy service agreement.
OFFICE LEASES
Centennial's corporate headquarters occupy approximately 35,000 square feet
of office space in a commercial building located in Atlanta, Georgia, under a
lease agreement which terminates on September 30, 2001 and allows one five-year
renewal option. The Company believes that such offices are adequate for its
current requirements.
36
<PAGE>
Centennial also leases approximately 12,800 square feet of office space in
Atlanta, Georgia, which was the previous location of its corporate headquarters.
Centennial subleases the entire space to a subtenant and both the primary lease
and the sublease terminate on November 30, 1999. Transitional leases
approximately 18,000 square feet of office space in Louisville, Kentucky, which
was Transitional's corporate headquarters prior to the Transitional Merger. The
lease term expires January 31, 2002. The Company has entered into a sublease for
6,350 square feet of this space for the remaining term of the primary lease and
is seeking a subtenant for the balance of the space.
COMPETITION
The Company expects that it will face increasing levels of competition with
respect to its operations and the services it provides. The Company competes for
patients with other long-term care facilities and, to a lesser extent, with
acute care hospitals, physician practice groups, home healthcare providers,
community-based service programs, retirement communities and assisted living
centers. In addition, competition may grow from new market entrants, including
companies focusing primarily on specific components of the Company's various
services. Many states require a CON or impose similar restrictions before a new
long-term care facility can be constructed or additional beds can be added to
existing facilities. The Company believes that these regulations reduce the
possibility of over-building and promote higher utilization. Certain competing
companies have greater financial and other resources and may be more established
in their respective communities than the Company.
In competing for patients, a facility's local reputation is important.
Referrals typically come from acute care hospitals, physicians, religious
groups, health maintenance organizations, patients' families and friends and
other community organizations. Other factors which affect a facility's ability
to attract patients include the physical plant condition, the ability to
identify and meet particular needs in the community, the rates charged for
services and the availability of personnel to provide the appropriate levels of
care.
Competition for subacute care patients is increasing by virtue of market
entry of other healthcare providers, such as acute care hospitals,
rehabilitation hospitals and other specialty service providers. The competitive
factors that distinguish subacute providers include the degree of acuity for
which care can be provided. The Company believes that its subacute care
facilities are characterized by a high level of acuity in patient care provided.
Other important competitive factors include the reputation of the facility in
the community, the services offered, the availability of qualified nurses, local
physicians, hospital support, rehabilitation therapists and other personnel, the
appearance of the facility and the cost of services.
SOURCE OF REVENUES AND PAYOR MIX
The Company derives its revenues primarily from Medicaid programs for
indigent patients, the Medicare program for certain elderly and disabled
patients, private pay sources, rehabilitation therapy services offered to
non-affiliated long-term care facilities and management fees. The Company
employs reimbursement specialists and retains outside reimbursement consultants
to monitor reimbursement rules, policies and related developments in order to
comply with reporting requirements and to assist the Company in receiving
reimbursements.
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<PAGE>
The following table sets forth the percentage of total revenues by payor
source for the Company for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
YEARS ENDED MAY 31, 31,
---------------------------------- ----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Medicare............................................... 3.0% 6.3% 12.8% 17.7% 25.6%
Private pay, management fees and other................. 43.6 20.1 21.7 23.6 30.3
----- ----- ----- ----- -----
46.6 26.4 34.5 41.3 55.9
Medicaid............................................... 53.4 73.6 65.5 58.7 44.1
----- ----- ----- ----- -----
Total.............................................. 100.0% 100.0% 100.0% 100.0% 100.0%
</TABLE>
MEDICARE. All of the Company's facilities are certified Medicare providers.
The Medicare program consists of two parts. Part A covers inpatient hospital
services and certain services furnished by other institutional providers, such
as skilled nursing and acute, long-term care facilities. Part B covers the
services of doctors, suppliers of medical items, various types of outpatient
services including physical, speech and occupational therapy, pharmaceuticals
and medical supplies, certain intensive rehabilitation and psychiatric services
and ancillary services of the type provided by long-term care or acute care
facilities. Medicare does not provide reimbursement for community based,
intermediate care nursing facilities.
Under the Medicare Part A program, the Company is reimbursed for its direct
costs plus an allocation of indirect costs up to a facility specific limit (the
"routine cost limit"). As the Company has expanded its post-acute care and other
specialty medical services, the costs of care for these patients have exceeded
and are expected to continue to exceed the reimbursement routine cost limits.
Under current regulations, new long-term care facilities are, in certain limited
circumstances, able to apply for a three year exemption from routine cost
limits. Unless and until such exemptions are granted, these facilities can
recover excess costs only through routine cost limit exception requests. There
can be no assurance that the Company will be able to recover such excess costs
under any pending or future requests. Payment for Medicare Part B services
depends on the nature of the services provided. Some services are reimbursed at
cost, much like Part A services. Other services, particularly parenteral and
enteral nutrition therapy, are reimbursed on a fee schedule.
PRIVATE PAY, MANAGEMENT FEES AND OTHER. Private pay and other revenues
include payments from individuals who pay directly for services without
governmental assistance and payments from commercial insurers, HMOs, PPOs,
insurance organizations, workers' compensation programs, hospice programs and
other similar payment sources. The Company's rates for private pay patients are
typically higher than rates for patients eligible for assistance under state
Medicaid programs. These private pay rates are established on a
facility-specific basis in accordance with market factors, including rates
charged by other providers in the local market.
MEDICAID. Medicaid includes the various state-administered reimbursement
programs for indigent patients created by federal law. Although reimbursement
rates vary from state to state, the federal government retains the right to
approve or disapprove individual state plans. Providers must accept
reimbursement from Medicaid as payment in full for the services rendered,
because the provider may not bill the patient for more than the amount of the
Medicaid payment received. Criteria for Medicaid eligibility varies from state
to state, subject to guidelines from the federal government for determination
whether a person qualifies as medically indigent and subject to changes in state
and federal regulations. Many of the residents at the Company's facilities who
initially enter the facilities as private pay or insurance patients are later
covered by Medicaid as their financial resources are depleted to a level of
financial net worth and income which makes them eligible for Medicaid.
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<PAGE>
With the exception of two facilities, all of the facilities operated by the
Company participate in state Medicaid programs. Basic long-term care services
are provided to Medicaid patients, including nursing, dietary, housekeeping and
laundry and restorative healthcare services, room and board and medications.
Medicaid does not cover the cost of private rooms, private-duty nurses and other
costs, or amounts in excess of the Medicaid reimbursement rates. Under the
federal Medicaid statute and regulations, state Medicaid programs must provide
reimbursement rates that are reasonable and adequate to cover the costs that
would be incurred by efficiently and economically operated facilities in
providing services in conformity with state and federal laws, regulations and
quality and safety standards. Furthermore, payments must be sufficient to enlist
enough providers so that services under the state's Medicaid plan are available
to recipients at least to the extent that those services are available to the
general population. Reimbursement rates generally are determined by the state
from "cost reports" filed annually by each facility, on both a prospective and
retrospective basis. There can be no assurance, however, that payments under
Medicaid programs will be sufficient to cover the costs allocable to patients
eligible for reimbursement pursuant to such programs.
The Medicare and Medicaid programs are subject to various statutory and
regulatory changes which may adversely affect the Company's business. There can
be no assurance that payments for services and supplies under governmental
reimbursement programs will remain comparable to present levels. The Company may
be subject to rate reductions as a result of federal budgetary legislation.
Various state Medicaid programs periodically experience budgetary shortfalls
which may result in Medicaid payment delays to the Company. In addition, the
failure, even inadvertent, of the Company to comply with applicable
reimbursement regulations could adversely affect the Company's business.
Although there can be no assurance that future adjustments will not have a
material adverse effect on the Company, the Company believes that it has
properly applied the various payment formulas and that it is not likely that
audit adjustments would have a material adverse effect on the Company.
Cost reports are subject to routine audits by government regulatory bodies
on an annual or periodic basis and several of the Company's facilities are
currently involved in the audit process. In the event of a determination by such
a regulatory body that the amount of reimbursement exceeded allowable
reimbursement levels, the Company may be required to repay any excess amount.
Although the Company believes it has adequately provided for any repayment
obligations, there can be no assurance that such provisions will be adequate.
CONTRACT REHABILITATION SERVICES. In general, payments for rehabilitation
therapy services are received directly from the long-term care facilities, which
in turn are paid by Medicare or other payors. Revenues from rehabilitation
therapy services provided to Company-operated facilities are included in the
Medicare, Medicaid and private pay sources of revenues of the Company. The
Company's charges to non-affiliates, though not directly regulated, are
effectively limited by regulatory reimbursement policies imposed on the
long-term care facilities that receive these services, as well as competitive
market factors.
GOVERNMENT REGULATION
The federal government and all states in which the Company operates regulate
various aspects of the Company's business. In addition to the regulation of
rates by governmental payor sources, the development and operation of long-term
care facilities and the provision of long-term care services are subject to
federal, state and local licensure and certification laws which regulate with
respect to a facility, among other matters, the number of beds, the services
provided, the distribution of pharmaceuticals, equipment, staffing requirements,
patients' rights, operating policies and procedures, fire prevention measures,
environmental matters and compliance with building and safety codes. Home
healthcare providers are also subject to extensive government regulations.
Regulators recently announced plans to impose new regulations and to increase
regulatory enforcement activities. There can be no assurance that federal, state
or local governmental regulations will not change or be subjected to new
interpretations that impose additional restrictions which might adversely affect
the Company's business. See "Risk
39
<PAGE>
Factors -- Impact of Healthcare Reform and Limits on Government Reimbursement
and Other Payments."
Licensing, certification and other applicable standards vary from
jurisdiction to jurisdiction and are revised periodically. State agencies survey
or inspect all long-term care facilities on a regular basis to determine whether
such facilities are in compliance with the requirements for participation in
government-sponsored third-party payor programs. In some cases or upon repeat
violations, the reviewing agency has the authority to take various adverse
actions against a facility, including the imposition of fines, temporary
suspension of admission of new patients to the facility, suspension or
decertification from participation in the state Medicaid or the Medicare
program, offset of amounts due against future billings to the Medicare or
Medicaid programs, denial of payments under Medicaid for new admissions,
reduction of payments, restrictions on the ability to acquire new facilities
and, in extreme circumstances, revocation of a facility's license or closure of
a facility. The compliance history of a prior provider may be used by state or
federal regulators in determining possible action against a successor provider.
The Company believes that its facilities are in substantial compliance with
all statutes, regulations, standards and requirements applicable to its
business, including applicable Medicaid and Medicare regulatory requirements. In
the ordinary course of its business, however, the Company from time to time
receives notices of deficiencies for failure to comply with various regulatory
requirements. In most cases, the Company and the reviewing agency will agree
upon corrective measures to be taken to bring the facility into compliance.
There can be no assurance that future agency inspections will not have a
material adverse effect on the Company.
CERTIFICATES OF NEED. A majority of the states in which the Company
operates have adopted CON or similar laws which generally require that a state
agency determine that a need exists prior to the construction of new facilities,
the addition or reduction of licensed beds or services, the implementation of
other changes, the incurrence of certain capital expenditures, the approval of
certain acquisitions and changes in ownership or, in certain states, the closure
of a facility. State CON approval is generally issued for a specific project or
number of beds, specifies a maximum expenditure, is sometimes subject to an
inflation adjustment, and requires implementation of the proposal within a
specified period of time. Failure to obtain the necessary state approval can
result in the inability of the facility to provide the service, operate the
facility or complete the acquisition, addition or other change and can also
result in adverse reimbursement action or the imposition of sanctions or other
adverse action on the facility's license.
MEDICARE AND MEDICAID. In 1990 and 1993, Congress passed legislation
("OBRA" and "OBRA 93") revising Medicare nursing standards and reimbursement and
methods for nursing homes. Although the Company believes that it is in
substantial compliance with the current requirements of OBRA and OBRA 93, it is
unable to predict how future interpretation and enforcement of regulations
promulgated under OBRA and OBRA 93 by the state and federal governments could
affect the Company in the future.
Effective July 1, 1995, the Health Care Financing Administration ("HCFA")
promulgated new survey, certification and enforcement rules governing long-term
care facilities participating in the Medicare and Medicaid programs, which
impose significant new requirements on long-term care facilities. The breadth of
the new rules creates uncertainty over the manner in which the rules will be
implemented, the ability of any long-term care facility to comply with them and
the effect of the new rules on the Company.
Under the rules, unannounced standard surveys of facilities must be
conducted at least once every 15 months with a state-wide average of 12 months.
In addition to the standard survey, survey agencies have the authority to
conduct surveys as frequently as necessary to determine whether facilities
comply with participation requirements, to determine whether facilities have
corrected past deficiencies and to monitor care if a change occurs in the
ownership or management of a facility. Furthermore, the state survey agency must
review all complaint allegations and conduct a standard or an abbreviated survey
to investigate such complaints if a review of the complaint shows that a
deficiency in one or more of the
40
<PAGE>
Federal requirements may have occurred and that only a survey will determine
whether a deficiency or deficiencies exist. If a facility has been found to
furnish substandard care, it is subject to an extended survey. The extended
survey is intended to identify the policies and procedures that caused a
facility to deliver substandard care.
HCFA's new rules substantially revise provisions regarding the enforcement
of compliance requirements and remedies for long-term care facilities with
deficiencies. At a minimum, the following remedies are available: termination of
provider agreement; temporary management; denial of payment for new admissions;
civil money penalties; closure of the facility in emergencies or transfer of
patients or both; and on-site state monitoring. States may also adopt optional
remedies. The new rules divide remedies into three categories. Category I
remedies include directed plans of correction, state monitoring and directed
in-service training. Category 2 remedies include denial of payments for new
admissions, denial of payments for all individuals (imposed only by HCFA) and
civil money penalties of $50 to $3,000 per day. Category 3 remedies include
temporary management, immediate termination or civil money penalties of $3,050
to $10,000 per day. The rules define situations in which one or more of the
penalties must be imposed.
HCFA has announced its intention to propose rules applying salary
equivalency guidelines to speech and occupational therapy services, while
updating physical and respiratory therapy guidelines. In addition, on April 14,
1995, HCFA issued a memorandum that sets forth rates for speech and occupational
therapy services that are lower than the Medicare reimbursement rates currently
received by the Company for such services. In response to a challenge to this
memorandum, HCFA stated that it would not enforce these guidelines. The Company,
however, believes that HCFA is prepared to issue proposed salary equivalency
guidelines for speech and occupational therapy services in the near future,
although the Company cannot predict when, or to what extent, such rules, if
proposed, will be adopted. The imposition of salary equivalency guidelines on
contract speech and occupational therapy services could adversely affect the
Company's revenues derived from specialty services and thereby limit the
Company's ability to recoup its investment in that part of its business.
Similarly, any future regulations reducing the government payment rates for
subacute or other specialty medical services could materially adversely affect
the Company. On March 10, 1997, HCFA published proposed Medicare conditions of
participation for home healthcare agencies that would, if adopted, require home
healthcare agencies to monitor patient outcomes using the government's standard
core assessment data (the "Outcomes and Assessment Information Set" or "OASIS").
The proposed rules would also impose more stringent qualifications for home
healthcare personnel and would expand government enforcement efforts against
fraud and abuse in the home healthcare field. Final rules will be published
following a 90-day comment period on the proposed rules.
FEE-SPLITTING AND REFERRALS. The Company is also subject to federal and
state laws that govern financial and other arrangements between providers.
Federal laws, as well as the laws of certain states, prohibit payments or fee
splitting arrangements between providers that are designed to induce or
encourage the referral of patients to, or the recommendation of, a particular
provider for medical products and services. These laws include the federal
"anti-kickback law" which prohibits, among other things, the offer, payment,
solicitation or receipt of any form of remuneration in return for the referral
of Medicare and Medicaid patients.
Effective January 1, 1995, OBRA 93 prohibits any physician with a financial
relationship (defined as a direct or indirect ownership or investment interest
or compensation arrangement) with an entity from making a referral for
"designated health services" to that entity and prohibits that entity from
billing for such services. "Designated health services" do not include skilled
nursing services but do include many services which long-term care facilities
provide to their patients, including, but not limited to, infusion therapy and
enteral and parenteral nutrition. Various exceptions to the application of this
law exist, including one which protects the payment of fair market compensation
for the provision of personal services, so long as various requirements are met.
Violations of these provisions may result in civil or
41
<PAGE>
criminal penalties for individuals or entities and/or exclusion from
participation in the Medicaid and Medicare programs. Various state laws contain
analogous provisions, exceptions and penalties. Violation of these state laws
could lead to loss of licensure, significant fines and other penalties. The
Company believes that in the past it has been, and in the future it will be,
able to arrange its business relationships so as to comply with these
provisions. Failure to comply with such laws could subject the Company to civil
fines, possible exclusion from government reimbursement programs and, in certain
cases, criminal prosecution.
HEALTHCARE REFORM. In addition to extensive existing governmental
regulation, there are numerous legislative and executive initiatives at the
federal and state levels for comprehensive reforms affecting the payment for and
availability of services. It is not clear at this time what proposals, if any,
will be adopted or, if adopted, what effect such proposals would have on the
Company's business. Aspects of certain of these proposals, such as reductions in
funding of the Medicare and Medicaid programs, potential changes in
reimbursement regulations for rehabilitation therapy services, interim measures
to contain costs such as a short-term freeze on prices charged by providers or
changes in the administration of Medicaid at the state level, could materially
adversely affect the Company. There can be no assurance that currently proposed
or future legislation or other changes in the administration or interpretation
of governmental programs will not have an adverse effect on the Company.
ENVIRONMENTAL AND OTHER. The Company is also subject to a wide variety of
federal, state and local environmental and occupational health and safety laws
and regulations. Among the types of regulatory requirements faced by providers
are: air and water quality control requirements, waste management requirements,
specific regulatory requirements applicable to asbestos, polychlorinated
biphenyls and radioactive substances, requirements for providing notice to
employees and members of the public about hazardous materials and wastes and
certain other requirements.
In its role as owner and/or operator of properties or facilities, the
Company may be subject to liability for investigating and remedying any
hazardous substances that have come to be located on the property, including
such substances that may have migrated off of, or emitted, discharged, leaked,
escaped or been transported from, the property. The Company's operations may
involve the handling, use, storage, transportation, disposal and/or discharge of
hazardous, infectious, toxic, radioactive, flammable and other hazardous
materials, wastes, pollutants or contaminants. Such activities may harm
individuals, property or the environment; may interrupt operations and/or
increase their costs; may result in legal liability, damages, injunctions or
fines; may result in investigations, administrative proceedings, penalties or
other governmental agency actions; and may not be covered by insurance. The cost
of any required remediation or removal of hazardous or toxic substances could be
substantial and the liability of an owner or provider for any property is
generally not limited under applicable laws and could exceed the property's
value. Although the Company is not aware of any material liability under any
environmental or occupational health and safety laws, there can be no assurance
that the Company will not encounter such liabilities in the future, which could
have a material adverse effect on the Company.
PERSONNEL
As of December 31, 1996, the Company employed, directly or indirectly,
approximately 8,300 persons, including approximately 5,100 full-time and 3,200
part-time employees. As of December 31, 1996, the Company had collective
bargaining agreements related to nine facilities covering approximately 1,000
employees and was negotiating with bargaining units at two additional
facilities. The Company believes that it has a satisfactory relationship with
these employees and strives to maintain this relationship by offering
competitive benefit packages, training programs and opportunities for
advancement. See "Certain Transactions."
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<PAGE>
INSURANCE
The Company maintains property, liability, and professional liability
insurance policies in amounts and with such coverage and deductibles that are
deemed appropriate by management, based upon historical claims, industry
standards and the nature and risks of its business. The Company also requires
that physicians practicing at its facilities carry medical professional
liability insurance to cover their respective individual professional
liabilities. The Company directly and indirectly maintains a self-insurance
program with appropriate reinsurance for workers' compensation. This program
covers employees as required by state law. In certain states, the Company
participates in state approved programs. Contractors who provide services to the
Company must demonstrate adequate insurance prior to commencing work, however,
there can be no assurance that any current or future claims will not exceed
applicable insurance coverage.
LEGAL PROCEEDINGS
As is typical in the industry, the Company is subject to claims and legal
actions in the ordinary course of its business, including employment matters and
malpractice and wrongful death claims. In addition, on October 6, 1995, prior to
the Transitional Merger, NPF IV, Inc. ("NPF"), an accounts receivable factoring
firm, filed suit against Transitional, Cardinal Development Co., Inc. and its
related entities ("Cardinal") and certain other parties in the United States
District Court for the Southern District of Ohio, alleging successor liability
for various accounts receivable factoring transactions between Cardinal and NPF.
The Company is actively defending against these claims. It is management's
belief that this lawsuit as well as other claims and legal actions that the
Company is subject to in the normal course of its business are either adequately
covered by insurance or will be resolved without a material adverse affect on
the Company's financial condition, although there can be no assurance that such
amounts will be adequate or that such results will be achieved.
43
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers and directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- ----------- ---------------------------------------------------------------------
<S> <C> <C>
J. Stephen Eaton................... 46 Chairman of the Board, President and Chief Executive Officer
Kent C. Fosha, Sr.................. 55 Executive Vice President of Operations
Alan C. Dahl....................... 35 Executive Vice President, Chief Financial Officer, Treasurer and
Director
Randall J. Bufford................. 37 Executive Vice President of Business Development
Laurence W. Lepley, Jr............. 52 President of Paragon Rehabilitation, Inc.
Wayne H. Mayo...................... 53 Eastern Division Vice President
Clay F. Crosson.................... 39 Western Division Vice President
John P. Cobb....................... 65 Senior Vice President of Reimbursement
Daniel F. Montgomery............... 39 Senior Vice President and Chief Information Officer
James B. Hoover.................... 42 Director
Bertil D. Nordin................... 62 Director
Robert A. Ortenzio................. 39 Director
Andrew M. Paul..................... 39 Director
</TABLE>
Centennial's Board of Directors (the "Board") is classified into three
classes which consist of, as closely as possible, an equal number of directors.
The members of each class will serve staggered three-year terms. Messrs. Eaton
and Paul are Class I directors, Messrs. Nordin and Hoover are Class II directors
and Messrs. Dahl and Ortenzio are Class III directors. The terms of the Class I,
Class II and Class III directors expire at the annual shareholders meeting to be
held in 1998, 1999 and 2000, respectively.
The Board has established a Compensation Committee and an Audit Committee.
The Compensation Committee is currently comprised of Messrs. Eaton, Paul and
Ortenzio and Mr. Paul is the chairman. The Audit Committee is comprised of
Messrs. Hoover and Ortenzio and Mr. Eaton is an ex-officio, non-voting member.
J. STEPHEN EATON is Chairman of the Board and the founder of Centennial and
has served as its President and Chief Executive Officer since its inception in
February 1989. Mr. Eaton has been involved in the long-term care industry since
1982. Mr. Eaton also serves as a director of Saint Joseph's Mercy Care
Corporation, a non-profit corporation based in Atlanta, Georgia which provides
mobile health services to the homeless and other underserved populations, and of
Saint Joseph's Health System, a major tertiary care hospital and health system
in Atlanta, Georgia.
KENT C. FOSHA, SR. has served as Executive Vice President of Operations
since January 1996 and also serves as President of Centennial International
Management Corporation. He joined Centennial in 1990 and served as the Company's
senior vice president of operations until January 1996. Mr. Fosha has over
twenty years experience in all aspects of nursing home management, including the
supervision of multi-state operations for National Heritage, Inc. and Beverly
Enterprises. Mr. Fosha, a licensed nursing home administrator, has served as
president of the Georgia Healthcare Association and has served on several
long-term care related committees.
ALAN C. DAHL has served as Executive Vice President, Chief Financial
Officer, and Director of Centennial since January 1996. From February 1991 to
December 1995, he served as senior vice president.
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Mr. Dahl has been involved in healthcare finance for the past eleven years. Mr.
Dahl was previously senior vice president of Southmark Public Syndications,
Inc., a subsidiary of Southmark Corporation. Mr. Dahl, a certified public
accountant, also worked in the tax department at Arthur Young & Company.
RANDALL J. BUFFORD has served as Executive Vice President-Business
Development of the Company since January 1996. From 1993 to December 1995, Mr.
Bufford served as General Manager/Chief Executive Officer of Transitional. Mr.
Bufford served as an officer of Cardinal Medical Corporation from 1982 until
1993, and he organized and led a management buy-out and recapitalization through
which Transitional purchased many of the assets of Cardinal. Mr. Bufford began
his career as an auditor at Arthur Young & Company.
LAURENCE W. LEPLEY, JR., has served as President of Paragon Rehabilitation
Inc., a subsidiary of Centennial ("Paragon"), since its inception in 1989. Mr.
Lepley has 29 years of experience in the healthcare industry, having previously
served as vice president of development and general counsel for a corporation
specializing in head injury rehabilitation. Mr. Lepley has also served as vice
president, corporate attorney and lobbyist for the Tennessee Hospital
Association. Mr. Lepley began his healthcare career as a pharmacist in both
hospital and retail settings, and he maintains licenses in pharmacy and law in
the state of Tennessee.
WAYNE H. MAYO has served as Eastern Division Vice President of Centennial
since January 1997. Prior to being Eastern Division Vice President, Mr. Mayo
served as regional vice president from 1991 to 1996, and he was responsible for
Centennial's Eastern region of facilities. Mr. Mayo was previously regional vice
president of operations for Vantage Healthcare Corporation and also served as
regional vice president of operations for Medco Centers, Inc., for seven years.
Mr. Mayo is a member of the American College of Nursing Home Administrators.
CLAY F. CROSSON has served as Western Division Vice President of Centennial
since February 1997. Prior to joining Centennial in 1997, Mr. Crosson was vice
president of operations and a member of the Board of Directors for CareMore,
Inc. for five years. Previous to that, Mr. Crosson served 11 years at National
HealthCorp, L.P. in various capacities, including regional vice president. Mr.
Crosson has an MBA and 17 years of experience in long-term care, subacute care,
home healthcare, managed care and assisted living. Mr. Crosson is a licensed
administrator and a certified fellow of the American College of Health Care
Administrators, an organization where he currently serves as a governor on the
Board of Governors. He also presently serves as Vice Chairman of the Georgia
Nursing Home Association.
JOHN P. COBB joined the Company in 1991. He has served as Senior Vice
President of Reimbursement since January 1995. He served as director of
reimbursement from 1991 to January 1995. Mr. Cobb has over 18 years of
experience in third-party reimbursement of long-term care facilities. Prior to
joining the Company, Mr. Cobb was director of reimbursement for Convalescent
Services, Inc. ("CSI"), where he was responsible for the preparation of over
forty-eight Medical and Medicare cost reports for facilities in six states. Mr.
Cobb has also served as an auditor/investigator for the Medicaid Fraud Division
of the Arkansas Attorney General's office.
DANIEL F. MONTGOMERY has served as Senior Vice President and Chief
Information Officer of Centennial since January 1996. From 1991 to 1996, he
served as vice president of finance for Centennial. Prior to joining Centennial,
Mr. Montgomery served six years at National Heritage, Inc. in various
capacities, including vice president of administrative services, director of
internal audit and financial reporting and vice president and controller. Mr.
Montgomery, a certified public accountant, also served as internal auditor for
AMI, Inc.
JAMES B. HOOVER, a Director of the Company since January 1996, has served as
general partner of the sole general partner of WCAS VI since 1992. From 1984 to
1992, Mr. Hoover served as general partner of Robertson, Stephens & Co.
("RS&Co."). RS&Co. is an investment banking firm specializing in the financing
of emerging growth companies, with particular emphasis in the healthcare
industry. Prior to
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joining RS&Co., Mr. Hoover was vice president of the Investment Management Group
of Citibank, N.A., from 1977 to 1984. Mr. Hoover serves as a director for
Housecall Medical Resources, Inc. and U.S. Physical Therapy, publicly traded
companies as well as five private companies. Additionally, Mr. Hoover is a
member of the Special Projects Committee of Memorial Sloan-Kettering Cancer
Center which raises funds and evaluates funding proposals from physicians
interested in pursuing cancer research projects.
BERTIL D. NORDIN, a Director of Centennial since March 1997, is currently an
investor and advisor. From 1990 to 1994, Mr. Nordin served as chairman of the
board of Digital Communications Associates, Inc. ("DCA"), a telecommunications
company. Mr. Nordin was also president and chief executive officer of DCA from
1981 to 1990. Mr. Nordin serves as a director for TechForce Corporation, a
public company, Masada Corporation, a private company, and the Atlanta Symphony
Orchestra.
ROBERT A. ORTENZIO, a Director of Centennial since January 1996, has served
as President of Select Medical Corporation, a private healthcare company based
in Mechanicsburg, Pennsylvania, since 1996. From 1986 to 1996, Mr. Ortenzio was
employed by Continental Medical Systems, Inc., a nationwide provider of
rehabilitation services, as its president and chief executive officer. Mr.
Ortenzio also serves as a director of American Oncology Resources, Inc. and
OccuSystems, Inc.
ANDREW M. PAUL, a Director of the Company since January 1996, serves as a
general partner of the sole general partner of WCAS VI, a private equity
investment fund. Prior to joining WCAS VI in 1984, Mr. Paul was an associate in
Hambrecht & Quist's venture capital group. From 1978 to 1981, he was a systems
engineer and later a marketing representative for International Business
Machines Corporation. Mr. Paul serves as a director of American Oncology
Resources, Inc.; EmCare Holdings, Inc.; Housecall Medical Resources, Inc.;
Lincare Holdings, Inc.; MedCath Inc.; National Surgery Centers; OccuSystems,
Inc.; and Quorum Health Group.
BOARD OF DIRECTORS
There are no family relationships between any of the directors or executive
officers of the Company. The Board has established two standing committees: (i)
the Compensation Committee and (ii) the Audit Committee.
The Audit Committee consists of up to two directors, none of whom is also an
officer or employee of the Company. The President of the Company is an
ex-officio, non-voting member of the Audit Committee. The Audit Committee
selects the Company's auditors, reviews the audit and has other authority
customary for an audit committee.
The 1994 Stock Option Plan, the 1996 Executive Stock Plan, the 1996 Employee
Stock Option Plan and the 1997 Stock Plan (collectively, the "Stock Plans") are
administered by the Compensation Committee which consists of not more than four
directors of the Company appointed by the Board of Directors, one of whom, in
certain instances, must be the Chairman of the Board. With respect to any
options granted to an individual who is subject to the provisions of Section 16
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as
provided in Rule 16a-2 promulgated pursuant to the Exchange Act (a "Section 16
Insider"), the Compensation Committee consists of at least two directors who are
"Disinterested Persons" (which term has the meaning set forth in Rule 16b-3
under the Exchange Act or in any successor rule thereto) and all authority and
discretion must be exercised by such Disinterested Persons. Any compensation
package set forth in an employment agreement is subject to approval by the
Compensation Committee.
DIRECTORS' COMPENSATION
Outside Directors (as defined below) receive $8,000 annually (paid in four
quarterly installments) and $1,000 for each meeting of the Board or any
committee of the Board (except for telephonic meetings and committee meetings
held on the same day as a full Board meeting) for their services as Outside
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<PAGE>
Directors. Outside Directors are also reimbursed for their reasonable
out-of-pocket expenses, incurred in connection with their attendance at Board
and committee meetings. In addition, Outside Directors receive automatic grants
of options to purchase 10,700 shares of Common Stock upon their election to the
Board and Outside Directors who are serving as such on July 1 of each year
receive automatic grants of options to acquire 2,150 shares of Common Stock
pursuant to the 1997 Stock Plan. Outside Directors are directors who are not
employees or affiliates of the Company. The 1997 Stock Plan is intended to allow
the Outside Directors receiving grants of options to continue to be
"Disinterested Persons" with respect to the Stock Plans. See "Management --
Stock Plans."
EXECUTIVE COMPENSATION
The following table sets forth the information with respect to the Company's
Chief Executive Officer and each of the other executive officers of the Company
whose total annual salary and bonus exceeded $100,000 for all services rendered
in all capacities to the Company for the calendar year ended December 31, 1996
(collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION --------------
------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY (1) BONUS (2) COMPENSATION OPTIONS/SARS COMPENSATION
- ------------------------------------------ ----------- ----------- ----------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
J. Stephen Eaton.......................... $ 300,000 $ 50,000 $ 324,359(3)(4) -- --
Chairman of the Board, President and
Chief Executive Officer
Kent C. Fosha, Sr......................... 175,000 25,000 163,041(3)(4) -- --
Executive Vice President
Alan C. Dahl.............................. 175,000 35,000 158,498(3) -- --
Executive Vice President and Chief
Financial Officer
Randall J. Bufford (5).................... 250,000 -- 100,000(6) -- --
Executive Vice President--Business
Development
Laurence W. Lepley, Jr. (7)............... 132,341 65,575 6,794(8) -- --
President of Paragon Rehabilitation,
Inc.
</TABLE>
- ------------------
(1) Represents annual salary, including compensation deferred by the Named
Executive Officers pursuant to the Company's 401(k) Plan.
(2) Represents annual bonuses earned by the Named Executive Officers for the
period indicated.
(3) Represents the difference between the exercise price for stock options and
the fair market value of the shares received.
(4) Includes insurance for Messrs. Eaton and Fosha which provides for
reimbursement for health and dental costs in excess of the amount payable
under the Company's group health and dental plan.
(5) Mr. Bufford became an officer of the Company upon the completion of the
Transitional Merger.
(6) Consists of a moving allowance in the amount of $100,000.
(7) Mr. Lepley remained as president of Paragon after the Transitional Merger.
(8) Includes $794 as a matching 401(k) contribution and an automobile allowance
of $6,000.
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<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning stock option grants made
to each of the Named Executive Officers during the fiscal year ended December
31, 1996. No stock appreciation rights were granted during such year.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------- VALUE AT ASSUMED ANNUAL
NUMBER OF % OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE OR TERM (2)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -----------------------
NAME GRANTED FISCAL YEAR $/SH (1) DATE 5% ($) 10% ($)
- ----------------------------- ------------ ------------- ----------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
J. Stephen Eaton............. -- --% $ -- -- $ -- $ --
Kent C. Fosha, Sr............ -- -- -- -- -- --
Alan C. Dahl................. -- -- -- -- -- --
Randall J. Bufford........... 31,119(3) 46.7 8.442 2006 -0-(5) 104,560
Laurence W. Lepley, Jr....... 6,542(4) 9.8 8.442 2006 -0-(5) 21,981
</TABLE>
- ------------------
(1) All Options were granted at or above the fair market value on the date of
the grant as determined by the Board of Directors.
(2) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission. There can
be no assurance provided to any executive officer or any other holder of the
Company's securities that the actual stock price appreciation over the term
will be at the assumed 5% and 10% levels or at any other defined level.
Unless the market price of the Common Stock appreciates over the option
term, no value will be realized from the option grants made to the Named
Executive Officers.
(3) Represents incentive stock options that vest ratably one-third on each of
January 31, 1996, January 1, 1997 and January 1, 1998.
(4) Represents incentive stock options that are fully vested.
(5) Represents incentive stock options granted at an exercise price of $8.442
pursuant to the Transitional Merger in replacement of existing Transitional
options, taking into account the valuation set forth in the agreement and
plan of merger. This exercise price exceeded the fair market value of the
underlying securities on the date of the grant such that the potential
realizable value calculated at a 5% annualized rate results in a negative
number.
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND OPTION VALUES AT
DECEMBER 31, 1996
The following table sets forth information concerning option exercises and
option holdings for the fiscal year ended December 31, 1996, with respect to
each of the Named Executive Officers. No stock appreciation rights were
exercised during such year or were outstanding at the end of that year.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS AT FISCAL YEAR- THE-MONEY OPTIONS/SARS AT
END(#) FISCAL YEAR-END($) (1)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- --------------- ----------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
J. Stephen Eaton........... 79,365 $ 316,996 52,084 66,964 $ $
Kent C. Fosha, Sr.......... 39,682 158,498 29,266 22,321
Alan C. Dahl............... 51,588 158,498 17,361 22,321
Randall J. Bufford......... -- -- 38,107 32,694
Laurence W. Lepley, Jr..... -- -- 6,543 --
</TABLE>
- ------------------
(1) There was no public market for the Common Stock at December 31, 1996.
Accordingly, the values represent the difference between the assumed public
offering price of $ and the applicable exercise price.
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<PAGE>
STOCK PLANS
The Company currently has four stock plans with outstanding options or
options available to be granted, which include the 1994 Stock Option Plan, the
1996 Executive Stock Plan, the 1996 Employee Stock Option Plan and the 1997
Stock Plan. Centennial's 1992 Stock Option Plan that provided for the grant of
options to purchase 277,775 shares (which number reflects the stock dividend
declared effective January 6, 1996 as part of the Transitional Merger but does
not include the Reverse Stock Split) of Common Stock to key employees and
consultants of the Company in the form of non-qualified stock options has been
terminated. Options for all of the 277,775 shares authorized by that plan have
been granted and exercised at exercise prices of $.29.
1994 STOCK OPTION PLAN. A total of 216,000 shares of Common Stock were
reserved for issuance pursuant to the 1994 Stock Option Plan, subject to
anti-dilution provisions. This number increased to 226,110 due to the stock
dividend declared effective January 6, 1996 as part of the Transitional Merger
(the "Stock Dividend") and was reduced to 161,510 to reflect the Reverse Stock
Split. As of March 26, 1997, options to purchase all 161,510 shares had been
granted under this plan, of which options to purchase 60,321 shares remain
outstanding and unexercised of which shares 57,147 are vested and 3,174 shares
vest during 1997. All of the options granted under this plan were granted at
exercise prices of $4.03 or $7.56, representing the fair market value of the
Common Stock as determined by the Compensation Committee at the time of the
grants. The remaining options expire in 2001 and 2002.
1996 EXECUTIVE STOCK PLAN. The Board of Directors adopted and the
shareholders approved the Company's 1996 Executive Stock Plan, which allows the
grant to officers, directors and key employees of non-qualified stock options,
restricted stock or stock appreciation rights. This Plan may be terminated by
the Board of Directors at any time.
A total of 500,000 shares of Common Stock were reserved for issuance
pursuant to the 1996 Executive Stock Plan, subject to anti-dilution provisions.
This number increased to 555,550 due to the Stock Dividend and was reduced to
396,829 to reflect the Reverse Stock Split. As of March 26, 1997, options to
purchase 385,777 shares had been granted under this plan, of which options to
purchase 65,956 shares were vested and options to purchase 20,000 shares had
reverted back to this plan. Options to purchase 319,821 shares are outstanding
and unvested, of which 62,501 will vest upon the completion of the Offering. The
remaining outstanding and unvested options (not vesting upon the completion of
the Offering) will vest through the year 2000. The options were granted at
exercise prices of $13.55 and $ . All of the options granted under this plan
were granted at exercise prices representing amounts equal to or exceeding the
fair market value of the Common Stock as determined by the Compensation
Committee at the time of the grant.
1996 EMPLOYEE STOCK OPTION PLAN. The Company's 1996 Employee Stock Option
Plan was created as part of the Transitional Merger. The Board of Directors of
the Company adopted and the shareholders of the Company approved the Company's
1996 Employee Stock Option Plan. Awards under this plan are permitted to be
granted to employees of the Company in the form of non-qualified or incentive
stock options. This Plan may be terminated by the Board of Directors at any
time.
A total of 66,644 shares of Common Stock (which includes the Stock Dividend
and is reduced to reflect the Reverse Stock Split) were reserved for issuance
pursuant to the 1996 Employee Stock Option Plan, subject to anti-dilution
provisions. As of March 26, 1997, incentive options to purchase all 66,644
shares of Common Stock had been granted under this plan to certain former
employees of Transitional at an exercise price of $8.44 a share, of which
options to purchase 47,520 shares were vested and options to purchase 2,244
shares had reverted back to the plan. These options replaced options to acquire
shares of Transitional's common stock. All of the options granted under this
plan were granted at exercise prices
49
<PAGE>
equivalent to the exercise prices of options held by former employees of
Transitional before the Transitional Merger and were equal to or in excess of
the fair market value of the Common Stock as determined by the Compensation
Committee at the time of the grants.
1997 STOCK PLAN. The Board of Directors of the Company has adopted and the
shareholders of the Company have approved the Company's 1997 Stock Plan. Awards
under this plan are permitted to be granted to officers, directors and key
employees in the form of non-qualified stock options, incentive stock options,
restricted stock or stock appreciation rights. This Plan may be terminated by
the Board of Directors at any time.
A total of 500,010 shares (reflecting the Reverse Stock Split) of Common
Stock are reserved for issuance pursuant to the 1997 Stock Plan, subject to
anti-dilution provisions. As of March 26, 1997, options to purchase 25,781
shares had been granted under this plan at an exercise price of $ , none of
which were vested. All of such options were granted at exercise prices
representing the fair market value of the Common Stock as determined by the
Compensation Committee at the time of the grants.
The 1997 Stock Plan also provides for the grant of non-qualified stock
options to non-employee, non-affiliate directors ("Outside Directors") of the
Company. This Plan is intended to allow the Outside Directors receiving grants
to be disinterested persons as defined in Rule 16b-3 ("Rule 16b-3") of the
Exchange Act with respect to the Company's Stock Plans and, accordingly, is
intended to be self-governing with respect to the Outside Directors to the
extent required by Rule 16b-3.
Under the terms of the 1997 Stock Plan, 107,145 shares will be reserved for
issuance to Outside Directors and each person who is elected or appointed as an
Outside Director will be automatically granted options to purchase 10,700 shares
of Common Stock at the time of his or her election or appointment. Commencing in
1998, each person who is an Outside Director on July 1 of each year during the
term of this plan will receive options to purchase 2,150 shares of Common Stock.
Options issued to Outside Directors under this plan become exercisable on the
first anniversary of the date of the grant. All options granted to Outside
Directors under this plan will be non-qualified stock options and will be
exercisable for ten years from the date of each grant. The exercise price of
such options shall be equal to the average closing bid price for the 20 trading
days before the Company's annual meeting of shareholders.
ADMINISTRATION OF THE PLANS. Each of the Stock Plans is administered by the
Compensation Committee of the Board of Directors, except for grants to Outside
Directors under the 1997 Stock Plan, which are intended to be self-governing to
the extent required by Rule 16b-3. The Compensation Committee determines the
persons to whom, and the times at which, awards are granted, the type of awards
granted and all other related terms and conditions of the awards, subject to
certain limitations set forth in the respective plans. Under each of the Stock
Plans, the Compensation Committee must consist of at least three directors,
including, in certain instances, the Chairman of the Board. With respect to any
options or awards to any "insider" (within the meaning of Rule 16a-2 promulgated
under the Exchange Act), the Compensation Committee must consist of at least two
directors who are "disinterested persons" under Rule 16b-3 and all authority and
discretion must be exercised by the "disinterested persons." In this regard, Mr.
Eaton, as Chairman of the Board, does not vote and does not exercise any
authority or discretion with respect to any options or awards to any such
"insider".
401(K) PLAN
The Company has a defined contribution plan (the "401(k) Plan") pursuant to
which employees with at least 15 months of service are eligible to participate.
Participants may not contribute more than $9,500 or 15.0% of their pre-tax total
compensation. In 1996, the matching contributions paid by the Company totaled
approximately $91,743.
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<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee are Messrs. Eaton, Paul
and Ortenzio and Mr. Paul is the chairman. W. Scott Miller served as a member of
the Compensation Committee until his resignation from the Board on August 1,
1996, at which time Mr. Ortenzio was appointed to the Compensation Committee.
Mr. Eaton is the Chairman of the Board, President and Chief Executive Officer of
the Company. Neither Mr. Paul or Mr. Ortenzio has been an officer or an employee
of the Company at any time.
TRANSACTIONS WITH MR. PAUL AND AFFILIATES. Mr. Paul, an affiliate of WCAS
VI, WCAS Capital Partners II, L.P. ("WCAS Capital") and WCAS Healthcare, is a
director of the Company and the chairman of the Compensation Committee.
In January 1996, pursuant to the Transitional Merger, Mr. Paul, WCAS VI,
WCAS Capital and WCAS Healthcare received 7,912, 2,875,351, 406,562 and 67,629
shares of Special Voting Common Stock (reflecting the Settlement Agreement as
defined below), respectively, and Mr. Paul, WCAS VI and WCAS Healthcare also
received 318, 115,810 and 2,780 shares of the Company's Series C Preferred
Stock, respectively, in exchange for shares of Transitional's common and
preferred stock. The Special Voting Common Stock will be converted into
2,398,097 shares of Common Stock and the Series C Preferred Stock will be
converted into shares of Common Stock upon the closing of the Offering.
Effective January 31, 1997, Mr. Paul, WCAS VI and WCAS Healthcare acquired
327, 119,340 and 2,865 shares of Common Stock, respectively, from Mr. Eaton for
an aggregate purchase price of $933,324, or $8.40 per share. Effective January
31, 1997, Mr. Paul, WCAS VI and WCAS Healthcare acquired 114, 41,338 and 993
shares of Series D Preferred Stock, respectively, from the Company for an
aggregate purchase price of $4,244,500, or $100 per share. WCAS Capital acquired
44,250 shares of Series E Redeemable Preferred Stock and 58,506 shares of Common
Stock effective January 31, 1997, for an aggregate purchase price of $4,425,000,
or $100 per unit. See "Certain Transactions." The Series D Preferred Stock will
be converted into 360,933 shares of Common Stock (not reflecting the Reverse
Stock Split) and the Series E Redeemable Preferred Stock will be redeemed upon
the closing of the Offering, and accrued but unpaid dividends thereon will be
paid upon redemption.
The Company believes, based on available information regarding the Company
and its financial condition and prospects and recent sales of the Company's
securities, that all of the shares sold to Mr. Paul and his affiliates were sold
at prices equal to the fair market value per share of the stock on the date of
the respective sales.
In addition, WCAS Capital holds 96% of the Subordinated Debt that will be
repaid with a portion of the proceeds of the Offering.
TRANSACTIONS WITH MR. ORTENZIO AND AFFILIATES. In January 1996, pursuant to
the Transitional Merger, Mr. Ortenzio received 1,884 shares of Special Voting
Common Stock and Horizon Investment Associates II ("Horizon"), an affiliate of
Mr. Ortenzio, received 39,562 shares of Special Voting Common Stock and 1,588
shares of Series C Preferred Stock. The Special Voting Common Stock will be
converted into 29,604 shares of Common Stock and the Series C Preferred Stock
will be converted into shares of Common Stock upon the closing of the
Offering.
Effective January 31, 1997, Horizon acquired 567 shares of Series D
Preferred Stock from the Company for an aggregate purchase price of $56,700, or
$100 per unit. See "Certain Transactions." These shares of Series D Preferred
Stock will be converted into 4,821 shares of Common Stock upon the closing of
the Offering.
The Company believes, based on available information regarding the Company
and its financial condition and prospects and recent sales of the Company's
securities, that all of the shares sold to
51
<PAGE>
Mr. Ortenzio and his affiliates were sold at prices equal to the fair market
value per share of the stock on the date of the sale.
TRANSACTIONS WITH MR. EATON AND AFFILIATES. On January 15, 1996, Mr. Eaton
exercised options granted to him under the Company's 1992 Stock Option Plan to
purchase 111,110 shares of Common Stock at an exercise price of $.2944 per
share. Effective January 31, 1997, Mr. Eaton sold such shares of Common Stock to
Mr. Paul, WCAS VI, WCAS Healthcare and others for an aggregate purchase price of
$933,324, or $8.40 per share.
Mr. Eaton has outstanding options to acquire 119,049 and 35,715 shares of
Common Stock at the exercise prices of $13.55 and $ per share. Mr. Eaton
abstained and will continue to abstain from voting on matters before the
Compensation Committee in which he had or has a direct financial interest and he
will not vote or exercise any authority or discretion with respect to any option
or awards to or on any matters affecting any "insider" (within the meaning of
Rule 16a-2 promulgated under the Exchange Act).
The Company believes, based on available information regarding the Company
and its financial condition and prospects and recent sales of the Company's
securities, that all of the options granted to Mr. Eaton were granted at a price
equal to or greater than the fair market value per share of the stock on the
date of the grant.
As part of the Transitional Merger, holders of Common Stock (the "Centennial
Holders") and holders of the Special Voting Common Stock (the "THS Holders")
placed into escrow the shares of Common Stock or Special Voting Common Stock,
respectively, representing the Stock Dividend. The shares were to be held in
escrow as indemnification for settlement of post-closing purchase price
adjustments resulting from, imposed upon or incurred by either Centennial or
Transitional. The Centennial Holders placed 232,164 shares of Common Stock (not
reflecting the Reverse Stock Split) and the THS Holders placed 426,327 shares of
Special Voting Common Stock into the escrow. On January 31, 1997, Mr. Eaton as
representative of the Centennial Holders (the "Centennial Agent") and Mr. Paul
as representative of the THS Holders (the "THS Agent") entered into a settlement
agreement (the "Settlement Agreement") whereby the parties agreed to settle any
and all claims for indemnification by having the THS Holders transfer 304,218
shares of Special Voting Common Stock or cash in lieu thereof at a value for
such purpose of $8.40 per share. The Centennial Holders received cash or shares
of Special Voting Common Stock as designated in the Settlement Agreement. The
THS Holders transferred 85,816 shares of Special Voting Common Stock to the
Centennial Holders and $1.83 million cash in lieu thereof to the Centennial
Holders. Mr. Eaton received $1.14 million cash in lieu of his pro-rata portion
of shares of Special Voting Common Stock. Certain of the THS Holders, including
Messrs. Paul and Hoover, received their pro rata portion of 122,109 shares of
Special Voting Common Stock released from escrow pursuant to the Settlement
Agreement.
EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL ARRANGEMENTS
On December 31, 1995, the Company entered into employment agreements with
Messrs. Eaton, Dahl, Fosha and Bufford (the "Employment Agreements"). The
Employment Agreements provide for a base salary, an annual bonus, and an amount
for fees incurred for legal, accounting or other professional advice. The basic
salaries for Messrs. Eaton, Dahl, Fosha and Bufford total $300,000, $175,000,
$175,000 and $250,000, respectively. These base salaries are reviewed at least
once annually on May 1 by the Board of Directors to determine whatever increase
may be merited, with the minimum annual increase equal to the increase in the
Consumer Price Index as published by the U.S. Department of Labor, Bureau of
Statistics, for the period since the last annual review. In addition, each of
these employees is eligible to participate in the 1996 Executive Stock Option
Plan, management incentive programs, retirement, welfare and other benefit plans
or programs of the Company, including, at the Company's sole expense, health,
dental and hospitalization insurance coverage. Unless earlier terminated as
provided therein, the
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<PAGE>
Employment Agreements continue until December 31, 1998 (or 1999 for Mr. Eaton),
and extend automatically each day for an additional day so that the remaining
term continues to be two years for Mr. Eaton and one year for Messrs. Dahl,
Fosha and Bufford. The Company can terminate such agreements upon the death or
disability of an employee or for cause as defined therein. Each employee may
terminate his employment for any reason within a 90-day period beginning on the
30th day after a Change in Control of the Company (as defined below) or within a
90-day period beginning on the one-year anniversary of a Change in Control. If
Centennial terminates an Employment Agreement, or if an employee terminates his
employment for Good Reason (as defined below) upon a Change in Control, then the
Company must pay the employee (or, in the case of death, the employee's estate)
for 12 consecutive months thereafter (24 months in the case of Mr. Eaton) the
greater of one-twelfth of his salary at the rate in effect on his termination
date or at the highest rate in effect at any time during the 90-day period prior
to a Change in Control, as well as all amounts of his base salary that are
deferred under the Company's qualified and non-qualified employee benefit plans
of or any other agreement or arrangement. In addition, the restrictions on the
employee's outstanding incentive awards, including stock options, would lapse
and such incentive awards would immediately vest. Under each of the Employment
Agreements, the employee agrees to maintain the confidentiality of the Company's
trade secrets and agrees, for a period of one year following termination, not to
compete with or solicit employees or customers of the Company. For the purposes
of the Employment Agreements, Good Reason includes an occurrence after a Change
in Control including an adverse change in the employee's status, title, position
or responsibilities; reduction in base salary or other compensation or benefits;
or a material breach of the terms of the Employment Agreements. A Change of
Control includes an acquisition of the Company's voting securities of forty
percent or more; a merger, consolidation or reorganization involving the Company
unless at least two-thirds of the combined voting power of the corporation
resulting from such merger, consolidation or reorganization is owned in
substantially the same proportion as before such merger, consolidation or
reorganization and the persons serving as directors before such merger,
consolidation or reorganization constitute at least two-thirds of the directors
of the surviving corporation; a complete liquidation or dissolution of the
Company; or an agreement for the sale or disposition of all or substantially all
of the Company's assets.
In connection with the Transitional Merger, the Company assumed the
obligations of Transitional and Paragon under an employment agreement dated
December 1, 1994 with Laurence W. Lepley, Jr., who serves as president of
Paragon, a subsidiary of Centennial (the "Lepley Agreement"). The Lepley
Agreement provides for an annual base salary of $125,000 (subject to annual
increases) and annual bonus, allows participation in the 1996 Employee Stock
Option Plan and provides for health, dental and short and long-term disability
insurance and an automobile allowance. The initial term ends on December 31,
1997, but extends for additional one-year periods, unless either party gives
written notice of termination at least 30 days before the end of the then
current term. Transitional may terminate Mr. Lepley's employment upon his death
or his disability, or for good cause as defined therein. If Mr. Lepley's
employment is terminated for any other reason or if he terminates his employment
for constructive discharge, he is entitled to a lump sum severance payment in an
amount equal to his salary for the most recent nine month period prior to
termination of employment. Mr. Lepley agrees to maintain the confidentiality of
the Company's trade secrets and agrees for a period of one year following his
termination not to compete with or solicit employees or customers of the
Company.
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CERTAIN TRANSACTIONS
On January 30, 1997, the Company sold to a company controlled by Mr. Eaton,
the stock of certain indirect subsidiaries of the Company, WelCare Consolidated
Resources Corporation of America, WelCare Service Corporation-II, WelCare
Service Corporation-IV, WelCare Service Corporation-V and WelCare Service
Corporation-VI (collectively, the "GP Corporations"). The GP Corporations serve
as corporate general partners of certain public and private limited partnerships
which own facilities managed by Centennial. The accounting rules which govern
the Company have required it to include in its financial statements certain
profits and losses of these partnerships which have tended to vary greatly from
year to year. As a result of the sale of the stock of the GP Corporations,
Centennial will not be required to include such profits and losses in its
consolidated financial statements for future periods. The Eaton controlled
company purchased the GP Corporations for nominal consideration and the Board of
Directors believes it is highly unlikely that Mr. Eaton or such company will
realize any profit from owning the GP Corporations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Mr. Eaton owns 100% of the common stock of Centennial Employee Management
Corporation ("CEMC"). Centennial leases its facility-based employees at cost
from CEMC on a pass through basis. CEMC was set up to take advantage of reduced
workers' compensation and group health insurance rates and passes on these
insurance cost savings to the Company. Mr. Eaton receives no economic benefit
from his ownership of this entity.
Mr. Eaton owns 70% of the issued and outstanding stock of WelCare Management
Services, Inc. ("Services"). Services owns The Health and Rehabilitation Centre
at Dolphins View ("Dolphins View"), which is managed by the Company. Services
exercised its right of first refusal to purchase the property from an
unaffiliated owner and purchased Dolphins View in 1994. Dolphins View paid
Centennial $125,634 as management fees in 1996.
Ashton Woods Rehabilitation Center ("AWRC"), which is leased by the Company,
is owned by Ashton Woods Limited Partnership. Mr. Dahl owns all of the
outstanding stock of the corporate general partner of this partnership. Mr. Dahl
receives no economic benefit from his ownership of this entity.
A portion of the Subordinated Debt, which is to be repaid with a portion of
the proceeds of the Offering, is held by WCAS Capital. Messrs. Paul and Hoover,
directors of the Company, serve as general partners of the sole general partner
of WCAS Capital. See "Use of Proceeds."
WCAS VI, WCAS Healthcare, Mr. Hoover (individually and through his IRA) and
Mr. Paul hold shares of Series D Preferred Stock which will be automatically
converted into shares of Common Stock upon the closing of the Offering. Messrs.
Paul and Hoover, directors of the Company, are affiliates of these entities.
These parties acquired their shares of Series D Preferred Stock effective
January 31, 1997, for $100 per share.
WCAS VI, WCAS Healthcare, WCAS Capital, Mr. Paul and Mr. Hoover are parties
to the Stock Repurchase Agreement, which provides that Centennial will acquire,
to the extent net proceeds are received from the sale of Common Stock pursuant
to the exercise of the Underwriters' over-allotment option, shares of Common
Stock, at the Price to Public, pro rata from the Former Holders (including WCAS
VI, WCAS Capital, WCAS Healthcare, Mr. Paul and Mr. Hoover).
WCAS VI holds 44,250 shares of Series E Redeemable Preferred Stock, which is
to be redeemed with a portion of the proceeds of the Offering. WCAS VI acquired
the Series E Redeemable Preferred Stock effective January 31, 1997, for $100 a
unit (which unit included one share of Series E Redeemable Preferred Stock and
1.85102 shares of Common Stock not reflecting the Reverse Stock Split) and will
receive $4,425,000 for the Series E Redeemable Preferred Stock upon the closing
of the Offering, exclusive of dividends accrued at 10% from January 31, 1997 to
the date of the closing of the Offering, which will be paid from operating cash
flow. Messrs. Paul and Hoover are general partners of the sole general partner
of WCAS VI. See "Use of Proceeds."
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On January 31, 1997, Mr. Eaton as the Centennial Agent and Mr. Paul as the
THS Agent entered into the Settlement Agreement pursuant to which the parties
agreed to settle any and all claims for indemnification with respect to the
Transitional Merger by having the THS Holders transfer 85,816 shares of Special
Voting Common Stock (not reflecting the Reverse Stock Split) and $1.83 million
cash in lieu thereof to the Centennial Holders. Mr. Eaton received $1.14 million
and Mr. Fosha received $36,800 cash in lieu of their pro rata portions of shares
of Special Voting Common Stock. Mr. Dahl received 5,881 shares of Common Stock
as his pro rata portion of shares of Special Voting Common Stock (not reflecting
the Reverse Stock Split). WCAS VI, WCAS Capital, WCAS Healthcare and Messrs.
Paul and Hoover received their pro rata portion of 122,109 shares of Special
Voting Common Stock released from escrow pursuant to the Settlement Agreement.
Prior to consummation of the Transitional Merger, Mr. Bufford borrowed
$528,480 from Transitional to purchase 330,300 shares of Transitional's common
stock, which shares were converted into 61,684 shares of Special Voting Common
Stock upon the Transitional Merger. Pursuant to a Promissory Note for $528,480
dated December 31, 1995, the original principal amount and accrued but unpaid
interest must be repaid on or before December 31, 2005. Interest accrues at an
annual rate equal to the prime rate (as announced by CoreStates from time to
time) plus 1%. Repayment of the note is secured by a pledge of all of Mr.
Bufford's shares of Common Stock.
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Common Stock as of March 1, 1997 and as adjusted to
give effect to the sale of the shares of Common Stock offered by the Company in
the Offering, by (i) each person known by the Company to be a beneficial owner
of more than 5% of the Common Stock, (ii) each director of the Company, (iii)
each of the Named Executive Officers and (iv) all directors and executive
officers of the Company as a group. Except as otherwise specified, the named
beneficial owner has sole voting and investment power.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
BEFORE THE OFFERING (1) AFTER THE OFFERING (1)
------------------------------ -------------------------
NAME NUMBER PERCENT NUMBER PERCENT
- -------------------------------------------------------------- ---------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Welsh, Carson, Anderson & Stowe VI, L.P....................... --(2) -- --
J. Stephen Eaton.............................................. 1,184,917(3) 1,184,917
South Atlantic Venture Fund II, Limited Partnership........... 837,818(4) 837,818
WCAS Capital Partners II, L.P................................. 348,913(5) 348,913
South Atlantic Venture Fund III, Limited Partnership.......... 213,569(6) 213,569
Randall J. Bufford............................................ 154,769(7) 154,769
Alan C. Dahl.................................................. 67,391(8) 67,391
Kent C. Fosha, Sr............................................. 50,793(9) 50,793
WCAS Healthcare Partners L.P.................................. --(10) --
Laurence W. Lepley, Jr........................................ --(11) --
Andrew M. Paul................................................ --(12) --
James B. Hoover............................................... --(13) --
Robert A. Ortenzio............................................ 1,345(14) 1,345
Horizon Investment Associates II.............................. --(15) --
All directors and executive officers as a group (14
persons)..................................................... -- --
</TABLE>
- ------------------
* Less than 1.0% of the outstanding Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes general voting power and/or
investment power with respect to securities. Shares of Common Stock subject
to options currently exercisable within sixty days of March 1, 1997 are
deemed outstanding for computing the percentage of ownership of the option
holder. Assumes no exercise of Underwriter's over-allotment option.
(2) Includes shares issuable upon the conversion of Special Voting
Common Stock, Series C Preferred Stock and Series D Preferred Stock into
Common Stock upon the closing of the Offering. The shareholder's address is
320 Park Avenue, Suite 2500, New York, New York 10022-6815.
(3) Includes 52,084 shares purchasable upon exercise of stock options that are
currently exercisable or will become exercisable within 60 days of March 1,
1997. The shareholder's address is 400 Perimeter Center Terrace, Suite 650,
Atlanta, Georgia 30346.
(4) Includes 805,634 shares issuable upon the conversion of Special Voting
Common Stock, Series A and B Preferred Stock and Series D Preferred Stock
into Common Stock upon the closing of the Offering. Does not include 1,448
shares of Series E Redeemable Preferred Stock not convertible into Common
Stock and to be redeemed with a portion of the proceeds of the Offering. The
shareholder's address is 614 West Bay Street, Suite 200, Tampa, Florida
33606-2704.
(5) Includes 290,407 shares issuable upon the conversion of Special Voting
Common Stock into Common Stock upon the closing of the Offering. Does not
include 44,250 shares of Series E Redeemable Preferred Stock to be redeemed
with a portion of the proceeds of the Offering. The shareholder's address is
320 Park Avenue, Suite 2500, New York, New York 10022-6815.
(6) Includes 174,834 shares issuable upon the conversion of Special Voting
Common Stock, Series B Preferred Stock and Series D Preferred Stock into
Common Stock upon the closing of the Offering. Does not include 4,302 shares
of Series E Redeemable Preferred Stock not convertible into Common Stock.
The shareholder's address is 614 West Bay Street, Suite 200, Tampa, Florida
33606-2704.
(7) Includes 38,107 shares purchasable upon exercise of stock options that are
currently exercisable or will become exercisable within 60 days of March 1,
1997, and 129,967 shares issuable upon conversion of Special Voting Common
Stock into Common Stock upon the closing of the Offering, which shares are
pledged to Centennial to secure repayment of a promissory note in the amount
of $528,480. The shareholder's address is 400 Perimeter Center Terrace,
Suite 650, Atlanta, Georgia 30346.
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<PAGE>
(8) Includes 17,361 shares purchasable upon the exercise of stock options that
are currently exercisable or will become exercisable within 60 days of March
1, 1997 and 4,200 shares issuable upon the conversion of Special Voting
Common Stock into Common Stock. The shareholder's address is 400 Perimeter
Center Terrace, Suite 650, Atlanta, Georgia 30346.
(9) Includes 29,266 shares purchasable upon exercise of stock options that are
currently exercisable or will become exercisable within 60 days of March 1,
1997. The shareholder's address is 400 Perimeter Center Terrace, Suite 650,
Atlanta, Georgia 30346.
(10) Includes shares issuable upon the conversion of Special Voting Common
Stock, Series C Preferred Stock and Series D Preferred Stock into Common
Stock upon the closing of the Offering. The shareholder's address is 320
Park Avenue, Suite 2500, New York, New York 10022-6815.
(11) Includes 6,542 shares purchasable upon exercise of stock options that are
currently exercisable and shares issuable upon the conversion of
Special Voting Common Stock and Series C Preferred Stock into Common Stock
upon the closing of the Offering. The shareholder's address is 400 Perimeter
Center Terrace, Suite 650, Atlanta, Georgia 30346.
(12) Includes shares issuable upon the conversion of Special Voting Common
Stock, Series C Preferred Stock and Series D Preferred Stock into Common
Stock upon the closing of the Offering. Does not include shares held by WCAS
VI, WCAS Capital, or WCAS Healthcare, of which entities Mr. Paul serves as a
general partner or is an affiliate. Mr. Paul disclaims beneficial ownership
of these shares. The shareholder's address is 320 Park Avenue, Suite 2500,
New York, New York 10022-6815.
(13) Includes shares held by the James Hoover IRA which are issuable upon
the conversion of Special Voting Common Stock and Series C Preferred Stock
into Common Stock and shares owned directly which are issuable upon the
conversion of Special Voting Common Stock, Series C Preferred Stock and
Series D Preferred Stock into Common Stock upon the closing of the Offering.
Does not include shares held by WCAS VI, WCAS Capital or WCAS Healthcare, of
which Mr. Hoover serves as a general partner or is an affiliate. Mr. Hoover
disclaims beneficial ownership of these shares. The shareholder's address is
320 Park Avenue, Suite 2500, New York, New York 10022-6815.
(14) Includes 1,345 shares issuable upon the conversion of Special Voting Common
Stock into Common Stock upon the closing of the Offering. Does not include
shares held by Horizon Investment Associates II, of which Mr. Ortenzio
is an affiliate, issuable upon conversion of Special Voting Common Stock,
Series C Preferred Stock and Series D Preferred Stock into Common Stock upon
the closing of the Offering. Mr. Ortenzio disclaims beneficial ownership of
such shares. The shareholder's address is 4718 Old Gettysburg Road,
Mechanicsburg, Pennsylvania 17055.
(15) Includes shares issuable upon the conversion of Special Voting Common
Stock, Series C Preferred Stock and Series D Preferred Stock into Common
Stock upon the closing of the Offering. The shareholder's address is 4718
Old Gettysburg Road, Mechanicsburg, Pennsylvania 17055.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of the Company is only a
summary and is subject to the provisions of the Articles and Bylaws, copies of
which have been included as exhibits to the Registration Statement of which this
Prospectus forms a part, and the provisions of Georgia law. The following
discussion is qualified in its entirety by reference to such exhibits.
The authorized capital stock of the Company, without giving effect to the
Reverse Stock Split, consists of 50,000,000 shares of Common Stock, $.01 par
value per share (the "Common Stock"); 5,000,000 shares of Special Voting Common
Stock, no par value per share (the "Special Voting Common Stock"); 205,651
shares of Series A Convertible Preferred Stock, $11.0011 par value per share
(the "Series A Preferred Stock"); 328,892 shares of Series B Convertible
Preferred Stock, $8.7377 par value per share (the "Series B Preferred Stock");
144,086 shares of Series C Convertible Preferred Stock, $1.00 par value per
share (the "Series C Preferred Stock"); 50,000 shares of Series D Convertible
Preferred Stock, $1.00 par value per share (the "Series D Preferred Stock"); and
50,000 shares of Series E Redeemable Preferred Stock, $1.00 par value per share
(the "Series E Redeemable Preferred Stock"). Giving effect to the Reverse Stock
Split, all shares of Special Voting Common Stock, Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
currently issued and outstanding will be automatically converted by their terms
into 3,047,326 shares, 625,598 shares, 261,028 shares, shares and
425,173 shares of Common Stock, respectively, upon the closing of the Offering.
A portion of the proceeds of the Offering will be used to redeem all of the
Series E Redeemable Preferred Stock. Accordingly, no information regarding the
currently outstanding shares of such classes is set forth below. As of March 1,
1997, there were shares of Common Stock issued and outstanding (giving
effect to the conversion of the Special Voting Common Stock, Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock into Common Stock and the redemption of the Series E Redeemable Preferred
Stock) and approximately 66 holders of record of Common Stock. To the extent of
the net proceeds attributable to the sale of shares of Common Stock pursuant to
the Underwriters' exercise of their over-allotment option, the Company plans to
repurchase shares of Common Stock at the Price to Public pro rata from the
Former Holders.
Each holder of Common Stock is entitled to one vote for each share held on
all matters submitted to a vote of shareholders. Holders of Common Stock are
entitled to such dividends as may be declared from time to time by the Board of
Directors out of funds legally available therefore, and subject to the dividend
restrictions in certain bank credit facilities the Company has with its lenders.
See "Dividend Policy." The holders of Common Stock will share ratably in all
assets of the Company remaining after the payment of liabilities in the event of
the liquidation, dissolution or winding-up of the Company. There are no
preemptive or subscription rights (other than the rights of option holders),
conversion rights, or redemption or sinking fund provisions with respect to the
Common Stock. All of the Company's presently issued and outstanding Common Stock
is fully paid and nonassessable.
Under the Articles, the Board of Directors has the authority to issue
50,000,000 shares of preferred stock in one or more classes or series, and,
within certain limitations, to determine the voting rights (including the right
to vote as a series on particular matters), preferences as to dividends and in
liquidation and conversion and other rights of such series. Centennial has no
current plans to issue any shares of such preferred stock. The rights of the
holders of Common Stock discussed above are subject to such rights as the Board
of Directors may hereafter confer on the holders of the preferred stock, which
rights may adversely affect the rights of holders of Common Stock.
CERTAIN PROVISIONS OF THE ARTICLES, BYLAWS AND GEORGIA LAW
CLASSIFICATION OF BOARD OF DIRECTORS. The Articles and Bylaws of the
Company divide the Board of Directors into three classes, designated as Class I,
Class II and Class III, respectively, each class to be as nearly equal in number
as possible. The term of Class I, Class II and Class III directors will expire
at the
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1998, 1999 and 2000 annual meetings of shareholders, respectively, and in all
cases directors elected will serve until their respective successors are elected
and qualified. At each annual meeting of shareholders, directors will be elected
to succeed those in the class whose terms then expire, each elected director to
serve for a term expiring at the third succeeding annual meeting of shareholders
after such director's election, and until the director's successor is elected
and qualified. Thus, directors elected stand for election only once in three
years.
ADDITIONAL DIRECTORSHIPS, VACANCIES AND REMOVAL OF DIRECTORS. The Bylaws of
the Company provide that the Board shall consist of up to nine members, the
exact number to be determined by resolution of the Board from time to time.
Under the Georgia Business Corporation Code (the "GBCC"), the Articles and
Bylaws, the Board of Directors is authorized to create additional directorships
and abolish any vacant directorships, so long as the size of the Board does not
exceed nine Directors. Newly-created directorships and vacancies may be filled
by a majority of directors then in office to hold office until the next annual
meeting of shareholders and until their successors are elected and qualified.
SHAREHOLDER RIGHTS PLAN. The Board of Directors intends to put a
shareholder rights plan into effect upon the completion of the Offering.
ADVANCE NOTICE REQUIREMENTS FOR SHAREHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. The Bylaws establish an advance notice procedure for the
nomination, other than by or at the direction of the Board or a committee
thereof, of candidates for election as directors (the "Nomination Procedure") as
well as for other shareholder proposals to be considered at annual shareholders'
meetings. Notice to the Company from a shareholder who proposes to nominate a
person at a meeting for election as a director generally must be given not less
than 120 nor more than 150 days prior to the anniversary of the date notice of
the annual meeting of shareholders was given in the preceding year and contain,
(i) the name and record address of the shareholder who intends to make the
nomination, (ii) the name, age and residence address of the nominee, (iii) the
principal occupation or employment of the nominee, (iv) the class, series and
number of shares held of record, beneficially and by proxy, by the shareholder
and the nominee as of the record date of such meeting (if such record date is
publicly available) and as of the date of such notice, and (v) such other
information relating to the nominee proposed by such shareholder as is required
to be included in a proxy statement or otherwise required pursuant to Regulation
14A under the Securities Exchange Act of 1934, including the written consent of
each nominee to be named in the proxy statement and to serve as a director of
the Company if so elected. The presiding officer of the meeting may refuse to
acknowledge the nomination of any person not made in compliance with the
Nomination Procedure. Similar advance notice must be given of any other proposed
business which a shareholder proposes to bring before an annual meeting of
shareholders. Such notice must contain (i) a brief description of the business
desired to be brought before the meeting and the reasons for conducting such
business at the meeting, (ii) the name and record address of the shareholder
proposing such business, (iii) the class, series and number of shares of the
Company's stock which are held of record, beneficially and by proxy by the
shareholder as of the record date of such meeting (if such record date is
publicly available) and as of the date of such notice, (iv) a description of all
arrangements or understandings between the shareholder and any other person or
persons (naming such person or persons) in connection with the proposing of such
business by the shareholder, and (v) any material interest of the shareholder in
such business. The purpose of requiring advance notice is to afford the Board an
opportunity to consider the qualifications of the proposed nominees or the
merits of other shareholder proposals and, to the extent deemed necessary or
desirable by the Board, to inform shareholders about those matters. Although the
advance notice provisions do not give the Board any power to approve or
disapprove shareholder nominations or proposals for action by the Company, they
may have the effect of precluding a contest for the election of directors or the
consideration of shareholder proposals if the procedures established by the
Bylaws are not followed and of discouraging or deterring a third-party from
conducting a solicitation of proxies to elect its own slate of directors or to
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<PAGE>
approve its own proposals, without regard to whether consideration of such
nominees or proposals might be harmful or beneficial to the Company and its
shareholders.
ANTI-TAKEOVER EFFECTS. The foregoing provisions of the Articles and Bylaws
could discourage potential acquisition proposals and could delay or prevent a
change in control of the Company. These provisions are intended to enhance the
continuity and stability of the Board and the policies formulated by the Board
and to discourage certain types of transactions that may involve an actual or
threatened change in control of the Company. These provisions are also designed
to reduce the vulnerability of the Company to an unsolicited acquisition
proposal and to discourage certain tactics that may be used in proxy fights,
however, such provisions may discourage third parties from making tender offers
for the Company's shares. As a result, the market price of the Common Stock may
not benefit from any premium that might occur in anticipation of a threatened or
actual change in control. Such provisions also may have the effect of preventing
changes in the management of the Company.
FAIR PRICE REQUIREMENTS. The Bylaws adopt the Fair Price requirements of
the GBCC (O.C.C.A. Section 14-2-1110 ET SEQ.) which generally prohibits a
Georgia corporation from engaging in a "business combination" with an
"interested shareholder" unless the business combination is (i) unanimously
approved by the directors of the Company, or (ii) is recommended by at least
two-thirds of the directors of the Company and approved by a majority of the
votes entitled to be cast by the holders of Common Stock, other than the Common
Stock beneficially owned by the interested shareholder who is a party to the
business combination. For these purposes, "business combination" generally
includes any merger, asset-sale, share exchange, or other transaction resulting
in a financial benefit to an interested shareholder, define to mean a person who
is the beneficial owner of ten percent or more of the Common Stock.
GEORGIA BUSINESS COMBINATION STATUTE. The Bylaws also adopt the Georgia
Business Combination Statute (O.C.C.A. Section 14-2-1131 ET. SEQ.) which
generally prohibits various "business combinations" involving "interested
shareholders" for a period of five years after the shareholder becomes an
interested shareholder of the Company. Such provisions prohibit any business
combination with an interested shareholder unless either (i) prior to such time,
the Board of Directors approves either the business combination or the
transaction by which such shareholder became an interested shareholder, (ii) in
the transaction that resulted in the shareholder becoming an interested
shareholder, the interested shareholder became the beneficial owner of at least
90% of the outstanding voting stock of the Company which was not held by
directors, officers, affiliates thereof, subsidiaries or certain employee stock
option plans of the Company, or (iii) subsequent to becoming an interested
shareholder, such shareholder acquired additional shares resulting in such
shareholder owning at least 90% of the outstanding voting stock of the Company
and the business combination is approved by a majority of the disinterested
shareholders' shares not held by directors, officers, affiliates thereof,
subsidiaries or certain employee stock option plans of the Company. Under the
relevant provisions of the GBCC, a "business combination" is defined to include,
among other things, (i) any merger, consolidation, share exchange or any sale,
transfer or other disposition (or series of related sales or transfers) of
assets of the Company having an aggregate book value of 10% or more of the
Company's net assets (measured as of the end of the most recent fiscal quarter),
with an interested shareholder of the Company or any other corporation which is
or, after giving effect to such business combination, becomes an affiliate of
any such interested shareholder, (ii) the liquidation or dissolution of the
Company, (iii) the receipt by an interested shareholder of any benefit from any
loan, advance, guarantee, pledge, tax credit or other financial benefit from the
Company, other than in the ordinary course of business, and (iv) certain other
transactions involving the issuance or reclassification of securities of the
Company which produce the result that 5% or more of the total equity shares of
the Company, or of any class or series thereof, is owned by an interested
shareholder. An "interested shareholder" is defined by the GBCC to include any
person or entity that, together with its affiliates, beneficially owns or has
the right to own 10% or more of the outstanding voting shares of the Company, or
any person that is an affiliate of the Company and has, at any time within the
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preceding two-year period, been the beneficial owner of 10% or more of the
outstanding voting shares of the Company. The restrictions on business
combinations shall not apply to any person who was an interested shareholder
before the adoption of the Bylaws which made the provisions applicable to the
Company nor to any persons who subsequently become interested shareholders
inadvertently, subsequently divest sufficient shares so that the shareholder
ceases to be an interested shareholder and would not, at any time within the
five-year period immediately before a business combination involving the
shareholder have been an interested shareholder but for the inadvertent
acquisition.
LIMITATION ON DIRECTORS' LIABILITY
In accordance with the GBCC, the Articles provide that the directors of the
Company shall not be personally liable to the Company or its shareholders for
monetary damages for breach of fiduciary duty as a director except (i) for any
appropriation, in violation of its duties, of any business opportunity of the
Company, (ii) for acts or omissions which involve intentional misconduct or a
knowing violation of law, (iii) under Section 14-2-832 of the GBCC, which
relates to unlawful payments of dividends and unlawful stock repurchases and
redemptions; or (iv) for any transaction from which the director derived an
improper personal benefit. This provision does not eliminate a director's
fiduciary duties; it merely eliminates the possibility of damage awards against
a director personally which may be occasioned by certain unintentional breaches
(including situations that may involve grossly negligent business decisions) by
the director of those duties. The provision has no effect on the availability of
equitable remedies, such as injunctive relief or rescission, which might be
necessitated by a director's breach of his or her fiduciary duties. However,
equitable remedies may not be available as a practical matter where transactions
(such as merger transactions) have already been consummated. The inclusion of
this provision in the Articles may have the effect of reducing the likelihood of
derivative litigation against directors, and may discourage or deter
shareholders or management from bringing a lawsuit against directors for breach
of their duty of care, even though such an action, if successful, might
otherwise have benefitted the Company and its shareholders.
INDEMNIFICATION AND INSURANCE
The Articles and Bylaws provide that the Company shall indemnify and hold
harmless each of its directors, officers, employees and agents to the extent
that he or she is or was 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 by reason of the fact that such person
is or was a director, officer, employee or agent of the Company, against
expenses (including, but not limited to, attorneys' fees), judgments, fines and
amounts paid in settlement in connection with such action, suit or proceeding;
provided, however, that no indemnification shall be made for (i) any
appropriation, in violation of his duties, of any business opportunity of the
Company, (ii) acts or omissions which involve intentional misconduct or a
knowing violation of law, (iii) any liability under Section 14-2-832 of the
GBCC, which relates to unlawful payments of dividends and unlawful stock
repurchases and redemptions, or (iv) any transaction from which he derived an
improper personal benefit. The Company has the power, under its Bylaws, to
obtain insurance on behalf of any director, officer, employee or agent of the
Company against any liability asserted against or incurred by such person in any
such capacity, whether or not the Company has the power to indemnify such person
against such liability at that time under the Articles or Bylaws.
TRANSFER AGENT AND REGISTRAR
The proposed transfer agent and registrar for the Common Stock is
ChaseMellon Shareholder Services, L.L.C.
61
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
shares of Common Stock (based on the number of shares of Common
Stock outstanding and the number of shares convertible into Common Stock as of
March 1, 1997). Of these outstanding shares, the shares sold in the
Offering ( shares if the Underwriters' over-allotment option is
exercised in full) will be freely tradeable without restriction or further
registration under the Securities Act, except for shares purchased by
"affiliates" of the Company, as that term is defined in Rule 144 (which may
generally be sold only in compliance with Rule 144).
The remaining shares of Common Stock outstanding after the
Offering will be "restricted shares" (the "Restricted Shares") within the
meaning of Rule 144 and may not be sold except in compliance with the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act") or pursuant to an exemption from registration such as the
exemption provided by Rule 144. Substantially all of the Restricted Shares are
subject to the Lock-up Agreements (described below). Upon expiration of the
Lock-up Period (defined below), (i) approximately Restricted Shares
will be eligible for sale in the public market without restriction pursuant to
Rule 144(k) or Rule 701 and (ii) approximately Restricted Shares
will be eligible for sale in the public market, subject to the volume
limitations, manner of sale and other conditions of Rule 144.
The Company, all of its officers and directors, and substantially all of its
shareholders and option holders have agreed to enter into the Lock-up
Agreements. The Lock-up Agreements generally provide that the Company's
officers, directors, shareholders and option holders will not offer, sell or
otherwise dispose of any shares of Common Stock or any securities that are
convertible into or exercisable for Common Stock owned by them for a period of
180 days after the date of this Prospectus (the "Lock-up Period"), without the
prior written consent of Alex. Brown & Sons, Incorporated. Similarly, the
Company has agreed generally that it will not issue, offer, sell, grant options
to purchase or otherwise dispose of any of its equity securities during the
Lock-up Period, except that the Company may grant stock options under the Stock
Plans and issue shares of Common Stock upon the exercise of options previously
granted.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including persons deemed to be affiliates, whose
Restricted Shares have been fully paid for and held for at least a one-year
period (as computed under Rule 144), may sell such securities in brokers'
transactions or directly to market makers, provided the number of shares sold in
any three-month period does not exceed the greater of (i) 1% of the then
outstanding shares of Common Stock (approximately shares based on
the number of shares to be outstanding after the Offering) or (ii) the average
weekly trading volume of the Common Stock in the public market during the four
calendar weeks preceding the filing of the seller's Form 144 required to be
filed by Rule 144. Sales under Rule 144 are also subject to the availability of
current public information concerning the Company. A person (or persons whose
shares are aggregated) who is not deemed an affiliate of the Company at any time
during the 90 days immediately preceding a sale and whose Restricted Shares have
been fully paid for and held for at least a two-year period (as computed under
Rule 144), may sell such shares under Rule 144(k) without regard to the volume
and manner of sale limitations described above. In addition, Rule 144A
promulgated under the Securities Act ("Rule 144A") permits the immediate sale by
the current holders of Restricted Shares of all or a portion of their shares to
certain qualified institutional buyers as defined in Rule 144A.
The Securities and Exchange Commission has proposed certain amendments to
Rule 144 that would eliminate the manner of sale requirements and change other
conditions to the sale of shares in the public market under Rule 144. The
proposal is intended to ease compliance with Rule 144 and, if adopted, could
increase the number of shares of Common Stock sold in reliance on Rule 144
following the
62
<PAGE>
expiration of the Lock-up Period. No assurance can be given whether or when the
proposal to amend Rule 144 will be adopted by the Commission.
Substantially all of the approximately shares of Common Stock
which may be acquired upon the exercise of stock options which are vested or
which will vest during the Lock-up Period (collectively, the "Option Shares")
are subject to the Lock-up Agreements. The Option Shares, however, may be
eligible for resale following the expiration of the Lock-up Period (subject, in
the case of affiliates, to certain limitations) pursuant to Rule 701 or a Form
S-8 registration statement to be filed by the Company under the Securities Act.
See "Management -- Stock Plans." Additional options will continue to vest and
may be exercised and sold from time to time by option holders following the
expiration of the Lock-up Agreements.
The Company intends to file one or more registration statements on Form S-8
to register all shares of Common Stock issuable under the Company's Stock Plans
within 30 days after the date of this Prospectus and these registration
statements are expected to become effective immediately upon filing. Shares
covered by these registration statements will be eligible for sale in the public
market after the effective date of such registration statement and following the
expiration of the Lock-up Period, subject to Rule 144 limitations applicable to
affiliates of the Company. See "Management -- Stock Plans."
Sales of Common Stock in the public market, or the availability of such
shares for sale, could adversely affect the market price of the Common Stock and
make it more difficult for the Company to sell equity securities in the future
at a time and price which it deems appropriate. The Company is unable to
estimate accurately the number of Restricted Shares that will be sold in the
future under Rule 144 because such sales will depend in part on the market price
for the Common Stock, the personal circumstances of the sellers and other
factors.
REGISTRATION RIGHTS
J. Stephen Eaton, South Atlantic Venture Fund II, Limited Partnership, South
Atlantic Venture Fund III, Limited Partnership, WCAS VI, WCAS Capital, WCAS
Healthcare, CID Equity and certain of the holders of the Special Voting Common
Stock, or their respective transferees (collectively, the "Rights Holders") are
entitled to certain rights with respect to the registration under the Securities
Act of shares of Common Stock upon completion of the Offering (the
"Registrable Securities"). These rights are provided under the terms of a
Registration Rights Agreement dated as of December 31, 1995, as amended by a
First Amendment to Registration Rights Agreement dated as of January 31, 1997
(together, the "Registration Rights Agreement").
Pursuant to the Registration Rights Agreement, the Company granted to the
Rights Holders up to two demand registrations, subject to certain limitations
and other terms and conditions, upon the written demand from the holders of at
least a majority of the outstanding shares of Registrable Securities. In
addition to the demand registration rights described above, the Registration
Rights Agreement provides that the Company shall effect a registration on Form
S-3, subject to certain limitations and other terms and conditions, upon written
request of any Rights Holder. The Registration Rights Agreement also provides
that if the Company at any time or from time to time proposes to register any of
its securities under the Securities Act, on a form other than Form S-4 or S-8 or
any successor form, the Rights Holders are entitled to have their shares
included in such registration statement on a pro rata basis, subject to certain
limitations and other terms and conditions. Any registrations effected by the
Company pursuant to the Registration Rights Agreement are at the expense of the
Company.
In addition, the Rights Holders are permitted to participate in any
offering, subject to certain restrictions, in the event the Company proposes to
register any of its equity securities under the Securities Act. The Company has
agreed under the Registration Rights Agreement to indemnify the selling holders
of Registrable Securities against certain liabilities under the Securities Act.
Likewise, the Rights Holders have agreed under the Registration Rights Agreement
to indemnify the Company against certain liabilities under the Securities Act.
To the extent required, substantially all of the holders of the registration
rights described above have agreed to waive any right they may have to
participate in the Offering and not to exercise such registration rights for a
period of 180 days after the date of this Prospectus.
63
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their representatives,
Alex. Brown & Sons Incorporated, Dean Witter Reynolds Inc., Donaldson, Lufkin &
Jenrette Securities Corporation and Equitable Securities Corporation (the
"Representatives"), have severally agreed to purchase from the Company the
following respective numbers of shares of Common Stock at the initial public
offering price, less the underwriting discounts and commissions set forth on the
cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
-----------
<S> <C>
Alex. Brown & Sons Incorporated......................................................................
Dean Witter Reynolds Inc.............................................................................
Donaldson, Lufkin & Jenrette Securities Corporation..................................................
Equitable Securities Corporation.....................................................................
-----------
Total..........................................................................................
-----------
-----------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all shares of the Common Stock offered hereby if any of such shares are
purchased.
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession not in excess of $ per share. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per share to certain other dealers. After the initial public
offering, the offering price and other selling terms may be changed by the
Representatives.
The Company has granted to the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to
additional shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it shown in the above table bears to , and the Company will be
obligated, pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of the Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the shares are being offered.
Up to five percent of the shares of Common Stock offered hereby may be
reserved for sale to the Company's employees and certain other persons. Sales of
shares to such persons will be at the initial public offering price. The number
of shares available for sale to the general public may be reduced to the extent
such persons purchase such reserved shares. Any reserved shares not so purchased
will be offered by the Underwriters to the general public on the same terms as
the other shares offered hereby.
The Company has agreed to indemnify the Underwriters and certain controlling
persons against certain liabilities, including liabilities under the Securities
Act.
The Company and each of its directors and executive officers and certain of
its shareholders have agreed not to offer, sell or otherwise dispose of any
shares of Common Stock for a period of 180 days after the date of this
Prospectus without the prior written consent of Alex. Brown & Sons Incorporated,
except
64
<PAGE>
that the Company may issue, and grant options to purchase, shares of Common
Stock under the Stock Plans, and other currently outstanding options. See
"Shares Eligible for Future Sale."
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
During and after the Offering, the Underwriters may purchase and sell Common
Stock in the open market. These transactions may include over-allotment and
stabilizing transactions and purchases to cover syndicate short positions
created in connection with the Offering. The Underwriters may also impose a
penalty bid pursuant to which selling concessions allowed to Underwriters or
selected dealers in respect of shares sold in the Offering for their account may
be reclaimed by the Underwriters if such shares are repurchased by the
Underwriters in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Common Stock at
a level which may be higher than the price that might otherwise prevail in the
open market. These transactions may be effected on the Nasdaq National Market or
otherwise and these activities, if commenced, may be discounted at any time.
Prior to this offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price of the Common
Stock has been determined by negotiations between the Company and the
Representatives. The material factors to be considered in such negotiations are
prevailing market conditions, the results of operations of the Company in recent
periods, the market capitalization and stages of development of other companies
which the Company and the Representatives believe to be comparable to the
Company, estimates of the business potential of the Company and the present
stage of the Company's development.
65
<PAGE>
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Nelson Mullins Riley & Scarborough, L.L.P., 999 Peachtree Street,
Suite 1400, Atlanta, Georgia 30309. Paul A. Quiros, a partner at Nelson Mullins
Riley & Scarborough, L.L.P., beneficially owns 42,811 shares of Common Stock and
serves as the Company's secretary. Certain legal matters in connection with the
Offering will be passed upon and for the Underwriters by Waller Lansden Dortch &
Davis, A Professional Limited Liability Company, 511 Union Street, Suite 2100,
Nashville, Tennessee 37219.
EXPERTS
The consolidated balance sheet of Centennial HealthCare Corporation and
Subsidiaries as of December 31, 1995 and 1996, and the consolidated statements
of operations, shareholders' equity and cash flows, for the years ended December
31, 1995 and 1996, have been included herein and elsewhere in the Registration
Statement in reliance on the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
The consolidated balance sheets of Centennial and Subsidiaries as of May 31,
1995, and the consolidated statements of operations, shareholders' equity
(deficit), and cash flows for the years ended May 31, 1994 and 1995, have been
included herein and elsewhere in the Registration Statement in reliance on the
report of BDO Seidman, LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
The consolidated balance sheets of Transitional Health Services, Inc. and
Subsidiaries as of December 31, 1994 and 1995 and the consolidated statements of
operations, stockholders' equity (deficiency) and cash flows for the years ended
December 31, 1994 and 1995, have been included herein and elsewhere in the
Registration Statement in reliance on the report of Ernst & Young LLP,
independent auditors, given on the authority of that firm as experts in
accounting and auditing.
BDO Seidman, LLP, independent accountants, previously engaged as the
principal accountant to audit the Company's financial statements, was dismissed
on or about October 15, 1995. Coopers & Lybrand, L.L.P., independent
accountants, was engaged on or about February 6, 1996 as the principal
accountant to audit the Company's financial statements. The decision to change
accountants was recommended and approved by the Company's Board of Directors.
The principal accountant's report of BDO Seidman, LLP, on the financial
statements for the fiscal year ended May 31, 1995 did not contain an adverse
opinion or a disclaimer of opinion, nor was any such report qualified or
modified as to uncertainty, audit scope or accounting principles. During the
Company's fiscal year ended May 31, 1995 and the interim period preceding the
dismissal of BDO Seidman, LLP, there were no disagreements on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or disclosure.
ADDITIONAL INFORMATION
Centennial has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act with
respect to the shares of Common Stock offered hereby. This Prospectus omits
certain information contained in the Registration Statement, and reference is
made to the Registration Statement and the exhibits and schedules thereto for
further information with respect to the Company and the Common Stock offered
hereby. Statements contained herein concerning the provisions of any documents
are not necessarily complete, and in each instance reference is made to the copy
of such document filed as an exhibit to the Registration Statement. Each such
statement is qualified in its entirety by such reference. The Registration
Statement, including exhibits and schedules filed therewith, may be inspected
without charge at the public reference facilities maintained by the Commission
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549
and at the regional offices of the Commission located at Suite 1300, Seven World
Trade Center, New York, New York
66
<PAGE>
10048 and Suite 1400, Citicorp Center, 500 West Madison Street, Chicago,
Illinois 60661. Copies of such materials may be obtained from the Public
Reference Section of the Commission, Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. The Registration Statement, including the
exhibits and schedules thereto, is also available on the Commission's Web site
at http://www.sec.gov.
Upon completion of the Offering being made hereby, the Company will be
subject to the informational reporting requirements of the Securities Exchange
Act of 1934, as amended, and, in accordance therewith, will file reports, proxy
statements and other information with the Commission.
67
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
HISTORICAL
Report of Independent Accountants........................................................................ F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996............................................. F-3
Consolidated Statements of Income for the years ended December 31, 1995 and 1996......................... F-4
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1995 and 1996........... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1995 and 1996..................... F-6
Notes to Consolidated Financial Statements............................................................... F-7
Report of Independent Accountants........................................................................ F-23
Consolidated Balance Sheets as of May 31, 1994 and 1995.................................................. F-24
Consolidated Statements of Operations for the years ended May 31, 1993, 1994 and 1995.................... F-25
Consolidated Statements of Shareholders' Equity for the years ended May 31, 1993, 1994 and 1995.......... F-26
Consolidated Statements of Cash Flows for the years ended May 31, 1993, 1994 and 1995.................... F-27
Notes to Consolidated Financial Statements............................................................... F-28
TRANSITIONAL HEALTH SERVICES, INC. AND SUBSIDIARIES
Report of Independent Auditors........................................................................... F-41
Consolidated Balance Sheets as of December 31, 1994 and 1995............................................. F-42
Consolidated Statements of Operations for the years ended December 31, 1994 and 1995..................... F-43
Consolidated Statements of Stockholders' Equity (Deficiency) for the years ended December 31, 1994 and
1995................................................................................................... F-44
Consolidated Statements of Cash Flows for the years ended December 31, 1994 and 1995..................... F-45
Notes to Consolidated Financial Statements............................................................... F-46
</TABLE>
F-1
<PAGE>
After consummation of the proposed stock split, as discussed in Note 20,
Coopers & Lybrand, L.L.P. will be in a position to render the following report.
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors of
Centennial HealthCare Corporation
We have audited the accompanying consolidated balance sheets of Centennial
HealthCare Corporation and subsidiaries as of December 31, 1995 and 1996 and the
related consolidated statements of income, shareholders' equity and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Centennial HealthCare Corporation and subsidiaries as of December 31, 1995 and
1996 and the consolidated results of their operations and their cash flows for
the years then ended, in conformity with generally accepted accounting
principles.
Atlanta, Georgia
March 7, 1997 except for Notes 8 and 20
as to which the date is March 31, 1997
F-2
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1996
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 4,894,448 $ 7,559,922
Patient accounts receivable and third-party payor settlements, net of allowance
for doubtful accounts of $5,911,820 in 1995 and $2,959,230 in 1996.............. 24,923,429 44,267,330
Other receivables................................................................. 4,876,685 2,796,945
Prepaid expenses and other current assets......................................... 2,174,993 2,462,886
Deferred income taxes............................................................. 5,053,205 3 ,720,881
Due from related parties.......................................................... 159,857 --
------------- -------------
Total current assets............................................................ 42,082,617 60,807,964
Property and equipment, net......................................................... 55,336,722 81,193,761
Restricted cash..................................................................... 5,949,277 6,816,373
Note receivable from affiliate...................................................... 1,636,925 1,865,005
Refundable deposits, including amounts due from affiliates of $2,875,000............ 4,305,594 4,334,625
Deferred costs, net................................................................. 2,979,475 6,761,529
Deferred income taxes............................................................... 4,349,961 4,485,468
Investment in unconsolidated partnerships........................................... 108,494 --
Goodwill, net....................................................................... 37,407,113 36,583,229
Notes receivable and other assets................................................... 861,580 1,422,870
------------- -------------
Total assets...................................................................... $ 155,017,758 $ 204,270,824
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt.............................................. $ 1,648,211 $ 1,741,180
Accounts payable and accrued expenses............................................. 16,850,196 28,759,293
Accrued payroll................................................................... 7,315,663 8,869,119
Accrued provider and property taxes............................................... 2,130,071 2,646,539
Estimated merger closure costs.................................................... 4,908,310 3,391,000
Other liabilities................................................................. 5,245,929 6,555,700
------------- -------------
Total current liabilities....................................................... 38,098,380 51,962,831
------------- -------------
Long-term debt, less current maturities............................................. 59,315,574 92,356,705
Subordinated debt, less current maturities.......................................... 24,243,641 24,357,397
Due to related party................................................................ 1,030,246 669,544
Other long-term liabilities......................................................... 2,006,091 2,009,265
------------- -------------
86,595,552 119,392,911
------------- -------------
Commitments and contingencies (Note 15)
Redeemable preferred stock.......................................................... 19,454,522 21,305,372
Shareholders' equity:
Common stock with par value of $.01; 50,000,000 shares authorized; 1,906,912 and
2,117,222 shares issued; 1,658,497 and 1,868,807 shares outstanding............. 19,069 21,172
Special voting common stock with no par value; 5,000,000 shares authorized;
3,045,494 and 3,046,205 shares issued and outstanding........................... -- --
Paid-in capital................................................................... 5,213,911 5,707,360
Retained earnings................................................................. 7,652,004 7,896,858
Treasury stock, at cost; 248,415 shares of common stock........................... (1,487,200) (1,487,200)
------------- -------------
11,397,784 12,138,190
Note receivable from shareholder.................................................. (528,480) (528,480)
------------- -------------
Net shareholders' equity........................................................ 10,869,304 11,609,710
------------- -------------
Total liabilities and shareholders' equity...................................... $ 155,017,758 $ 204,270,824
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------------------
1995 1996
---------------- ----------------
<S> <C> <C>
Revenues:
Net patient service revenues................................................ $ 71,862,297 $ 241,813,675
Management fees and other revenues.......................................... 3,363,695 4,458,075
---------------- ----------------
Total revenues.......................................................... 75,225,992 246,271,750
---------------- ----------------
Expenses:
Facility operating expenses:
Salaries, wages and benefits.............................................. 31,651,036 109,960,506
Other operating expenses.................................................. 26,915,007 85,255,164
Lease expense............................................................... 7,701,523 19,901,369
Corporate administrative costs.............................................. 5,026,652 11,399,949
Depreciation and amortization............................................... 737,738 5,360,533
---------------- ----------------
Total operating expenses................................................ 72,031,956 231,877,521
---------------- ----------------
3,194,036 14,394,229
---------------- ----------------
Other income (expense):
Interest income............................................................. 413,630 695,194
Interest expense............................................................ (589,856) (10,511,009)
Equity in income (loss) of unconsolidated partnerships...................... 448,580 (108,394)
---------------- ----------------
Total other income (expense)............................................ 272,354 (9,924,209)
---------------- ----------------
Income before income taxes and minority interest.............................. 3,466,390 4,470,020
Provision for income taxes.................................................... (1,389,106) (1,850,485)
---------------- ----------------
Income before minority interest............................................... 2,077,284 2,619,535
Minority interest in net income of subsidiary, net of income taxes............ (201,250) (182,932)
---------------- ----------------
Net income.............................................................. 1,876,034 2,436,603
Dividends and accretion on preferred stock.................................... -- (2,191,747)
---------------- ----------------
Income applicable to common stock............................................. $ 1,876,034 $ 244,856
---------------- ----------------
---------------- ----------------
Net income per common share................................................... $ .70 $ .05
---------------- ----------------
---------------- ----------------
Weighted average number of common and common stock equivalents outstanding.... 2,694,018 4,949,214
---------------- ----------------
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
SPECIAL VOTING COMMON NOTE
COMMON STOCK STOCK ADDITIONAL RECEIVABLE
---------------------- ---------------------- PAID-IN RETAINED TREASURY FROM
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS STOCK SHAREHOLDER
--------- ----------- --------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994.................. 1,559,280 $ 18,077 -- -- $ -- $ 1,686,794 $(1,487,200) --
Dividends paid on
Series A and B
preferred stock..... -- -- -- -- -- (340,897) -- --
Exercise of common
stock options....... 99,207 992 -- -- 359,008 -- -- --
Special voting common
stock issued in
connection with
merger.............. -- -- 3,045,494 -- 4,854,903 -- -- (528,480)
Accretion of preferred
stock to estimated
redemption value.... -- -- -- -- -- 4,430,073 -- --
Net income............ -- -- -- -- -- 1,876,034 -- --
--------- ----------- --------- ----------- ----------- ----------- ----------- ------------
Balance at December 31,
1995.................. 1,658,487 19,069 3,045,494 -- 5,213,911 7,652,004 (1,487,200) (528,480)
Dividends paid on
Series A and B
preferred stock..... -- -- -- -- -- (340,897) -- --
Dividends accrued on
Series C preferred
stock............... -- -- -- -- -- (1,469,797) -- --
Exercise of common
stock options....... 210,320 2,103 -- -- 169,675 -- -- --
Exercise of special
voting stock
options............. -- -- 711 -- 6,000 -- -- --
Tax benefit on options
exercised........... -- -- -- -- 317,774 -- -- --
Accretion of preferred
stock to estimated
redemption value.... -- -- -- -- -- (381,055) -- --
Net income............ -- -- -- -- -- 2,436,603 -- --
--------- ----------- --------- ----------- ----------- ----------- ----------- ------------
Balance at December 31,
1996.................. 1,868,807 $ 21,172 3,046,205 -- $5,707,360 $ 7,896,858 $(1,487,200) $ (528,480)
--------- ----------- --------- ----------- ----------- ----------- ----------- ------------
--------- ----------- --------- ----------- ----------- ----------- ----------- ------------
<CAPTION>
NET
-----------
<S> <C>
Balance at December 31,
1994.................. $ 217,671
Dividends paid on
Series A and B
preferred stock..... (340,897)
Exercise of common
stock options....... 360,000
Special voting common
stock issued in
connection with
merger.............. 4,326,423
Accretion of preferred
stock to estimated
redemption value.... 4,430,073
Net income............ 1,876,034
-----------
Balance at December 31,
1995.................. 10,869,304
Dividends paid on
Series A and B
preferred stock..... (340,897)
Dividends accrued on
Series C preferred
stock............... (1,469,797)
Exercise of common
stock options....... 171,778
Exercise of special
voting stock
options............. 6,000
Tax benefit on options
exercised........... 317,774
Accretion of preferred
stock to estimated
redemption value.... (381,055)
Net income............ 2,436,603
-----------
Balance at December 31,
1996.................. $11,609,710
-----------
-----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------
1995 1996
--------------- --------------
<S> <C> <C>
Operating activities:
Net income..................................................................... $ 1,876,034 $ 2,436,603
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization................................................ 737,738 5,360,533
Amortization of discount on subordinated debt................................ -- 113,757
Deferred income taxes........................................................ (1,095,691) 1,514,591
Consulting fees offset against note receivable............................... 125,004 125,004
Equity in income of unconsolidated partnerships.............................. (448,580) (145,000)
Minority interest............................................................ 335,417 304,887
Provision for doubtful accounts.............................................. 1,034,618 439,608
Loss on sale of equipment.................................................... -- 24,584
Loss on sale of investment in unconsolidated partnerships.................... -- 253,394
Change in assets and liabilities:
Accounts receivable........................................................ (4,123,609) (20,233,990)
Due from related parties................................................... (533,982) 164,965
Prepaid expenses and other assets.......................................... 39,936 1,526,959
Refundable deposits........................................................ -- (29,031)
Accounts payable and accrued expenses...................................... 4,451,286 13,538,294
--------------- --------------
Cash provided by operating activities.................................... 2,398,171 5,395,158
--------------- --------------
Investing activities:
Increase in restricted cash.................................................... (99,537) (867,096)
Purchases of property and equipment............................................ (5,398,570) (30,121,773)
Proceeds from the sale of equipment............................................ -- 599,759
Payments on advances to managed facilities..................................... -- 29,175
Advances to managed facilities................................................. (1,270,000) --
Goodwill and other deferred costs.............................................. (1,891,363) (4,678,312)
Distributions received from unconsolidated partnerships........................ 300,000 --
Purchase of management contract................................................ (846,986) --
Cash received in acquisition of subsidiary..................................... 2,247,740 --
--------------- --------------
Cash used in investing activities........................................ (6,958,716) (35,038,247)
--------------- --------------
Financing activities:
Distributions paid to minority partners........................................ (84,759) (299,200)
Proceeds from the exercise of stock options.................................... 360,000 177,778
Payments of dividends to preferred shareholders................................ (340,897) (340,897)
Payments on notes to affiliate................................................. -- (360,703)
Proceeds from borrowings....................................................... 6,750,000 55,996,085
Principal payments on long-term debt........................................... (1,581,017) (22,864,500)
--------------- --------------
Cash provided by financing activities.................................... 5,103,327 32,308,563
--------------- --------------
Net increase in cash and cash equivalents........................................ 542,782 2,665,474
Cash and cash equivalents, beginning of year..................................... 4,351,666 4,894,448
--------------- --------------
Cash and cash equivalents, end of year........................................... $ 4,894,448 $ 7,559,922
--------------- --------------
--------------- --------------
Supplemental disclosure:
Income taxes paid.............................................................. $ 1,363,430 $ 1,057,850
--------------- --------------
--------------- --------------
Interest paid.................................................................. $ 533,030 $ 10,283,291
--------------- --------------
--------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS
Centennial HealthCare Corporation (the "Company") (formerly known as WelCare
International, Inc.) was incorporated in February 1989 under the laws of the
State of Georgia. The Company's principal business is to provide basic and
specialty healthcare services to patients in a long-term care setting. At
December 31, 1995, prior to the merger with Transitional Health Services, Inc.,
as further discussed, the Company operated 39 long-term care facilities through
either management contracts, lease agreements or direct ownership.
Effective December 31, 1995, the Company merged with Transitional Health
Services, Inc. ("THS"), a company that operated 36 nursing homes and provided
rehabilitation services in ten states. All outstanding shares of THS were
exchanged for capital stock of the Company. The acquisition has been recorded,
at December 31, 1995, using the purchase method of accounting.
As of December 31, 1996, subsidiaries of the Company operated 76 owned,
leased and managed long-term care facilities with 8,113 beds in 19 states,
consisting of eight owned facilities, 46 leased facilities, 22 managed
facilities and provided contract rehabilitation services.
At December 31, 1996, certain subsidiaries of the Company held general
partner interests in certain public and private limited partnerships, the
majority of which own and operate long-term care facilities. The Company's
general partner interests in those partnerships ranged from .49% to 3.992%. The
subsidiaries which owned these partnership interests were sold on January 30,
1997.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company,
its wholly owned subsidiaries and a majority-owned affiliated limited
partnership. The Company accounts for its investments in certain other limited
partnerships in which the Company serves as a general partner under the equity
method, i.e., at cost, increased or decreased by the Company's share of earnings
or losses, less distributions. All material intercompany balances, investments
and transactions have been eliminated.
NET PATIENT SERVICE REVENUES
Net patient service revenues are primarily derived from the operation and
management of long-term care facilities and from providing rehabilitative
occupational, speech and physical therapy services to long-term care facilities.
Revenues that are reimbursed by patients at the Company's long-term care
facilities are recorded at established billing rates. Revenues to be reimbursed
by contracts with third-party payors, primarily Medicare and Medicaid programs,
are recorded at the amount estimated to be realized under these contractual
arrangements. Revenues from Medicare and Medicaid are generally based on
reimbursement of allowable costs of providing services to program beneficiaries.
The Company estimates amounts due from third-party payors and records the
revenue in the period services are rendered. Amounts ultimately payable by
Medicare and Medicaid are determined based on annual cost reports which are
subject to audit and retroactive adjustment by the payor. Changes in estimated
revenues due in connection with Medicare and Medicaid may be recorded by the
Company subsequent to the year of origination and prior to final settlement
based on improved estimates. Differences between estimated amounts due from the
Medicare and Medicaid programs and ultimate settlements with these programs are
recognized in the year of final settlement.
F-7
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Costs reimbursed under the Medicare program are subject to regional limits.
The costs at certain of the Company's facilities have frequently exceeded these
limits and, accordingly, the Company is required to submit exception requests to
cover such excess costs. The accompanying balance sheets include amounts
estimated to be recoverable under such exception requests.
Accounts receivable, net, at December 31, 1995 and 1996 includes $24,203,893
and $35,284,447, respectively, of amounts due from Medicare and Medicaid
programs.
CONCENTRATIONS
A significant portion of the Company's revenues are derived from the
Medicare and Medicaid programs. There have been, and the Company expects that
there will continue to be, a number of proposals to limit reimbursements to
long-term care facilities under these programs. The Company cannot predict
whether any of these proposals will be adopted, or if adopted and implemented,
what effect such proposals would have on the Company. Approximately 76% and 70%
of the Company's net patient service revenues in the years ended December 31,
1995 and 1996, respectively, are from the Medicare and Medicaid programs. While
the Company operates long-term care facilities in 19 states and the District of
Columbia, 42 of its 54 consolidated facilities are located in North Carolina,
Indiana and Michigan.
FACILITY OPERATING EXPENSES
Facility operating expenses include direct operating costs at the facility
level. The majority of these costs consist of payroll and employee benefits
related to nursing, housekeeping and dietary services provided to patients, as
well as maintenance and administration of the facilities. Other significant
facility operating expenses include: the cost of rehabilitation therapies,
medical and pharmacy supplies, food and utilities.
USE OF ESTIMATES IN FINANCIAL STATEMENTS
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.
INCOME TAXES
Income taxes for the Company are calculated using the liability method in
accordance with Statement of Financial Accounting Standards No. 109 (SFAS 109),
ACCOUNTING FOR INCOME TAXES. Deferred taxes are provided for the differences
between the tax and accounting basis of assets and liabilities. For Federal
income tax purposes, the Company and its subsidiaries file a consolidated income
tax return.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated over the
estimated useful lives of the individual assets using the straight-line method.
Expenditures that extend the lives of assets are capitalized, while maintenance
and repairs are charged to expense as incurred. The estimated useful lives range
F-8
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
from five to ten years for equipment, five to 15 years for furniture and 30 to
40 years for buildings and improvements.
INTANGIBLE ASSETS
In connection with each of its acquisitions, the Company reviews the assets
and liabilities acquired and assesses the individual components' relative fair
values in comparison to the total purchase price. Goodwill represents the excess
of the purchase price over the fair value of the net assets acquired. The
Company's policy is to evaluate each acquisition separately and identify an
appropriate amortization period for goodwill and other intangible assets based
on the characteristics of the acquired company. Goodwill is being amortized
using the straight-line method over a 30 to 40 year period. Accumulated
amortization of goodwill totaled $823,884 at December 31, 1996.
ASSESSMENT OF LONG-LIVED ASSETS
The Company periodically reviews the carrying values of its long-lived
assets (primarily property, plant and equipment and intangible assets) whenever
events or circumstances provide evidence that suggest that the carrying amount
of long-lived assets may not be recoverable. If this review indicates that
long-lived assets may not be recoverable, the Company reviews the expected
undiscounted future net operating cash flows from its facilities, as well as
valuations obtained in connection with various refinancings. Any permanent
impairment in value is recognized as a charge against earnings in the statement
of income. As of December 31, 1996, the Company does not believe there is any
indication that the carrying value or the amortization period of its long-lived
assets needs to be adjusted.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
RESTRICTED CASH
Restricted cash consists mainly of certificates of deposit with maturities
of one year or less. Certain of these certificates of deposit are pledged for
letters of credit issued by banks in connection with various facility lease
agreements, a workers' compensation insurance arrangement, and certain other
agreements. Also included in restricted cash are amounts reserved for
improvements on a leased facility and a debt service reserve for two owned
facilities.
INCOME PER SHARE
In February 1997, the FASB issued Statement No. 128, EARNINGS PER SHARE.
This Statement is effective for financial statements issued for periods ending
after December 15, 1997. The Company has not yet determined the impact of
implementing FASB No. 128.
In accordance with APB Opinion No. 15, the Company has computed its income
per share based on the weighted average number of common and common equivalent
shares outstanding during the periods. Common stock equivalents include options
to purchase common stock assumed to be exercised using the treasury stock method
and Series A and B Voting Preferred Stock assumed to be converted. The
assumption of the conversion of Series A and B was anti-dilutive during 1996.
The accretion and
F-9
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
dividends accrued on Series A and B and the accretion and dividends on Series C
Voting Preferred Stock, which is not convertible into common stock, was deducted
from net income in the computation of net income applicable to common stock in
1996.
2. MERGER WITH TRANSITIONAL HEALTH SERVICES, INC.:
Effective December 31, 1995, the Company issued 3,045,494 shares of Special
Voting Common Stock and 144,086 shares of Series C Voting Preferred Stock,
valued at $19,024,390, for all the capital stock of THS.
In connection with this merger, the Company planned to dispose of its
leasehold interests at two facilities and close THS's corporate headquarters
within one year from the merger date. The Company accrued an anticipated loss of
$3,000,000 on disposal of a lease on one facility. In addition, operating costs
that would have otherwise been incurred in 1996 in connection with the two
leased facilities of which the Company had planned to dispose and costs required
to close THS's former headquarters have been accrued on the 1995 balance sheet.
These costs, totaling $1,908,310, resulted in an increase to goodwill as of
December 31, 1995. The costs required to close THS's former headquarters
consists of employee and lease termination costs. A lease on one of the
facilities was disposed of and THS headquarters was closed as of December 31,
1996. Accrued merger closure costs, totaling $3,391,000 at December 31, 1996,
were reduced during 1996 for cash expenditures in connection with the net cash
loss incurred on the leased facility to be disposed of and employee and lease
termination costs. The lease on the other facility is still held for sale and
the Company, therefore, has not reversed the effects of adjusting the purchase
price for losses incurred on the facility during 1996 or for the anticipated
loss on disposal of the facility.
The following unaudited pro forma financial information reflects the
combined results of operations for the year ended December 31, 1995 as though
the THS transaction occurred on January 1, 1995. The unaudited pro forma
information is not necessarily indicative of either the results of operations
that would have occurred had the transaction taken place at January 1, 1995 or
the future results of operations of the combined companies.
UNAUDITED PRO FORMA
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Net revenues................................................. $ 202,495,046
<S> <C>
Net loss..................................................... $ (16,167,856)
Loss applicable to common shares............................. $ (17,860,537)
Loss per common share........................................ $ (6.10)
</TABLE>
3. FACILITY ACQUISITIONS:
The Company acquired a 77 bed long-term care facility located in Louisiana
in October 1995. The purchase price, totaling $2,942,500, was financed with the
Company's credit facility.
In July 1996, the Company entered into management agreements with NC
HealthCare, Inc., an unaffiliated entity, to manage four long-term facilities
with a total of 328 beds. The Company made advances pursuant to a long-term
note, totaling $5,462,393, to NC HealthCare, Inc. which were utilized
F-10
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. FACILITY ACQUISITIONS: (CONTINUED)
for the acquisition of the facilities and for working capital requirements. Due
to the Company's substantial investment in and control of NC HealthCare, Inc.,
for accounting purposes the Company has consolidated the accounts and operations
of NC HealthCare, Inc. Therefore, this transaction was treated as if the Company
had purchased the facilities as of July 1996. The total consideration paid for
these facilities was approximately $14,000,000, which consisted of a
non-recourse long-term mortgage debt, totaling approximately $9,000,000, and
cash of approximately $5,000,000. The Company is not liable for the mortgage
debt or other obligations of NC Healthcare, Inc.
In October 1996, the Company acquired two long-term care facilities located
in Michigan with a total of 185 beds. The purchase price, totaling $9,100,000,
was financed with the Company's credit facility.
4. OPERATING LEASES:
The Company leases 39 long-term care facilities and one hospital which are
accounted for as operating leases. The long-term facility leases consist of (i)
fourteen leases with various expiration dates through 2006, (ii) two leases with
affiliated entities of which the Company or an affiliate of its officer serves
as a general partner and (iii) 23 leases obtained in connection with the merger
with THS.
The leases with affiliated entities expire in 2002 and 2009 with both having
two five-year extensions. Total lease payments paid to the affiliated entities
totaled $2,920,374 and $3,284,261 for the years ended December 31, 1995 and
1996. In connection with one lease, the Company paid the affiliated lessor a
deposit of $2,875,000 which is refundable upon the termination of the lease. The
Company owes the other affiliated lessor $1,030,246 and $699,544 at December 31,
1995 and 1996, respectively.
The THS leases, which expire on various dates through 2011, include
provisions for increases in lease payments. Certain of these leases provide the
Company an option to renew the lease after the initial lease term.
In March 1996, the Company entered into management agreements with an
unaffiliated entity, NCHC, Inc., to manage four long-term care facilities with a
total of 480 beds. NCHC, Inc. acquired the leases on these facilities for
consideration of approximately $2,800,000. The Company made advances pursuant to
a long-term note, totaling $4,557,881, to NCHC, Inc. which were utilized for the
acquisition of the leases on the facilities and for working capital
requirements. Due to the Company's substantial investment in NCHC, Inc., for
accounting purposes, the Company has consolidated the accounts and operations of
NCHC, Inc. Therefore, these leases were included in the Company's operations as
of March 1996. The Company is not liable for the leases or for any other
obligations of these leased facilities. The $2,800,000 lease acquisition cost is
included as a deferred cost on the accompanying balance sheets.
In October 1996, the Company entered into a management and a lease agreement
with the owner of a 36-bed hospital in Florida and three licensed home
healthcare offices. The agreement provides that the Company will manage the
hospital until all necessary approvals and licenses are obtained at which time
the Company will operate the hospital under a long-term lease. Under the
agreement, the Company is responsible for all operating deficits. The Company
has accounted for the transaction as an operating lease beginning in October
1996.
Total rent expense under facility operating lease agreements approximated
$7,400,000 and $19,000,000 for the year ended December 31, 1995 and 1996,
respectively.
F-11
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. OPERATING LEASES: (CONTINUED)
Minimum future rent payments under the facility leases and related equipment
and office space are summarized as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---------------------------------------------------------------------------- ----------------
<S> <C>
1997........................................................................ $ 22,213,279
1998........................................................................ 22,536,430
1999........................................................................ 22,693,989
2000........................................................................ 22,935,585
2001........................................................................ 22,872,948
Thereafter.................................................................. 104,196,219
----------------
$ 217,448,450
----------------
----------------
</TABLE>
5. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at December 31, 1995 and
1996:
<TABLE>
<CAPTION>
1995 1996
-------------- --------------
<S> <C> <C>
Land......................................................... $ 4,109,510 $ 4,755,319
Buildings and improvements................................... 44,158,630 68,611,484
Furniture and equipment...................................... 8,438,598 12,612,312
Construction in progress--improvements to facilities......... 1,719,652 1,944,705
-------------- --------------
58,426,390 87,923,820
Less accumulated depreciation................................ (3,089,668) (6,730,059)
-------------- --------------
$ 55,336,722 $ 81,193,761
-------------- --------------
-------------- --------------
</TABLE>
Depreciation expense for the years ended December 31, 1995 and 1996 totaled
$548,112 and $3,779,901, respectively.
6. INVESTMENT IN UNCONSOLIDATED PARTNERSHIPS:
Certain subsidiaries of the Company acquired, in 1990, stock of the
corporate general partners of certain limited partnerships. These partnerships
own long-term care facilities and retirement centers. Investments in
partnerships in which the Company's subsidiaries serve as a general partner are
accounted for using the equity method. For the years ended December 31, 1995 and
1996, the Company recognized income from its share of the partnerships'
operations of $448,580 and $145,000, respectively. On January 30, 1997, the
Company sold its stock in the corporate general partners in most of the limited
partnerships to a corporation affiliated to the president of the Company for
$100 and the assumption of all the liabilities of the corporate general
partners. For the year ended December 31, 1996, the Company recognized a loss,
totaling $253,394, in connection with the sale of the corporate general
partners.
F-12
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. DEFERRED COSTS:
Deferred costs consist of the following at December 31, 1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
------------- --------------
<S> <C> <C>
Management contract acquisition costs.......................... $ 846,987 $ 868,643
Debt issuance and other costs.................................. 1,450,298 2,604,613
Lease acquisition costs........................................ 650,000 3,926,382
Other.......................................................... 138,006 497,206
------------- --------------
3,085,291 7,896,844
Less accumulated amortization.................................. (105,816) (1,135,315)
------------- --------------
$ 2,979,475 $ 6,761,529
------------- --------------
------------- --------------
</TABLE>
Management contract and lease acquisition costs are being amortized over the
period of their respective management and lease agreements. Debt issuance costs
are being amortized over the life of the related debt agreements.
8. LONG-TERM DEBT:
Long-term debt consists of the following at December 31, 1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
-------------- --------------
<S> <C> <C>
Bank credit facilities....................................... $ 20,752,165 $ 47,000,000
Mortgage notes payable....................................... 17,658,471 26,376,642
Other notes.................................................. 676,250 696,364
-------------- --------------
39,086,886 74,073,006
Capital lease obligations.................................... 21,876,899 20,024,879
-------------- --------------
60,963,785 94,097,885
Current maturities of long-term debt......................... 1,648,211 1,741,180
-------------- --------------
$ 59,315,574 $ 92,356,705
-------------- --------------
-------------- --------------
</TABLE>
On December 18, 1996, the Company amended and restated its credit agreement
(the "Credit Agreement") with CoreStates Bank, N.A. ("CoreStates") as agent for
certain lenders. The Agreement provides that the maximum aggregate advances to
the Company are $65,000,000 and cannot exceed the Borrowing Base. The Borrowing
Base is defined as the sum of (i) annualized earnings before interest, taxes,
depreciation and amortization ("EBITDA") multiplied by 2.50 for the quarter
ended December 31, 1996 and 2.25 for each quarter in 1997 plus three times the
EBITDA of acquired operations. The Company had an available Borrowing Base of
$60,000,000, exclusive of acquired operations, as of December 31, 1996.
Interest accrues at varying rates dependent upon the method used to compute
interest and the rates applicable at the time of the borrowings. The Company can
elect a rate based on CoreStates' prime rate or LIBOR, each increased by the
Applicable Margin, as defined in the Credit Agreement, which varies dependent
upon the ratio of debt to earnings before interest, taxes, depreciation,
amortization and operating lease expense. The weighted average interest rate on
the Company's borrowings at December 31, 1996 was 8.1%.
F-13
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. LONG-TERM DEBT: (CONTINUED)
Interest is paid currently and principal reduction is deferred until
December 1998 at which time the outstanding principal balance will be paid in 15
equal quarterly payments plus accrued interest beginning March 31, 1999, with
repayment in full on or before September 30, 2002. The Credit Agreement is
collateralized by substantially all of the assets of the Company and requires
the Company to comply with certain financial and other covenants. The Company is
required to pay a commitment fee precluded from payment of dividends on the
average unused portion of the commitment.
The Credit Agreement includes various negative covenants including
restrictions on additional loans and advances, guaranties, stock repurchases and
redemptions, and dividends. Terms of the Credit Agreement require the Company to
comply with certain financial and other covenants, the violation of which could
cause the amounts of outstanding principal, interest and fees to be immediately
due and payable. On December 31, 1996, the Company was in compliance with all of
its debt covenants except its new worth covenant. Subsequent to year end, the
Company received a waiver of compliance with this net worth covenant.
At December 31, 1995, the Company had a senior credit facility with
CoreStates and a $15,000,000 working capital line-of-credit facility with Heller
Financial, Inc. ("Heller"). The outstanding balance under both of these
facilities was paid in 1996 with proceeds of the Credit Agreement.
At December 31, 1995 and 1996, the Company had $17,658,471 and $26,376,642,
respectively, of mortgage debt outstanding, including a current portion of
$230,659 and $211,050, respectively. Mortgage debt includes approximately
$9,000,000 of mortgages due NC HealthCare, Inc., as described in Note 3, for
which the Company is not liable. The mortgage debt requires monthly payments of
principal and interest of approximately $240,000. The debt agreements are for
five to twenty-year periods with amortization periods covering twenty to
twenty-five years. At December 31, 1996, interest rates on the mortgages range
from 8.55% to 10.88%. These debts are collateralized by real property.
Future maturities of mortgage debt are summarized as follows:
<TABLE>
<S> <C>
1997.......................................................... $ 211,050
1998.......................................................... 227,631
1999.......................................................... 256,437
2000.......................................................... 282,687
2001.......................................................... 311,640
Thereafter.................................................... 25,087,197
-----------
$26,376,642
-----------
-----------
</TABLE>
In connection with the acquisition of THS, the Company acquired leases for
seven facilities and related equipment which are accounted for as capital
leases. The total cost of the facilities and equipment which are included in
property and equipment in the accompanying balance sheet is $20,935,122, with
related accumulated depreciation of $2,674,761, at December 31, 1996. One of the
leases expires in 2006 with an option to extend the lease for an additional ten
years. The remaining leases expire in 2013, with no options to extend. These
leases include provisions for contingent rental payments. The leases also
provide the Company a right of first refusal to purchase the facilities. Under
terms of the leases, the Company is required to pay all taxes, insurance and
maintenance expenses.
F-14
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. LONG-TERM DEBT: (CONTINUED)
Rent escalation clauses in the capital facility leases are based on
contingent factors such as increases in the consumer price index or annual
increases in a facility's revenues, and have resulted in increased current and
future lease payments.
The following is a schedule of future minimum lease payments under capital
leases together with the present value of the net minimum lease payments as of
December 31, 1996:
<TABLE>
<CAPTION>
NURSING
YEAR ENDING DECEMBER 31 EQUIPMENT FACILITIES TOTAL
---------- ----------- -----------
<S> <C> <C> <C>
1997................................. $1,006,342 $ 2,468,250 $ 3,474,592
1998................................. 647,513 2,468,250 3,115,763
1999................................. -- 2,468,250 2,468,250
2000................................. -- 2,468,250 2,468,250
2001................................. -- 2,468,250 2,468,250
Thereafter........................... -- 23,373,896 23,373,896
---------- ----------- -----------
Total minimum lease payments......... 1,653,855 35,715,146 37,369,001
Less amount representing interest.... 183,363 17,160,759 17,344,122
---------- ----------- -----------
Present value of minimum lease
payments........................... 1,470,492 18,554,387 20,024,879
Current portion...................... 860,908 642,972 1,503,880
---------- ----------- -----------
Noncurrent portion................... $ 609,584 $17,911,415 $18,520,999
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
The interest rate on the capital leases is based on the Company's borrowing
rates at the time a lease is executed. The average interest rate used on nursing
facilities and equipment was 10.47% and 15.9%, respectively.
9. SUBORDINATED DEBT:
The Company has $25,300,000 of subordinated debt which was issued to certain
shareholders in two instruments. The subordinated notes are due on October 30,
2002 and have effective interest rates between 11.7% and 12%. The subordinated
debt is carried net of unamortized offering discounts of $1,056,359 and $942,603
at December 31, 1995 and 1996, respectively.
Interest is due quarterly on the subordinated notes. The Company has an
option to prepay all or a portion of the notes at any time without penalty or
premium. Upon proper notice, scheduled mandatory prepayments beginning October
31, 2000 and each October thereafter are required to retire one-third of the
original aggregate principal amount of the notes (or, if less, the entire
outstanding principal amount of the notes). Mandatory prepayment of some or all
of the notes is also required in certain events, including a change in control
of the Company.
10. REDEEMABLE PREFERRED STOCK:
As of December 31, 1996, the Company had issued and outstanding 205,541
shares of $11.01 par value Series A Voting Preferred Stock. The Series A shares
earn cumulative dividends of $.88 per share per annum and are convertible to
common at any time at the holder's option at a conversion multiple of 4.26105.
The shares are subject to mandatory conversion by the Company in limited
circumstances. The
F-15
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. REDEEMABLE PREFERRED STOCK: (CONTINUED)
holders of the Series A shares have the right to redeem one-third of their
shares each December 31, 1998, 1999 and 2000 at the greater of par value or fair
market value, as defined in the Articles of Incorporation.
As of December 31, 1996, the Company had issued and outstanding 328,892
shares of $8.74 par value Series B Voting Preferred Stock. Each Series B
preferred share earns cumulative dividends at $.49 per annum and is convertible
into 1.1111 share of common stock at the holder's option. The Series B shares
are also subject to mandatory conversion in certain limited circumstances. The
holders of the Series B shares have the right to redeem one third of their
shares each June 30, 1999, 2000 and 2001 at the greater of par value or fair
market value, as defined in the Articles of Incorporation.
The Series A and B Voting Preferred Stock is reflected on the accompanying
balance sheets at its estimated redemptive value, including accrued and unpaid
dividends, as of December 31, 1995 and 1996. Management's estimate of the
redemptive value increased during the year ended December 31, 1996 by $121,820
and decreased during the year ended December 31, 1995 by $4,430,073. The Company
may cause all outstanding shares of Series A and B Voting Preferred Stock to be
converted into Common Stock upon a public offering under certain circumstances.
As stated in Note 2, in connection with the merger with THS, the Company
issued 144,086 shares of no par value Series C Voting Preferred Stock. The
Series C shares earn cumulative dividends of $12 per share per annum. The Series
C may be redeemed at the option of the Company at $100 per share, plus any
accrued but unpaid dividends to the date fixed for redemption. The Company is
obligated to redeem all of the shares of the Series C outstanding on December
31, 2003 at $100 per share, plus any accrued but unpaid dividends. The Series C
Voting Preferred Stock is reflected on the accompanying balance sheet at its
fair value increased by periodic accretions, using the interest method, so that
the carrying amount will equal the mandatory redemption amount at the mandatory
redemption date. Accretion on the preferred stock totaled $259,235 for the year
ended December 31, 1996.
11. EQUITY TRANSACTIONS:
The Company has three stock option plans with outstanding options or options
available to be granted totaling 523,073 shares. The plans consist of the 1994
Stock Option Plan, 1996 Executive Stock Plan and the 1996 Employee Stock Option
Plan (collectively referred to as the "Stock Option Plans"). During 1996, the
Company's 1992 Stock Option Plan was terminated.
The 1994 Stock Option Plan and the 1996 Executive Stock Plan provide that
options may be granted to officers, directors and key employees. The options
granted pursuant to the 1996 Executive Stock Plan vest in equal increments on
each December 31 of 1996, 1997, 1998 and 1999. The vesting on one-half of these
options accelerates in the case of certain corporate events. The 1996 Employee
Stock Option Plan provides that options may be granted to certain employees at
an exercise price of $8.44. Approximately half of the 1996 Employee Stock
Options vests 60% at the date of grant with the remaining 40% vesting in equal
increments on January 1, 1997 and 1998. The other half of the 1996 Employee
Stock Options vest 33% each at date of grant and on January 1, 1997 and 1998.
The Board of Directors of the Company approved the 1997 Stock Plan which
provides that options, totaling $500,010, may be granted to officers,
non-employee, non-affiliated directors and key employees at an exercise price
and vesting schedule to be determined by the compensation committee of the Board
of Directors at the time of grant, except in the case of non-employee directors
where such grants are automatic. All stock options have been granted
F-16
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. EQUITY TRANSACTIONS: (CONTINUED)
with exercise prices equal to or greater than the estimated fair market value of
the common stock on the date of grant and are exercisable for up to ten years,
as determined by the Company's Board of Directors.
Stock option transactions are summarized as follows:
<TABLE>
<CAPTION>
1995 1996
----------------------- -----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Options outstanding--beginning of period......................... 369,849 $ 2.96 533,741 $ 7.85
Granted........................................................ 263,099 13.55 66,644 8.44
Exercised...................................................... (99,207) (4.90) (210,320) (.85)
Forfeited...................................................... -- -- (22,245) (12.63)
---------- ----- ---------- -----------
Options outstanding--end of period............................... 533,741 $ 7.85 367,820 $ 11.67
---------- ----- ---------- -----------
---------- ----- ---------- -----------
Weighted average fair value of options granted during the year... $ 2.34 $ 2.42
</TABLE>
The fair value of each option is estimated on the grant date using the
Black-Scholes option pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Expected volatility.................................................. 37.2% 41.1%
Risk-free interest rate.............................................. 5.04% 5.33%
Expected term........................................................ 2.5 years 5 years
Dividend yield....................................................... 0% 0%
</TABLE>
The following table summarizes information about outstanding and exercisable
stock options at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------- OPTIONS EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED
REMAINING AVERAGE
CONTRACTUAL EXERCISE
EXERCISE PRICES SHARES LIFE SHARES PRICE
- ------------------------------------------------------------------ --------- ------------ --------- -----------
<S> <C> <C> <C> <C>
$ 7.56............................................................ 60,321 5.5 years 57,147 $ 7.56
8.44............................................................ 64,400 9.0 years 30,973 8.44
13.55............................................................ 243,099 9.1 years -- --
</TABLE>
The Company applies APB Opinion 25 and related interpretations in accounting
for fixed stock option plans. Accordingly, no compensation cost has been
recognized for the fixed stock option plans. Had compensation cost been based on
the estimated fair value at the grant dates for awards under those plans
consistent with the method of FASB Statement No. 123, the net effect on net
income and income
F-17
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. EQUITY TRANSACTIONS: (CONTINUED)
per share for the years ended December 31, 1995 and 1996 would have been reduced
to the Pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR 1995 1996
- ---------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Net income:
As reported................................................... $ 1,876,034 $ 2,436,603
Pro forma..................................................... $ 1,876,034 $ 2,332,541
Net income per common share:
As reported................................................... $ .68 $ .42
Pro forma..................................................... $ .68 $ .40
</TABLE>
As of December 31, 1996, the Company had repurchased 248,415 shares of
common stock for $1,487,200. These shares were held as treasury stock at
December 31, 1995 and 1996 and were accounted for under the cost method.
As previously mentioned, the Company issued Special Voting Common Stock in
connection with the merger with THS. The Special Voting Common Stock is similar
to the Company's Common Stock except that each share of Special Voting Common
Stock carries 70% of the voting power of one share of Common Stock. As required
by the merger agreement, the Company declared a stock dividend in January 1996
increasing the number of shares of both Special Voting Common Stock and Common
Stock outstanding by 11.11%. The shares issued by the stock dividend totaled
304,525 shares of Special Voting Common Stock and 165,835 shares of Common
Stock. All references to authorized and outstanding shares and the weighted
shares outstanding used in the calculation of net income per share has been
retroactively adjusted to reflect the stock dividend.
12. INCOME TAXES:
The components of the income tax provision as of December 31, 1995 and 1996
are as follows:
<TABLE>
<CAPTION>
1995 1996
------------- --------------
<S> <C> <C>
Current
Federal...................................................... $ 1,959,021 $ 103,662
State........................................................ 525,776 279,898
------------- --------------
2,484,797 383,560
------------- --------------
Deferred
Federal...................................................... (1,040,521) 1,561,925
State........................................................ (55,170) (95,000)
------------- --------------
(1,095,691) 1,466,925
------------- --------------
Total provision................................................ $ 1,389,106 $ 1,850,485
------------- --------------
------------- --------------
</TABLE>
F-18
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. INCOME TAXES: (CONTINUED)
Reconciliations of the differences between income taxes computed at federal
statutory tax rates and consolidated provisions for income taxes as of December
31, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Tax at U.S. statutory rate............................................. 34.0% 34.0%
State income taxes..................................................... 8.6% 2.5%
Goodwill amortization.................................................. -- 3.2%
Other.................................................................. (2.5)% 1.7%
---------- ----------
Provision for income taxes......................................... 40.1% 41.4%
---------- ----------
---------- ----------
</TABLE>
F-19
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Deferred tax assets and liabilities are comprised of the following at
December 31, 1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
-------------- --------------
<S> <C> <C>
Current deferred income tax assets:
Allowances for uncollectible receivables.................... $ 2,838,350 $ 1,652,428
Liabilities not deductible for tax purposes................. 1,566,030 2,068,453
Accrued closing costs....................................... 648,825 --
-------------- --------------
Current deferred income tax assets...................... $ 5,053,205 $ 3,720,881
-------------- --------------
-------------- --------------
Noncurrent deferred income tax assets:
Net operating loss and tax credit carryforwards............. $ 3,924,825 $ 4,519,825
Tax basis receivables in excess of book..................... 2,549,000 2,549,000
Net effects of capital leases............................... 1,054,000 1,046,000
Deferred tax asset on non-owned affiliates.................. -- 320,425
-------------- --------------
7,527,825 8,435,250
-------------- --------------
Noncurrent deferred income tax liabilities:
Temporary goodwill.......................................... -- (353,052)
Write-up of property and equipment.......................... (2,005,202) (1,950,500)
Other, including depreciation............................... (444,432) (850,000)
Tax losses from investment in unconsolidated partnerships in
excess of book............................................ (728,230) (796,230)
-------------- --------------
(3,177,864) (3,949,782)
-------------- --------------
Net noncurrent deferred income tax assets............... $ 4,349,961 $ 4,485,468
-------------- --------------
-------------- --------------
</TABLE>
As of December 31, 1996, the Company had approximately $11,630,000 of
federal net operating loss carryforwards available to offset future taxable
income through 2010. In addition, the Company had $305,000 of federal targeted
jobs tax credit carryforwards, and various state net operating loss
carryforwards.
13. MANAGEMENT AGREEMENTS:
As of December 31, 1996, the Company provided operational management
services for 22 facilities under long-term management contracts having remaining
effective terms ranging from 16 to 20 years. Fifteen of these agreements are
with third-party owners and are noncancelable without cause. One of these
agreements, with fees totaling $124,021 and $141,850, respectively, during 1995
and 1996, is with an affiliate and is cancelable by either party in certain
circumstances. Five of these agreements, with fees totaling $995,311 and
$938,731, respectively, during 1995 and 1996, are with affiliated limited
partnerships in which certain subsidiaries of the Company serve as general
partner and can be terminated by either party without cause given sixty days
notice. The management agreements provide for the Company to receive annual fees
equal to 6% of each facility's gross revenues, payable on a monthly basis and
may include additional compensation based on achieving certain performance
standards. Additionally, the Company performs oversight management services for
three facilities in which it oversees the management of another management
company. The Company typically receives a fee of 1% of revenues for oversight
management services.
F-19
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. TRANSACTIONS WITH RELATED PARTIES:
The Company has employment agreements with five officers which provide for
salary continuation and non-competition with the Company, subject to certain
conditions.
The Company leases two long-term care facilities from affiliated lessors
(Note 4).
The Company manages five long-term care facilities for affiliated limited
partnerships in which the Company serves as a general partner (Note 13).
The Company leases its facilities' employees from an affiliated company
which is owned by the president of the Company on a complete pass-through basis.
The total payroll costs and reimbursements from the Company totaled $23,100,000
and $37,200,000 for the years ended December 31, 1995 and 1996, respectively.
15. COMMITMENTS AND CONTINGENCIES:
Certain subsidiaries of the Company subsidiaries serve as the general
partner in various limited partnerships. As a general partner, the Company may
be liable for certain deficiencies which arise in meeting the terms of loan
obligations incurred by these partnerships and for operating expenses and other
liabilities incurred by these partnerships in the ordinary course of business.
The Company sold substantially all of its subsidiaries serving as corporate
general partners on January 30, 1997.
The Company has a consulting agreement with an unaffiliated owner of certain
facilities which the Company manages. Under the terms of the consulting
agreement, the Company will pay the unaffiliated owner annual consulting fees
ranging from $135,000 to $375,000 through the earlier of 2013 or the termination
of the facility management contracts. For the year ended December 31, 1995 and
1996, the Company incurred approximately $163,000 and $150,000, respectively, of
consulting fees.
The Company has guaranteed a mortgage note up to $500,000 related to a
long-term care facility that it manages. The mortgage had an outstanding balance
of approximately $1,946,000 at December 31, 1996. The market value of this
facility, based on an independent appraisal, substantially exceeds the total
amount of the mortgage note. All principal and interest payments are paid
currently by the obligors.
The Company has guaranteed $17,000,000 of mortgage indebtedness of two
unrelated entities that lease five nursing facilities to the Company. The
unrelated entities are two syndicated limited partnerships of which the Company
does not control major decisions. The outstanding principal balance of the debt
was approximately $16,108,000 at December 31, 1996. All principal and interest
payments are paid currently by the obligors.
The Company is a party to a lawsuit filed in October 1995 alleging liability
for various accounts receivable factoring transactions between the prior owner
of THS and the factor. It is the belief of management that this lawsuit as well
as other claims and actions that the Company is subject to in the normal course
of business will be resolved without a material adverse effect on the Company's
financial position, results of operations or liquidity.
The Company self-insures for workers' compensation claims and health
benefits for its employees. The Company maintains stop-loss insurance such that
the Company's liability for losses is limited. The Company recognized as an
expense and accrued for estimated workers' compensation and health benefit
claims incurred but not reported as of December 31, 1995 and 1996.
F-20
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SUPPLEMENTAL CASH FLOW DISCLOSURE:
As discussed in note 2, on December 31, 1995, the Company merged with THS
and has included the accounts of this entity in its December 31, 1995
consolidated balance sheet. The net assets included in the consolidated balance
sheet were as follows as of December 31, 1995:
<TABLE>
<S> <C>
Cash and cash equivalents.................................... $ 2,247,740
Patient accounts and third-party settlements, net............ 18,515,527
Deferred income taxes........................................ 4,088,000
Other current assets......................................... 5,484,702
-------------
Total current assets................................... 30,335,969
-------------
Property and equipment, net.................................. 40,014,256
-------------
Restricted cash.............................................. 4,613,848
Deferred income taxes........................................ 8,216,825
Goodwill, net................................................ 29,274,554
Other assets................................................. 3,552,023
-------------
Total assets........................................... 116,007,475
-------------
Accounts payable and accrued expenses........................ 17,424,742
Current maturities of long-term debt......................... 1,536,475
Other current liabilities.................................... 5,882,495
-------------
Total current liabilities.............................. 24,843,712
-------------
Long-term debt, less current maturities...................... 49,558,938
Subordinated debt, less current maturities................... 24,243,641
-------------
Total liabilities...................................... 98,646,291
-------------
Net assets included in balance sheet......................... $ 17,361,184
-------------
-------------
</TABLE>
17. CONCENTRATION OF CREDIT RISK:
The Company maintains its cash in bank deposit accounts which, at times, may
exceed federally insured limits. The Company has not experienced any losses in
such accounts. The Company believes it is not exposed to any significant credit
risk on cash and cash equivalents.
18. EMPLOYEE BENEFITS:
The Company has 401(k) savings plans available to substantially all
employees depending on their length of service. Employees may defer up to 15% of
their salary, subject to the maximum permitted by law. The Company matches a
portion of the employee contribution. The Company funded $91,743 during the year
ended December 31, 1996 as a match to the employee contributions.
F-21
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
CASH AND CASH EQUIVALENTS
The carrying amount approximates fair value because of the short maturity of
those instruments, and includes the restricted cash reflected on the balance
sheet under the caption "Restricted Cash."
NOTES RECEIVABLE
The carrying amount approximates fair value for the note receivable from
affiliate based on the fair value being estimated as the net present value of
cash flows that would be received on the note over the remaining note term using
current market interest rates rather than stated interest rates.
LONG-TERM DEBT
The carrying amount of the Credit Agreement approximates fair value since
the Credit Agreement was recently renegotiated at market rates. The carrying
amount of mortgage notes approximates their values based on the net present
value of cash flows that would be paid on each note over the remaining note term
using the Company's current incremental borrowing rate rather than the stated
interest rates on the notes.
20. SUBSEQUENT EVENTS:
On January 31, 1997, the Company issued 50,000 shares of $1 par value Series
D Preferred Stock and an aggregate 50,000 investment units, with each unit being
comprised of one share of $1 par value Series E Senior Preferred Stock and
1.85102 shares of common stock of the Company for $10,000,000. The Series D
Preferred Stock is redeemable at the option of the holder at any time after
December 31, 2006 for the redemption price of $100 plus interest on the $100 per
share at the rate of 10% per annum from the date of issuance of the Series D
Preferred Stock. Each share of Series D Preferred Stock is convertible into 8.5
shares of Common Stock, at the holder's option. The Company may cause all
outstanding shares of Series D Preferred Stock to be converted into Common Stock
upon a public offering of its common stock where the proceeds of the offering
exceed $30,000,000 and the price per share is at least $10.70.
The Series E Senior Preferred Stock is subject to 10% dividends and is
redeemable at any time at the option of the Company but is required to be
redeemed on October 30, 2002 at the redemption price of $100 plus accrued but
unpaid dividends.
Subsequent to year end, the Board of Directors of the Company approved a
reverse stock split, with the ratio to be determined at a later date. However,
all references to authorized and outstanding shares and the weighted shares
outstanding used in the calculation of net income per share have been
retroactively adjusted to reflect a .7143 for one reverse stock split.
The Company is currently pursuing three transactions in which the Company
has non-binding letters of intent. Each of these potential transactions is
subject to the negotiation of a definitive agreement and receipt of all
necessary consents and approvals.
F-22
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors of
Centennial HealthCare Corporation
We have audited the accompanying consolidated balance sheets of Centennial
HealthCare Corporation and subsidiaries (formerly known as WelCare
International, Inc. and subsidiaries) as of May 31, 1994 and 1995, and the
related consolidated statements of operations, shareholders' equity (deficit)
and cash flows for each of the three years in the period ended 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Centennial HealthCare Corporation and subsidiaries at May 31, 1994 and 1995, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended May 31, 1995 in conformity with generally
accepted accounting principles.
BDO Seidman, LLP
Atlanta, Georgia
July 7, 1995, except for
Note 18 which is as of
August 15, 1995
F-23
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
(FORMERLY WELCARE INTERNATIONAL, INC. AND SUBSIDIARIES)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 31,
------------------------------
1994 1995
-------------- --------------
<S> <C> <C>
ASSETS:
CURRENT ASSETS
Cash and cash equivalents...................................................... $ 5,279,539 $ 4,362,833
Patient accounts and third party payor settlements, net of allowance for
doubtful accounts of $71,413 in 1995 (Note 3)................................ 4,198,742 6,614,290
Prepaid expenses and other current assets...................................... 401,076 748,757
Due from related parties....................................................... 69,843 46,443
-------------- --------------
Total current assets............................................................. 9,949,200 11,772,323
-------------- --------------
Property and equipment at cost, net of accumulated depreciation (Notes 5 and
8)............................................................................. 444,140 6,662,562
-------------- --------------
Other assets
Note receivable (Note 6)....................................................... 422,000 309,917
Due from related parties (Note 4).............................................. 193,035 1,558,336
Investment in unconsolidated partnerships (Note 7)............................. 1,450,984 83,651
Restricted cash (Note 2)....................................................... 1,496,964 1,041,688
Refundable deposit (Note 2).................................................... -- 2,875,000
Deferred managment cost, net of accumulated amortization of $35,291 in 1995
(Note 12).................................................................... -- 811,696
Minority interest (Note 1)..................................................... -- 130,840
Other.......................................................................... 215,891 253,375
-------------- --------------
Total other assets............................................................... 3,778,874 7,064,503
-------------- --------------
$ 14,172,214 $ 25,499,388
-------------- --------------
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt (Note 8).................................. $ 87,500 $ 1,106,910
Accounts payable and accrued expenses.......................................... 3,234,923 3,830,242
Provider taxes payable......................................................... 313,421 1,028,355
Other liabilities.............................................................. 773,135 1,001,959
-------------- --------------
Total current liabilities........................................................ 4,408,979 6,967,466
Due to affiliate................................................................. 683,713 1,197,239
Long-term debt, less current maturities (Note 8)................................. 676,250 4,557,535
Deferred income taxes (Note 11).................................................. 1,079,000 1,509,000
Cash held in escrow (Note 2)..................................................... 1,496,964 --
-------------- --------------
8,344,906 14,231,240
-------------- --------------
COMMITMENTS AND CONTINGENCIES (NOTES 12, 13 AND 14)
Redeemable preferred stock (Note 9).............................................. 4,300,290 9,186,628
-------------- --------------
SHAREHOLDERS' EQUITY (NOTES 9 AND 10)
Common stock, with par value of $.01; 50,000,000 shares authorized; 1,807,795
shares issued; 1,638,646 and 1,559,280 shares outstanding in 1994 and 1995... 18,077 18,077
Retained earnings.............................................................. 2,122,381 3,550,643
Treasury stock, at cost; 169,049 and 248,415 shares held in 1994 and 1995...... (613,440) (1,487,200)
-------------- --------------
1,527,018 2,081,520
-------------- --------------
$ 14,172,214 $ 25,499,388
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-24
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
(FORMERLY WELCARE INTERNATIONAL, INC. AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
----------------------------------------------
1993 1994 1995
-------------- -------------- --------------
<S> <C> <C> <C>
REVENUES
Net patient service revenues................................... $ 6,863,361 $ 38,115,076 $ 61,855,427
Management fees (Note 12)...................................... 4,434,990 3,384,357 3,362,223
-------------- -------------- --------------
Total revenues................................................... 11,298,351 41,499,433 65,217,650
-------------- -------------- --------------
EXPENSES
Facility operating expenses.................................... 5,330,767 29,510,176 48,872,211
Lease expense (Note 2)......................................... 926,676 4,823,314 6,900,843
Corporate administrative costs................................. 3,004,715 2,927,045 3,395,795
Depreciation and amortization.................................. 48,325 82,197 290,408
-------------- -------------- --------------
Total expenses................................................... 9,310,483 37,342,732 59,459,257
-------------- -------------- --------------
OTHER INCOME (EXPENSE)
Interest income................................................ 73,824 163,071 382,394
Interest expense............................................... (42,042) (31,615) (325,477)
Equity in income (loss) of unconsolidated partnerships (Note
7)........................................................... (2,765,867) 4,272,295 366,235
-------------- -------------- --------------
Total other income (expense)..................................... (2,734,085) 4,403,751 423,152
-------------- -------------- --------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES AND SHARE OF
MINORITY INTEREST.............................................. (746,217) 8,560,452 6,181,545
Provision for income taxes (benefit) (Note 11)................... (160,275) 3,171,645 2,249,246
-------------- -------------- --------------
INCOME (LOSS) BEFORE MINORITY INTEREST........................... (585,942) 5,388,807 3,932,299
Minority interest in net income of subsidiary.................... -- -- 207,328
-------------- -------------- --------------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK..................... $ (585,942) $ 5,388,807 $ 3,724,971
-------------- -------------- --------------
-------------- -------------- --------------
Net income (loss) per common share............................... $ (.25) $ 2.20 $ 1.40
-------------- -------------- --------------
-------------- -------------- --------------
WEIGHTED AVERAGE NUMBER OF COMMON STOCK AND COMMON STOCK
EQUIVALENTS OUTSTANDING........................................ 2,347,500 2,447,658 2,667,881
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-25
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
(FORMERLY WELCARE INTERNATIONAL, INC. AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED MAY 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK
COMMON STOCK PURCHASE WARRANTS ADDITIONAL
---------------------- -------------------- PAID-IN EARNINGS TREASURY
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) STOCK
--------- ----------- --------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, at May 31, 1992...... 1,894,847 $ 19,175 553,577 $ 800,000 $ 287,387 $ (588,586) $ --
Termination of common stock
purchase warrants......... -- -- (553,577) (800,000) -- -- --
Purchase and retirement of
common stock.............. (87,152) (1,098) -- -- (866) (148,201) --
Dividends on redeemable
preferred stock............. -- -- -- -- -- (33,003)
Net loss.................... -- -- -- -- -- (585,942)
--------- ----------- --------- --------- ----------- ----------- -----------
Balance, at May 31,1993....... 1,807,695 18,077 -- -- (286,521) (1,355,732) --
Dividends on redeemable
preferred stock -- -- -- -- -- (160,530) --
Purchase of treasury
stock..................... (169,049) -- -- -- -- -- (613,440)
Accretion of preferred stock
to estimated redemption
value (Note 9)............ -- -- -- -- (286,521) (1,750,164) --
Net income.................. -- -- -- -- -- 5,388,807 --
--------- ----------- --------- --------- ----------- ----------- -----------
Balance, at May 31, 1994...... 1,638,646 18,077 -- -- -- 2,122,381 (613,440)
Dividends on redeemable
preferred stock............. -- -- -- -- -- (284,132) --
Purchase of treasury
stock..................... (79,366) -- -- -- -- -- (873,760)
Accretion of preferred stock
to estimated redemption
value (Note 9)............ -- -- -- -- -- (2,012,577) --
Net income.................... -- -- -- -- -- 3,724,971 --
--------- ----------- --------- --------- ----------- ----------- -----------
Balance, at May 31, 1995...... 1,559,280 $ 18,077 -- $ -- $ -- $ 3,550,643 $(1,487,200)
--------- ----------- --------- --------- ----------- ----------- -----------
--------- ----------- --------- --------- ----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-26
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
(FORMERLY WELCARE INTERNATIONAL, INC. AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
----------------------------------------------
1993 1994 1995
-------------- -------------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)............................................... $ (585,942) $ 5,388,807 $ 3,724,971
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization................................. 48,325 82,197 240,134
Deferred income taxes......................................... (226,275) 1,428,645 430,000
Consulting fees offset against note receivable................ -- -- 112,083
Equity in income (loss) of unconcolidated partnership......... 2,765,867 (4,272,295) (366,235)
Share of minority interest.................................... -- -- 207,328
Gain on sale of bonds......................................... (12,450) -- (50,920)
Change in assets and liabilities:
Accounts receivable......................................... (1,669,179) (2,500,034) (2,259,705)
Due from related parties.................................... 416,041 337,190 223,053
Prepaid expenses and other assets........................... (608,999) 168,429 (488,601)
Accounts payable and accrued expenses....................... 1,956,625 2,062,441 935,942
-------------- -------------- --------------
Cash provided by operating activities............................. 2,084,013 2,695,380 2,708,050
-------------- -------------- --------------
INVESTING ACTIVITIES:
Investment in subsidiary partnership............................ -- (980,000) --
Advances to affiliate........................................... -- (230,493) (946,275)
Distributions received from unconsolidated partnership.......... 31,496 114,475 460,471
Proceeds from sale of long-term securities...................... 39,990 -- 139,714
Purchases of property and equipment............................. (264,041) (66,664) (1,108,810)
Cash paid for refundable deposit................................ -- -- (2,875,000)
Purchase of management contract................................. -- -- (846,987)
Cash received in acquisition of subsidiary in excess of purchase
price paid.................................................... -- -- 183,464
-------------- -------------- --------------
Cash used in investing activitites................................ (192,555) (1,162,682) (4,993,423)
-------------- -------------- --------------
FINANCING ACTIVITIES:
Distributions paid to minority partner.......................... -- -- (84,759)
Redemption of common stock...................................... (150,165) (613,440) (873,760)
Payments on subordinated debentures............................. (62,500) -- (150,000)
Payments of dividend to preferred shareholders.................. (33,003) (160,530) (284,132)
Payments on notes to shareholders............................... (73,750) -- --
Proceeds from issuance of preferred stock....................... 1,650,165 613,440 2,873,761
Proceeds from notes payable..................................... 25,000 500,000 --
Payments on notes payable....................................... (475,000) (262,500) (87,500)
Payments on mortgage payable.................................... -- -- (24,943)
-------------- -------------- --------------
Cash provided by financing activities............................. 880,747 76,970 1,368,667
-------------- -------------- --------------
NET CHANGE IN CASH AND CASH EQUIVALENTS........................... 2,772,205 1,609,668 (916,706)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR...................... 897,666 3,669,871 5,279,539
-------------- -------------- --------------
CASH AND CASH EQUIVALENTS, END OF YEAR............................ $ 3,669,871 $ 5,279,539 $ 4,362,833
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-27
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
(FORMERLY WELCARE INTERNATIONAL, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Centennial HealthCare Corporation (the "Company") (formally known as WelCare
International, Inc.) was incorporated in February 1989 under the laws of the
State of Georgia. The Company's principal business is to provide basic and
specialty healthcare services to patients in a long-term care setting.
As of May 31, 1995, subsidiaries of the Company operated 32 owned, leased
and managed long-term care facilities with 3,657 beds in 15 states, consisting
of one owned facility, 16 leased facilities and 15 managed facilities.
At May 31, 1995, certain subsidiaries of the Company held general partner
interests in certain public and private limited partnerships, the majority of
which own and operate long-term care facilities. The Company's general partner
interests in those partnerships ranged from .49% to 3.992%.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiaries and a majority owned affiliated partnership. The
Company accounts for its investments in certain other public and private
partnerships in which the Company has a greater than 20% ownership or serves as
the general partner, under the equity method, i.e., at cost, increased or
decreased by the Company's share of earnings or losses, less distributions. All
intercompany balances, investments and transactions have been eliminated.
REVENUES AND ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS
Revenues are derived from the management of fourteen facilities, the
operation of sixteen leased facilities and one majority owned facility, and from
providing related supplies and services to these facilities. Management fee
revenues are recorded on a monthly basis as earned. Patient service revenues are
recorded at established rates and adjusted for differences between such rates
and estimated amounts reimbursable by third party payors. Estimated settlements
under third-party payor retrospective rate setting programs (primarily Medicare
and Medicaid) are accrued in the period the related services are rendered.
Settlements receivable and related revenues under such programs are based on
annual cost reports prepared in accordance with federal and state regulations,
which reports are subject to audit and retroactive adjustments in future
periods. In the opinion of management, adequate provision has been made
therefor, and such adjustments in determining final settlements will not have a
material effect on financial position or results of operations.
PROPERTY AND EQUIPMENT
Property and equipment are depreciated over the estimated useful lives of
the individual assets using the straight-line method. The estimated useful lives
range from five to ten years for equipment, five to fifteen years for furniture
and thirty years for buildings and improvements.
F-28
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
(FORMERLY WELCARE INTERNATIONAL, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED MANAGEMENT COST
During 1995, the Company purchased a management contract from an unrelated
party for a facility that it currently owns a majority interest. Costs
associated with the purchase of this management contract are amortized over 10
years, the life of the associated management agreement.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
INCOME TAXES
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes", which
significantly changes existing practice by requiring, among other things, a
liability approach to deferred income taxes. The Company adopted SFAS 109
effective June 1, 1993. The adoption of SFAS 109 had no significant impact on
the Company's accompanying financial statements.
STOCK SPLIT AND STOCK DIVIDEND
Effective January 6, 1996, the Board of Directors declared a 11.11% stock
dividend on outstanding shares of common stock. In addition, the Board of
Directors of the Company approved a reverse stock split with the ratio to be
determined at a later date. All references to issued and/or outstanding shares
and the weighted shares outstanding used in the calculations of net income per
share have been retroactively adjusted to reflect the 11.11% stock dividend and
a .7143 for one stock split.
INCOME (LOSS) PER SHARE
Income (loss) per share are computed based on the weighted average number of
common and common equivalent shares outstanding during the period. Common stock
equivalents include options to purchase common stock, assumed to be exercised
using the treasury stock method, and redeemable preferred stock. Income (loss)
per share have been retroactively adjusted to reflect the subsequent stock
dividends and stock splits.
2. LEASED FACILITIES
Effective January 1, 1993, Grant Park Nursing Home Limited Partnership (the
"Partnership"), an affiliate, leased Grant Park Care Center, a long-term care
facility, to the Company under an operating lease expiring in 2002 with two,
five year extensions at the Company's option. The lease calls for monthly rental
payments of $142,661 and provides for a sharing of profits until the Partnership
receives 50% of any excess profits generated by the facility. Total rent expense
for years ended May 31, 1993, 1994 and 1995 was $812,700, $2,356,106 and
$2,056,671, respectively.
Effective October 1, 1993, the Company began leasing thirteen long-term care
facilities (the "Leased Facilities") from EBT HealthCare Properties, L.P.
("EBT"), an unrelated lessor, under operating leases having an initial term
expiring in 2006. Six of the leases call for fixed monthly lease payments and
seven
F-29
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
(FORMERLY WELCARE INTERNATIONAL, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. LEASED FACILITIES (CONTINUED)
of the leases require variable monthly payments. The leases expire at various
dates ranging from 2004 to 2006 plus two, five year extensions exercisable at
the Company's option. Rent is payable monthly, in advance, and amounted to
$2,320,538 and $3,840,979 for the years ended May 31, 1994 and 1995,
respectively. Eight of the Leased Facilities pay fees to an unrelated third
party for services related to their operation. The total of these fees paid in
1994 and 1995 was $399,640 and $677,202, respectively.
During 1994, EBT agreed to advance $3,050,000 to the Company for capital
improvements at the leased facilities. In fiscal 1994 and 1995, the Company
received $2,584,394 and $3,050,000, respectively, of these funds and placed them
in escrow. As of May 31, 1994 and 1995, $1,087,430 and $3,050,000, respectively,
of the escrowed capital improvements funds had been disbursed. Undisbursed
capital improvement funds are included in restricted cash in the accompanying
1994 balance sheet.
In July 1994, the Company began leasing Royal Terrace Nursing and
Rehabiltation Center ("Royal Terrace"), a long-term care facility, from an
unrelated lessor under an operating lease having an initial term of fourteen
years plus two, five year extensions exercisable at the Company's option. Rent
is payable in monthly installments of $58,711 and totaled $555,694 for the year
ended May 31, 1995.
In December 1994, the Company began leasing Ashton Woods Rehabilitation
Center, a long-term care facility, from an affiliated lessor under an operating
lease having an initial term of fourteen years plus two, five year extensions,
exercisable at the Company's option. Rent is payable in monthly installments of
$67,935 and totaled $338,677 for the year ended May 31, 1995. In connection with
this lease, the Company paid the lessor a deposit of $2,875,000 which is
refundable upon the termination of the lease. Additionally, the Company placed
approximately $1,000,000 in escrow, as required by the lessor, to be used for
capital improvements at this facility. This amount is included in restricted
cash in the accompanying consolidated 1995 balance sheet.
Minimum rent payments under all sixteen of the facility leases are
summarized as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ------------------------------------------------------------------------------ --------------
<S> <C>
1996.......................................................................... $ 6,816,328
1997.......................................................................... 6,816,328
1998.......................................................................... 6,816,328
1999.......................................................................... 6,816,328
2000.......................................................................... 6,816,328
Thereafter.................................................................... 36,666,830
--------------
$ 70,748,470
--------------
--------------
</TABLE>
Effective January 1, 1994, the Company began leasing employees at most of
its leased facilities, at cost, from an affiliated company. The Company's lease
agreement with the affiliate calls for monthly payments in amounts equal to each
facilities' payroll costs. This lease agreement allowed the Company to lower
workers' compensation insurance rates, resulting in a net savings to the
Company. Total employee leasing expense incurred in 1994 and 1995 amounted to
approximately $8,400,000 and $18,359,000, respectively, and is included in
nursing home expenses in the accompanying 1994 and 1995 consolidated statements
of operations.
F-30
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
(FORMERLY WELCARE INTERNATIONAL, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. PATIENT ACCOUNTS AND THIRD-PARTY PAYOR SETTLEMENTS
Patient accounts and third party payor settlements receivable consist of the
following:
<TABLE>
<CAPTION>
MAY 31,
----------------------------
1994 1995
------------- -------------
<S> <C> <C>
Patient accounts................................................ $ 4,175,582 $ 6,467,520
Third-party payor settlements................................... 23,160 218,183
------------- -------------
4,198,742 6,685,703
Allowance for doubtful accounts................................. -- 71,413
------------- -------------
$ 4,198,742 $ 6,614,290
------------- -------------
------------- -------------
</TABLE>
The Company generally does not require collateral or other security in
extending credit to patients; however, the Company routinely obtains assignments
of (or is otherwise entitled to receive) benefits receivable under the health
insurance programs, plans or policies of patients (e.g. Medicare, Medicaid,
commercial insurance and managed care organizations). Medicaid programs
accounted for approximately 94%, 83% and 69% of net patient service revenues
during 1993, 1994 and 1995, respectively. Accounts receivable and operating
revenue include amounts estimated by management to be reimbursable by Medicaid,
Medicare and other third-party programs under the provisions of cost
reimbursement formulas in effect. Final determination of amounts earned is
subject to audit by the intermediaries. In the opinion of management, adequate
provision has been made for any adjustments that may result from such audits.
Differences between estimated provisions and final settlement are reflected as
charges or credits to operating revenue in the year finalized.
Accounts receivable are recorded net of any contractual adjustments and
relate principally to amounts due from various Medicaid programs. Receivables
from the programs were approximately as follows:
<TABLE>
<CAPTION>
1994 1995
------------- -------------
<S> <C> <C>
District of Columbia............................................ $ 1,324,000 $ 1,466,000
Mississippi..................................................... 1,007,000 957,000
Louisiana....................................................... 428,000 440,000
Idaho........................................................... 210,000 204,000
Montana......................................................... 90,000 203,000
Georgia......................................................... -- 195,000
Kansas.......................................................... 48,000 193,000
Texas........................................................... 110,000 113,000
</TABLE>
Significant changes have and will continue to be made in government
reimbursement programs, and such changes could have a material impact on future
reimbursement formulas. Amounts due from Medicaid and Medicare programs are
generally paid within 30 to 90 days from date of billing and are subject to
final settlements in certain states.
F-31
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
(FORMERLY WELCARE INTERNATIONAL, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. TRANSACTIONS WITH RELATED PARTIES AND MANAGED FACILITIES
As of May 31, 1994, WelCare Management Services, Inc. ("WelCare Services"),
an affiliate of the Company, owed $612,061 to the Company for previous advances
and accrued management fees. During 1994 and prior years, WelCare Services
operated a long-term care facility known as Deluxe Care Inn under an operating
lease agreement. In 1994 and prior years, the Company had recorded a $419,026
reserve on these receivables resulting in a net receivable balance of $193,035
at May 31, 1994. During 1995, the Company advanced an additional $946,275 to
WelCare Services to purchase Deluxe Care Inn. In November 1994, the total amount
due from WelCare Services of $1,558,336 was formalized into an unsecured
promissory note bearing interest at 9% and payable at maturity, December 31,
1998. Under the terms of the note, the Company has the right to place a security
interest on any or all of WelCare Service's assets, including Deluxe Care Inn.
The property and equipment of the Deluxe Care Inn are currently encumbered under
a first mortgage with an unrelated party having an outstanding balance of
approximately $980,000. At May 31, 1995, based on improved operations at Deluxe
Care Inn, the Company determined that the receivable was fully collectible and
the associated reserve was charged to operations.
During 1992, the Company entered into employment agreements with three
officers which provide for salary continuation and non-competition with the
Company, subject to certain conditions.
The Company leases two long-term care facilities from related and affiliated
parties (see Note 2).
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at May 31, 1994 and 1995:
<TABLE>
<CAPTION>
MAY 31,
---------------------------
1994 1995
------------ -------------
<S> <C> <C>
Land............................................................. $ -- $ 739,259
Buildings and improvements....................................... -- 4,119,947
Equipment........................................................ 349,409 1,419,018
Furniture and fixtures........................................... 245,396 702,927
------------ -------------
594,805 6,981,151
Less accumulated depreciation.................................... (150,665) (318,589)
------------ -------------
$ 444,140 $ 6,662,562
------------ -------------
------------ -------------
</TABLE>
Effective December 1, 1994, the Company attained majority control of an
affiliated limited partnership (see Note 7) which owns and operates a long-term
care facility. The property and equipment of this
F-32
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
(FORMERLY WELCARE INTERNATIONAL, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. PROPERTY AND EQUIPMENT (CONTINUED)
subsidiary partnership was consolidated into the Company's financial statements
in 1995 and consisted of the following at May 31, 1995:
<TABLE>
<S> <C>
Land........................................................... $ 739,259
Buildings and improvements..................................... 3,875,243
Equipment, furniture and fixtures.............................. 807,646
----------
5,422,148
Less accumulated depreciation.................................. (86,938)
----------
$5,335,210
----------
----------
</TABLE>
6. NOTE RECEIVABLE
The Company has an unsecured note receivable, with an original balance of
$422,000, from an affiliate of the owner (the "Borrower") of a facility managed
by the Company. The note matures in 1998 and provides for annual payments of
principal and interest and allows for offsets of payments due from the Company
under a consulting agreement with the Borrower. Under the terms of the
consulting agreement, beginning June 30, 1994, the Borrower will earn annual
consulting fees ranging from $135,000 to $350,000 through the earlier of 2013 or
the termination of the facility management contracts with affiliates of the
Borrower. Any unpaid fees earned by the Borrower will reduce amounts outstanding
under the note receivable. During 1995, the Company incurred $249,583 of
consulting fees of which $137,500 were paid in cash with the remaining $112,083
reducing amounts outstanding under the note receivable.
7. INVESTMENT IN UNCONSOLIDATED PARTNERSHIPS
The Company through certain of its subsidiaries have various investments in
both public and private limited partnerships ranging from .499% to 3.992%
ownership interests. These partnerships own primarily long-term care facilities
and retirement centers. Investments in partnerships in which subsidiaries of the
Company own at least a 20% interest or where such subsidiaries serve as a
general partner are accounted for using the equity method. In its capacity as
general partner, such subsidiaries may be liable for the net liabilities of
these partnerships. Accordingly, the Company has recorded greater than its
proportionate share of partnership losses in instances where the limited
partners are not liable to fund their share of these losses. In such instances,
subsequent income is allocated first to the Company to the extent of losses
previously recorded in excess of the Company's pro-rata share of losses, based
upon its partnership interests.
As of May 31, 1994, the Company had a 33% ownership interest in a privately
held limited partnership which owns and operates a long-term care facility known
as Montclair Nursing Center ("Montclair") and accounted for this investment
under the equity method. During fiscal 1995, Unaudited pro forma consolidated
results of operations of the Company for the years ended May 31, 1994 and 1995
are presented below (in thousands). Such pro forma presentation, combining the
results of operations of
F-33
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
(FORMERLY WELCARE INTERNATIONAL, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INVESTMENT IN UNCONSOLIDATED PARTNERSHIPS (CONTINUED)
Montclair and the Company, has been prepared assuming that the acquisition had
been completed as of June 1, 1994:
<TABLE>
<CAPTION>
MAY 31,
--------------------
1994 1995
--------- ---------
<S> <C> <C>
Revenues............................................................... $ 47,223 $ 68,985
Net earnings........................................................... $ 5,750 $ 3,840
Net earnings per common share.......................................... $ 1.82 $ 1.06
</TABLE>
The Company's investment in unconsolidated partnerships is summarized as
follows:
<TABLE>
<S> <C>
BALANCE, MAY 31, 1992.......................................... $ (889,473)
Net loss..................................................... (2,750,534)
Amortization of investment over net assets................... (15,333)
Capital distributions........................................ (31,496)
-----------
BALANCE, MAY 31, 1993.......................................... (3,686,836)
Capital contributions........................................ 980,000
Net income................................................... 4,312,225
Amortization of investment over net assets................... (39,930)
Capital distributions........................................ (114,475)
-----------
BALANCE, MAY 31, 1994.......................................... 1,450,984
Capital contributions........................................ 1,390,000
Net income................................................... 430,543
Amortization of investment over net assets................... (64,308)
Capital distributions........................................ (460,471)
Consolidation of majority-owned partnership.................. (2,663,097)
-----------
BALANCE, MAY 31, 1995.......................................... $ 83,651
-----------
-----------
</TABLE>
Summarized financial information of the Partnerships is included in the
following schedule. The year end of the Partnerships is December 31. The
Partnerships have recorded summarized financial information on the basis of a
March 31 year end in order to allow for more current information relative to the
May 31 year end of the Company.
F-34
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
(FORMERLY WELCARE INTERNATIONAL, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INVESTMENT IN UNCONSOLIDATED PARTNERSHIPS (CONTINUED)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------------------------
1993 1994 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
ASSETS
Current assets............................ $ 14,902,234 $ 12,105,828 $ 22,527,386
Property and equipment.................... 57,852,467 35,926,920 13,111,777
Other assets.............................. 12,430,199 7,710,185 3,604,031
--------------- --------------- ---------------
$ 85,184,900 $ 55,742,933 $ 39,243,194
--------------- --------------- ---------------
--------------- --------------- ---------------
<CAPTION>
YEARS ENDED MARCH 31,
-------------------------------------------------
1993 1994 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
LIABILITIES AND PARTNERS' DEFICIT
Current liabilities....................... $ 31,164,760 $ 23,201,585 $ 21,545,145
Long-term debt............................ 53,968,791 32,663,633 19,172,713
Other liabilities......................... 19,313,736 18,778,243 18,262,822
Partners' deficit......................... (19,262,387) (18,900,528) (19,737,486)
--------------- --------------- ---------------
$ 85,184,900 $ 55,742,933 $ 39,243,194
--------------- --------------- ---------------
--------------- --------------- ---------------
CONDENSED STATEMENTS OF INCOME (LOSS)
Revenue................................... $ 80,691,577 $ 56,821,143 $ 37,095,992
Loss from operations...................... (243,289) (1,705,055) (3,177,440)
Gain on sales of facilities............... -- 7,259,612 607,167
Extraordinary items....................... -- 7,213,550 14,746,767
Net income (loss)......................... (3,011,060) 11,158,801 12,910,363
Company's share of net income (loss)...... (2,765,867) 4,272,295 366,235
</TABLE>
In fiscal 1995, three public partnerships in which the Company serves as
general partner were forgiven notes payable totaling approximately $7,213,000
and $14,760,000 in 1994 and 1995, respectively.
F-35
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
(FORMERLY WELCARE INTERNATIONAL, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
MAY 31,
--------------------------
1994 1995
----------- -------------
<S> <C> <C>
Mortgage note payable in monthly installments of principal and
interest totaling $40,851 through November 1997, interest
accrues at the U.S. Treasury Bond rate plus 3%, collateralized
by real estate.................................................. $ -- $ 4,138,195
Revolving line of credit agreement with a bank due in November
1995, interest accrues at 9% , collateralized by accounts
receivable (see Note 18)........................................ -- 1,000,000
Note to one of the Company's lessors, interest accrues on the note
at 6% with all accrued interest and outstanding principal
payable on October 20, 1998 (see Note 18)....................... 500,000 500,000
Promissory notes to two individuals payable in semi-annual
installments through July 1994.................................. 87,500 --
Subordinated Debentures, due April 2001, accruing interest at 20%
per annum, payable on a monthly basis, fully redeemed during
1995............................................................ 150,000 --
9.25% notes payable to certain stockholders due in April 1996,
collateralized by proceeds from the sale of zero coupon bonds
totaling $27,000 at May 31, 1995................................ 26,250 26,250
----------- -------------
763,750 5,664,445
Less current maturities........................................... 87,500 1,106,910
----------- -------------
$ 676,250 $ 4,557,535
----------- -------------
----------- -------------
</TABLE>
Future maturities of long-term debt are summarized as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ------------------------------------------------------------------------------- -------------
<S> <C>
1996........................................................................... $ 1,106,910
1997........................................................................... 89,108
1998........................................................................... 3,968,427
1999........................................................................... 500,000
-------------
$ 5,664,445
-------------
-------------
</TABLE>
9. REDEEMABLE PREFERRED STOCK
As of May 31, 1994, the Company had issued and outstanding, 205,541 shares
of $11.01 par value Series A voting preferred stock. The Series A shares earn
cumulative dividends of $.88 per share per annum and are convertible to common
at any time at the holder's option at a conversion multiple of 3.834. The shares
are subject to mandatory conversion by the Company in limited circumstances. The
holders of the Series A shares have the right to redeem one third of their
shares each December 1, 1996, 1997 and 1998 at the greater of par value or fair
market value as defined in the stockholder agreement.
F-36
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
(FORMERLY WELCARE INTERNATIONAL, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. REDEEMABLE PREFERRED STOCK (CONTINUED)
During July of 1994, the Company issued 328,892 shares of $8.74 par value
Series B voting preferred stock. Each Series B preferred share earns cumulative
dividends at $.49 per annum and is convertible into one share of common stock at
the holder's option. The Series B shares are also subject to mandatory
conversion in certain limited circumstances. The holder of the Series B shares
have the right to redeem one third of their shares each June 30, 1998, 1999 and
2000 at the greater of par value or fair market value as defined in the articles
of incorporation.
As of May 31, 1994, management's estimated redemption price of the Series A
preferred stock exceeded its issuance cost of $2,263,605 by $2,036,685. This
difference was accreted to preferred stock and charged against common
stockholders' equity. For the year ended May 31, 1995, an additional $2,012,578
was accreted to preferred stock based on the estimated redemption price of the
Series A and B shares as of May 31, 1995.
10. EQUITY TRANSACTIONS
In May 1989, the Company completed a private placement offering of 20 common
stock units at $10,000 per unit (the "Stock Units"), raising a total of
$200,000. Each Stock Unit consisted of 39,682 shares of common stock and a
collateralized interest-bearing note in the principal amount of $5,000.
On April 30, 1991, the Company made an offer to its shareholders to
repurchase the 20 Stock Units. The purchase price offered per unit was $20,000
which consisted of $10,000 cash and a $10,000 unsecured promissory note. During
1993 the Company purchased and subsequently retired 87,152 shares, of common
stock bringing the total number of shares retired, including shares retired
prior to 1993, from the initial private placement to 672,475. A total of $73,750
and $150,000 in notes payable were retired in conjunction with this offer
through May 31, 1994 and 1995, respectively.
On November 21, 1990, the Company issued warrants to two individuals to each
acquire 697,500 shares of outstanding common stock of a subsidiary in exchange
for total proceeds of $800,000. On August 17, 1992, the Company canceled the
warrants in exchange for promissory notes totaling $800,000. The promissory
notes are payable in semi-annual installments through July 1994. Amounts
outstanding under the note agreements totaled $87,500 as of May 31, 1994. The
notes were retired in July, 1994.
The Company initiated two non-qualified stock option plans for key
employees, officers and directors of the Company. As of May 31, 1994, the
Company has reserved 369,845 shares of common stock for issuance under these
plans. All of these shares are exercisable at a price which is less than
management's current estimate of the share value. 297,622 of the options are
exercisable immediately after the grant date and expire in five years. The
remaining options vest over a period of five years from the start date of
individual employment with the Company. No options have been exercised as of May
31, 1995.
In 1994 and 1995, the Company repurchased 169,049 and 79,366 shares of
common stock for $613,440 and $873,760, respectively. These shares were held as
treasury stock at May 31, 1994 and 1995 and were accounted for under the cost
method.
F-37
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
(FORMERLY WELCARE INTERNATIONAL, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. INCOME TAXES
The components of the provision for income taxes for fiscal 1993, 1994 and
1995 were as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------- -------------
<S> <C> <C> <C>
Current
Federal......................................... $ 46,000 $ 1,330,000 $ 1,531,000
State........................................... 20,000 413,000 288,000
------------ ------------- -------------
66,000 1,743,000 1,819,000
------------ ------------- -------------
Deferred
Federal......................................... (330,000) 1,436,000 410,000
State........................................... 104,000 (7,000) 20,000
------------ ------------- -------------
(226,000) 1,429,000 430,000
------------ ------------- -------------
Total provision (benefit)................... $ (160,000) $ 3,172,000 $ 2,249,000
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
During fiscal 1993 and 1994, the Company utilized net operating loss
carryforwards of approximately $692,000 and $92,000, respectively, for federal
tax purposes. At May 31, 1994, the Company had no remaining federal net
operating loss carryforwards.
Deferred income taxes for the year ended May 31, 1993 result from timing
differences in the recognition of revenue and expense for tax and financial
reporting purposes. The source of these differences and their tax effects are as
follows:
<TABLE>
<CAPTION>
1993
-----------
<S> <C>
Tax losses from partnerships..................................................... $ 22,275
Net operating loss carryforward.................................................. 246,000
Accelerated depreciation methods................................................. 49,000
Accounts receivable valuation differences........................................ (40,000)
Other, net....................................................................... (51,000)
-----------
$ 226,275
-----------
-----------
</TABLE>
Deferred income taxes for the year ended May 31, 1994 and 1995 reflect the
net tax effect of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes, and amounts used for income
tax purposes. The sources of the temporary differences and their effect on the
deferred tax liability at May 31, 1994 and May 31, 1995 are as follows:
<TABLE>
<CAPTION>
1994 1995
------------- -------------
<S> <C> <C>
Tax losses from partnerships.................................... $ 1,138,000 $ 1,436,000
Accelerated depreciation methods................................ 88,000 157,000
Accounts receivable valuation differences....................... (139,000) (93,000)
Other, net...................................................... (8,000) 9,000
------------- -------------
$ 1,079,000 $ 1,509,000
------------- -------------
------------- -------------
</TABLE>
F-38
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
(FORMERLY WELCARE INTERNATIONAL, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. MANAGEMENT AGREEMENTS
The Company provides operational management services for 14 facilities under
long-term management contracts having remaining effective terms ranging from 17
to 20 years. Eight of these agreements are with third party owners and are
noncancellable without cause. Six of these agreements are with affiliated
partnerships in which the Company serves as general partner and can be
terminated without cause with sixty days notice. The management agreements
provide for the Company to receive annual fees equal to 6% of each facility's
gross revenues, payable on a monthly basis. Additionally, the Company performs
oversight management services for two facilities in which it oversees the
management of another management company. The Company typically receives a fee
of 1% of gross revenues for oversight management services.
During 1995, the Company purchased a management contract from the former
manager of a long-term care facility, which is currently owned by a consolidated
subsidiary of the Company, for a lump sum payment of $846,987.
13. CONTINGENCIES
Certain subsidiaries of the Company serve as general partners in both public
and private limited partnerships. As the general partner, such subsidiaries may
be liable for certain deficiencies which arise in meeting the terms of certain
loan obligations incurred by these partnerships and for operating expenses and
other liabilities incurred by these partnerships in the ordinary course of
business.
The Company has guaranteed a mortgage note up to $500,000 related to a
long-term care facility that it manages. The mortgage had an outstanding balance
of approximately $1,980,000 at May 31, 1995. The market value of this facility,
based on an independent appraisal, substantially exceeds the total amount of the
mortgage note.
14. COMMITMENTS
The Company is committed under a six year lease for office space which
expires in November 1999. Base monthly rental payments for the first twelve
months of the lease was $19,914 and escalates annually according to the rent
structure as stated in the lease. Rent expense for 1993, 1994 and 1995, net of
allocations of overhead costs to unconsolidated affiliates, was approximately
$109,000, $143,000 and $230,000, respectively. Minimum rent payments for future
years are approximately as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ------------------------------------------------------------------------------- -------------
<S> <C>
1996........................................................................... $ 263,000
1997........................................................................... 272,000
1998........................................................................... 259,000
1999........................................................................... 295,000
2000........................................................................... 165,000
-------------
Total.................................................................... $ 1,254,000
-------------
-------------
</TABLE>
15. SUPPLEMENTAL CASH FLOW DISCLOSURES
The Company made cash payments totaling approximately $113,000, 242,000 and
$3,116,000 for income taxes and $44,118, $31,615 and $323,044 for interest
during 1993, 1994 and 1995, respectively.
F-39
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
(FORMERLY WELCARE INTERNATIONAL, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. SUPPLEMENTAL CASH FLOW DISCLOSURES (CONTINUED)
In 1994, the Company converted management fee receivables totaling $191,507
to notes receivable.
In 1993, common stock purchase warrants totaling $800,000 were converted to
notes payable (See Note 10).
During 1995, the Company purchased a majority in interest in a private
limited partnership and has included the accounts of this entity in its May 31,
1995 consolidated financial statements. The aggregate net liabilities acquired,
including the minority partners' share of net liabilities, were as follows as of
December 1, 1994 (the date of majority control):
<TABLE>
<S> <C>
Cash........................................................... $ 1,573,464
Accounts receivable............................................ 227,256
Other assets................................................... 95,900
Property and equipment......................................... 2,357,656
Accounts payable and accrued expenses.......................... (603,135)
Mortgage payable............................................... (4,163,138)
-----------
Net liabilities acquired....................................... $ (511,997)
-----------
-----------
</TABLE>
16. RECLASSIFICATION
Certain prior years amounts have been reclassified to conform with the 1995
presentation.
17. CONCENTRATION OF CREDIT RISK
At May 31, 1995, the Company had cash equivalents invested in bank
repurchase agreements totaling $1,459,309, cash invested in money market
accounts totaling $1,222,194 and cash in bank accounts which exceeded Federal
Depository Insurance Company limits by $271,878.
18. SUBSEQUENT EVENT
In August 1995, the Company entered into a line of credit with a bank which
allows the Company to borrow up to $5,000,000 for working capital needs and
$20,000,000 for acquisitions of nursing facilities and related businesses.
Initial fundings under the line totaled $2,500,000 which were utilized to retire
the Company's existing $1,000,000 line of credit, retire $500,000 in notes
payable and pay fees associated with the new line of credit. Outstanding
borrowings under the new line of credit accrue interest at variable rates based
on the London Interbank Offered Rate ("LIBOR"). Currently, the rate is 1.25% in
excess of LIBOR. The working capital portion of the line is due on July 31,
1997, and the acquisition portion converts to a 60-month term loan in August,
1997.
F-40
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Transitional Health Services, Inc.
We have audited the accompanying consolidated balance sheets of Transitional
Health Services, Inc. and subsidiaries as of December 31, 1994 and 1995, and the
related consolidated statements of operations, stockholders' equity
(deficiency), and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Transitional
Health Services, Inc. and subsidiaries as of December 31, 1994 and 1995, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Louisville, Kentucky
July 3, 1996
F-41
<PAGE>
TRANSITIONAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1994 1995
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents (Notes 3 and 11)............................................. $ 12,689,277 $ 2,247,740
Receivables:
Resident accounts receivable, less allowance for doubtful accounts of $755,000
in 1994 and $5,491,000 in 1995 (Note 10)....................................... 11,411,152 19,172,913
Estimated settlements due from third-party payors............................... 1,207,052 --
Other receivables............................................................... 1,339,692 2,498,390
Recoverable income taxes........................................................ 815,000 158,000
------------- -------------
14,772,896 21,829,303
Inventories....................................................................... 770,013 990,773
Prepaid expenses.................................................................. 998,371 1,837,539
Deferred income taxes (Note 7).................................................... 485,000 4,088,000
------------- -------------
Total current assets................................................................ 29,715,557 30,993,355
Property and equipment (Notes 4 and 8):
Land.............................................................................. 1,154,511 1,343,112
Buildings and improvements........................................................ 14,370,103 15,780,167
Furniture and equipment........................................................... 2,567,472 3,427,976
Facilities and equipment leased under capital leases (Note 5)..................... 19,694,284 22,046,873
Construction in process........................................................... 526,755 1,291,201
------------- -------------
38,313,125 43,889,329
Less accumulated depreciation and amortization.................................... 1,797,173 3,875,073
------------- -------------
36,515,952 40,014,256
Other assets:
Goodwill, net of accumulated amortization of $770,696 in 1994 and $1,594,179 in
1995 (Note 4)................................................................... 32,677,334 29,274,554
Deferred income taxes (Note 7).................................................... 4,440,000 8,216,825
Restricted cash (Note 11)......................................................... 3,558,396 4,613,848
Other assets...................................................................... 1,679,204 3,552,023
------------- -------------
42,354,934 45,657,250
------------- -------------
Total assets........................................................................ $ 108,586,443 $ 116,664,861
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable.................................................................. $ 4,859,575 $ 9,870,444
Accrued salaries.................................................................. 2,167,669 3,401,928
Accrued payroll taxes............................................................. 579,099 1,947,831
Accrued workers compensation liabilities.......................................... 162,085 1,376,356
Accrued other..................................................................... 1,491,098 4,103,047
Income taxes payable.............................................................. 510,253 132,480
Estimated settlements due to third-party payors................................... -- 657,386
Current obligations related to acquisitions (Note 3).............................. 10,315,311 2,475,150
Current portion of mortgage debt (Note 8)......................................... 88,584 145,173
Current portion of capital lease obligations (Note 5)............................. 741,616 1,391,302
------------- -------------
Total current liabilities........................................................... 20,915,290 25,501,097
Long-term obligations:
Notes payable (Note 4)............................................................ 2,700,000 650,000
Heller line of credit (Note 10)................................................... -- 15,002,165
Noncurrent portion of capital lease obligations (Note 5).......................... 19,736,158 20,485,597
Mortgage debt (Note 8)............................................................ 9,903,260 13,421,176
Subordinated debt (Note 9)........................................................ 24,158,616 24,243,641
------------- -------------
Total long-term obligations......................................................... 56,498,034 73,802,579
Redeemable preferred stock, $1 par value; 160,000 shares authorized; 143,403 shares
issued and outstanding in 1994 (144,086 shares in 1995) (at aggregate liquidation
and redemption value) (Notes 12 and 15)........................................... 16,009,671 17,674,648
Stockholders' equity (deficiency)(Notes 12 and 15):
Common stock, $.01 par value; 20,000,000 shares authorized; 15,192,020 shares
issued and outstanding in 1994 (16,292,899 shares in 1995)...................... 151,920 162,929
Paid-in capital................................................................... 14,481,049 13,927,550
Retained earnings (deficit)....................................................... 530,479 (14,403,942)
------------- -------------
Total stockholders' equity (deficiency)............................................. 15,163,448 (313,463)
------------- -------------
Total liabilities and stockholders' equity (deficiency)............................. $ 108,586,443 $ 116,664,861
------------- -------------
------------- -------------
</TABLE>
See accompanying notes.
F-42
<PAGE>
TRANSITIONAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1994 1995
---------------- ----------------
<S> <C> <C>
Revenues:
Net patient service revenues (Note 3)....................................... $ 89,423,035 $ 127,545,610
Other....................................................................... 758,050 660,690
---------------- ----------------
90,181,085 128,206,300
---------------- ----------------
Costs and expenses:
Facilities operating expenses............................................... 64,298,066 102,578,013
Lease expense (Note 6)...................................................... 8,494,849 11,385,061
Corporate administrative costs.............................................. 9,140,740 15,568,516
Provision for doubtful accounts............................................. 176,440 4,736,419
Depreciation and amortization............................................... 2,412,070 3,245,758
Interest expense............................................................ 4,099,960 6,971,375
Write-off of goodwill (Note 4).............................................. -- 2,913,000
Merger related charges (Note 15)............................................ -- 3,355,404
---------------- ----------------
88,622,125 150,753,546
---------------- ----------------
Income (loss) before provision (credit) for income taxes and extraordinary
item........................................................................ 1,558,960 (22,547,246)
Provision (credit) for income taxes:
Current:
Federal income taxes...................................................... 314,000 --
State income taxes........................................................ 148,000 47,000
Deferred income taxes....................................................... 45,000 (7,659,825)
---------------- ----------------
507,000 (7,612,825)
---------------- ----------------
Income (loss) before extraordinary item....................................... 1,051,960 (14,934,421)
Extraordinary item, net of applicable income taxes
of $284,000 (Note 9)........................................................ (550,000) --
---------------- ----------------
Net income (loss)............................................................. $ 501,960 $ (14,934,421)
---------------- ----------------
---------------- ----------------
</TABLE>
See accompanying notes.
F-43
<PAGE>
TRANSITIONAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK RETAINED STOCKHOLDERS'
-------------------------- PAID-IN EARNINGS EQUITY
SHARES DOLLARS CAPITAL (DEFICIT) (DEFICIENCY)
------------- ----------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1994....... 9,840,000 $ 98,400 $ 9,572,800 $ 28,519 $ 9,699,719
Issuance of stock................. 5,427,020 54,270 6,494,320 -- 6,548,590
Redemption of common stock........ (75,000) (750) (85,500) -- (86,250)
Cancellation of warrant........... -- -- (10,000) -- (10,000)
Preferred stock dividends......... -- -- (1,490,571) -- (1,490,571)
Net income........................ -- -- -- 501,960 501,960
------------- ----------- -------------- --------------- ---------------
Balances at December 31, 1994..... 15,192,020 151,920 14,481,049 530,479 15,163,448
Issuance of stock (Notes 3, 12 and
15)............................. 1,100,879 11,009 1,667,662 -- 1,678,671
Note receivable issued for common
stock (Note 12)................. -- -- (528,480) -- (528,480)
Preferred stock dividends......... -- -- (1,692,681) -- (1,692,681)
Net loss.......................... -- -- -- (14,934,421) (14,934,421)
------------- ----------- -------------- --------------- ---------------
Balances at December 31, 1995..... 16,292,899 $ 162,929 $ 13,927,550 $ (14,403,942) $ (313,463)
------------- ----------- -------------- --------------- ---------------
------------- ----------- -------------- --------------- ---------------
</TABLE>
See accompanying notes.
F-44
<PAGE>
TRANSITIONAL HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1994 1995
--------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES
Income (loss) before extraordinary item........................................ $ 1,051,960 $ (14,934,421)
Adjustments to reconcile income (loss) before extraordinary item to net cash
provided (used) by operating activities:
Depreciation and amortization................................................ 2,412,070 3,245,758
Provision for doubtful accounts.............................................. 176,440 4,736,419
Write-off of goodwill........................................................ -- 2,913,000
Deferred income taxes........................................................ 45,000 (7,659,825)
Other........................................................................ (213,176) (168,676)
Increase (decrease) in cash resulting from changes in operating assets and
liabilities:
Resident accounts receivable............................................... (564,402) (12,498,180)
Estimated settlements due to or from third party payors.................... (378,855) 1,864,438
Other receivables.......................................................... (824,395) (793,698)
Recoverable income taxes................................................... (815,000) 657,000
Inventories................................................................ (406,172) (220,760)
Prepaid expenses........................................................... (272,824) (839,168)
Accounts payable........................................................... 233,322 5,010,869
Accrued expenses........................................................... (148,027) 6,429,211
Income taxes payable....................................................... 116,906 (377,773)
--------------- ---------------
Net cash provided (used) by operating activities............................... 412,847 (12,635,806)
INVESTING ACTIVITIES
Acquisitions of businesses (Note 3)............................................ (8,206,646) (222,139)
Acquisitions of property and equipment......................................... (11,427,783) (5,253,866)
Proceeds from sale of facility (Note 4)........................................ -- 4,400,000
Increase in other assets....................................................... (1,082,100) (1,536,945)
Increase in restricted cash.................................................... (734,092) (1,055,452)
--------------- ---------------
Net cash used by investing activities.......................................... (21,450,621) (3,668,402)
FINANCING ACTIVITIES
Proceeds from issuance of redeemable preferred stock........................... 5,150,300 --
Proceeds from issuance of common stock......................................... 5,150,300 145,630
Redemption of stock............................................................ (86,250) (666,004)
Proceeds from subordinated debt................................................ 25,300,000 --
Repayments of subordinated debt................................................ (10,120,000) --
Increase in Heller line of credit.............................................. -- 15,002,165
Proceeds from mortgage debt.................................................... 10,000,000 6,850,000
Payments on mortgage debt...................................................... (8,156) (5,075,495)
Payments on notes payable...................................................... -- (2,700,000)
Payments on capital lease obligations.......................................... (495,923) (953,464)
Obligations related to acquisitions............................................ (3,764,735) (6,740,161)
--------------- ---------------
Net cash provided by financing activities...................................... 31,125,536 5,862,671
--------------- ---------------
Net increase (decrease) in cash and equivalents................................ 10,087,762 (10,441,537)
Cash and equivalents at beginning of year...................................... 2,601,515 12,689,277
--------------- ---------------
Cash and equivalents at end of year............................................ $ 12,689,277 $ 2,247,740
--------------- ---------------
--------------- ---------------
</TABLE>
See accompanying notes.
F-45
<PAGE>
TRANSITIONAL HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Transitional Health Services, Inc. (THSI) was incorporated in 1993 as a
Delaware corporation to function as a parent holding company of two
whollly-owned corporate general partners (THS Partners I, Inc. and THS Partners
II, Inc.). Each partner is a Delaware corporation with a 50% ownership interest
in Transitional Health Partners d/b/a Transitional Health Services (THS), a
Delaware general partnership. On November 30, 1994, Paragon Rehabilitation, Inc.
became a wholly-owned subsidiary of THSI. In February 1995, Transitional
Financial Services, Inc. was incorporated in Delaware as a wholly-owned
financing subsidiary of THSI.
The consolidated financial statements include the accounts of each of the
above entities (together referred to herein as the "Company"). All intercompany
accounts and transactions have been eliminated from the consolidated financial
statements.
The Company is in the business of operating and managing nursing homes and
providing related healthcare services in the states of Arkansas, Florida,
Indiana, Kentucky, Michigan, Ohio, New Jersey, North Carolina, Tennessee, and
West Virginia.
As more fully discussed in Note 15, THSI merged with Centennial HealthCare
Corporation, formerly known as WelCare International, Inc., effective December
31, 1995.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND EQUIVALENTS
The Company considers all short-term, highly liquid investments with
original maturities of three months or less to be cash equivalents.
ACCOUNTS RECEIVABLE
Accounts receivable are principally comprised of amounts due from Medicare
and Medicaid for patient services, and represent a concentrated group of credit
for the Company; however, management does not believe there is credit risk
associated with these governmental agencies.
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out) or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization of
property and equipment is computed by the straight-line method based upon the
estimated useful lives of the assets (or terms of the leases, if shorter). The
estimated useful lives range principally from 35 to 40 years for buildings and
improvements, five to ten years for furniture and equipment, and ten to twenty
years for facilities and equipment leased under capital leases.
GOODWILL
Goodwill is being amortized on a straight-line basis over 40 years.
F-46
<PAGE>
TRANSITIONAL HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ASSET IMPAIRMENT
If facts and circumstances suggest that a long-lived asset may be impaired,
the carrying value is reviewed. If this review indicates that the value of the
asset will not be recoverable as determined based on the indicated cash flows
related to the asset over its remaining life, then the carrying value of the
asset is reduced to its estimated fair value.
NET PATIENT SERVICE REVENUES
Net patient service revenues are reported at the estimated net realizable
amounts from residents, third-party payors, and others for services rendered.
Approximately 80% in 1994 and 79% in 1995 of the Company's net nursing home
revenues are derived from the Medicare and Medicaid programs.
Revenue under third-party agreements is subject to audit and retroactive
adjustment. Provisions for estimated third-party settlements are provided in the
period the related services are rendered. Estimated settlements from third party
payors in the accompanying consolidated balance sheets include estimated amounts
receivable for exceptions to the Medicare established routine cost limitations
for the reimbursement of costs exceeding these limitations. Differences between
the estimated settlement amounts accrued and final settlements are reported in
operations in the year of settlement. In the opinion of management, any
differences between the net revenue recorded and final determination will not
materially affect the consolidated financial statements.
INCOME TAXES
Income taxes are accounted for under the liability method of accounting.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
FAIR VALUE DISCLOSURES
The fair value of the Company's financial instruments approximates their
carrying value.
3. ACQUISITIONS OF BUSINESSES
On November 1, 1993, the Company purchased substantially all assets of
Cardinal Group's nursing home business, except for cash and accounts receivable.
The Company assumed obligations under leases, as well as other agreements
necessary to the operations of the business, and also assumed and immediately
repaid a 10% collateralized installment note that had a balance of $344,189 as
of November 1, 1993.
The purchase agreement contained a contingent purchase price feature that
required the Company to pay an amount based on the Company's ability to rebase
certain Medicaid rates. The Company recorded $9,000,000 of goodwill and
$9,000,000 of subordinated debt in 1993 with the expectation that the Company
would be required to pay the maximum purchase price specified in the agreement.
Uncertainties arose in 1994 with respect to the Indiana Medicaid reimbursement
system which resulted
F-47
<PAGE>
TRANSITIONAL HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS OF BUSINESSES (CONTINUED)
in the contingent purchase price feature of the agreement being renegotiated.
The renegotiated settlement resulted in a reduction in the purchase price of
$838,000. The $9,000,000 of subordinated debt and related interest obligation
were eliminated; however, the Company assumed an obligation of approximately
$8,162,000 to purchase and settle claims with Cardinal's vendors and
stockholders. At December 31, 1994, current obligations related to acquisitions
includes $4,400,169, representing the portion of the $8,162,000 not yet paid.
The renegotiated final purchase price was $26,667,000, of which $12,895,000
was paid in 1993 to Cardinal Group, $8,162,000 was paid or accrued in 1994 to
purchase and settle Cardinal's vendor and stockholder claims, $5,000,000 was
paid in 1993 to the majority stockholder of Cardinal Group, and $610,000 was
incurred as expenses in connection with the acquisition.
The allocation of the purchase price was finalized in 1994. Assets purchased
included inventories of $228,157, and property and equipment of $24,300,873
(including facilities leased under capital leases of $22,700,000). Goodwill of
$24,064,144 has been recorded in connection with the acquisition, and a
noncurrent deferred income tax asset was recorded for $4,565,000. This
represents the tax effect of temporary differences between assigned fair values
of assets and liabilities for financial reporting purposes and the tax bases of
such assets and liabilities. Capital lease obligations of $25,606,985 were
assumed in connection with the acquisition, and accruals of $1,150,000 were
recorded, which includes the $610,000 of expenses mentioned above.
On April 30, 1994, the Company purchased a 150 bed nursing home facility in
Cary, North Carolina for $7,633,188, of which $4,240,000 was allocated to land,
buildings and equipment and $3,393,188 was allocated to goodwill.
On November 30, 1994, the Company purchased all of the outstanding capital
stock of Paragon Rehabilitation, Inc. (Paragon), a therapy company headquartered
in Nashville, Tennessee. The purchase price was $6,832,000, including
acquisition expenses of $54,000. The purchase price was comprised of $6,332,000
of cash and $500,000 of the Company's stock (166,667 shares of common stock
valued at $250,000 and 2,500 shares of preferred stock valued at $250,000). A
majority of the cash purchase price was not paid until 1995. At December 31,
1994, current obligations related to acquisitions includes $5,915,142 for the
liability to sellers and cash and equivalents includes $5,500,000 of
certificates of deposit which collateralized a letter of credit securing payment
of the obligation.
Assets purchased included current assets of $3,446,715, property and
equipment of $161,602, and goodwill of $5,990,695. Liabilities assumed included
$2,767,016 of current payables and accruals, including the acquisition expenses
of $54,000 mentioned above.
A contingent purchase price of $1,500,000 was earned by the sellers in 1995
based on Paragon's adding revenue producing contracts. The contingent purchase
price was satisfied with issuance of the Company's common stock (426,374 shares
valued at $639,561), preferred stock (6,383 shares valued at $638,300) and cash
of $222,139.
On January 11, 1995, the Company began managing a 71 bed facility in Ann
Arbor, Michigan, and in June 1995 purchased the facility for $2,000,000. The
acquisition was financed with a $1,800,000 10.50% mortgage with the previous
owner.
F-48
<PAGE>
TRANSITIONAL HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS OF BUSINESSES (CONTINUED)
The above acquisitions have been accounted for as purchases and,
accordingly, the results of operations of the acquired businesses are included
in the consolidated statements of operations since the respective dates of
acquisition.
The following unaudited pro forma financial information gives effect to the
Paragon acquisition (the only significant acquisition not included for the
entire period) as if it had occurred on January 1, 1994. The pro forma financial
information does not necessarily reflect the results of operations that would
have occurred had the acquisition occurred on January 1, 1994:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-------------------
<S> <C>
Net revenues............................................................. $ 102,168,312
Income before extraordinary item......................................... $ 1,607,348
Net income............................................................... $ 1,057,348
</TABLE>
4. FACILITY TRANSACTIONS
On September 1, 1994, the Company opened the Rutherfordton, North Carolina
(Oak Grove) facility. This was a new facility with a cost of $2,700,000. The
facility is owned by a partnership which is 50%-owned by the Company. The
Company has an option, which it intends to exercise, to purchase the remaining
50% partnership interest on September 1, 1997 for a nominal price. Since the
Company has substantially all of the risks and rewards of ownership related to
this facility, the partnership has been consolidated with the accounts of the
Company, and the other 50% owner's share of earnings eliminated from the
Company's consolidated statements of operations.
The Oak Grove facility was originally financed with notes, including a
$2,145,000 first mortgage 10% interest-only note due March 1, 1995; a $400,000
second mortgage 12% interest-only note due September 1, 1996; and, a $155,000
10% unsecured interest-only note due March 1, 1995. These notes total $2,700,000
and are shown as noncurrent notes payable on the accompanying consolidated
balance sheet at December 31, 1994, since the Company had the ability and intent
to refinance the March 1, 1995 notes on a long-term basis with proceeds from the
Heller Financial arrangement discussed in Note 10. In December 1995, the Company
refinanced the Oak Grove facility with a $3,000,000 8.87% mortgage with a bank.
On October 31, 1994, the Company purchased the Greensboro, North Carolina
facility which was previously leased under a long-term capital lease. The
purchase price was $5,000,000 and the purchase was financed with mortgage debt.
In February 1995, the Company reached an agreement to sell the facility for
$4,400,000. In connection with the sale, the Company repaid the approximate
$5,000,000 of outstanding related mortgage debt.
On December 30, 1994, the Company purchased the Pikeville, Kentucky facility
which was previously leased under a short-term operating lease. The purchase
price was $3,650,000. The purchase was initially financed with subordinated
debt, and in July 1995 was refinanced with a $3,850,000 9.56% mortgage with a
bank.
In May 1995, the Company began managing a 70 bed facility in Little Rock,
Arkansas. The Company manages this facility for a fee. Revenues and expenses of
this facility are not included in the Company's consolidated statement of
operations. Management fee income in 1995 amounted to $41,466. The
F-49
<PAGE>
TRANSITIONAL HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. FACILITY TRANSACTIONS (CONTINUED)
Company has an option to lease and under certain conditions purchase this
facility at some time in the future.
In October 1995, the Company opened a 90 bed nursing home facility in
Mecklenburg County, North Carolina. The Company includes all revenues and
expenses of this facility in its consolidated financial statements under a
management agreement that will be converted into a leasing arrangement.
During 1995, $2,913,000 of goodwill was written off on three underperforming
facilities.
5. CAPITAL LEASES
The Company leases seven facilities and related equipment under agreements
accounted for as capital leases. One of the leases expires in 2006 and the
remaining leases expire in 2013. Most of these leases include provisions for
contingent rental payments, and one lease provides the Company with an option to
renew after the initial lease term. Most leases also provide the Company a right
of first refusal option to purchase the facilities upon termination of the
leases. Under terms of the leases, the Company is required to pay all taxes,
insurance and maintenance expenses.
Rent escalation clauses in the capital leases are based on contingent
factors such as increases in the consumer price index, and have resulted in
increased current and future lease payments. Contingent rental payments were
$58,494 in 1994 and $72,444 in 1995. The escalation clauses have created lease
commitments as of December 31, 1995, to be paid in future years totaling
$1,138,261. These commitments are in addition to amounts reflected as an
obligation on the consolidated balance sheet at December 31, 1995.
Accumulated amortization of $1,275,633 at December 31, 1994, and $2,531,726
at December 31, 1995, related to facilities under capital leases is included in
accumulated depreciation and amortization in the accompanying consolidated
balance sheets.
The following is a schedule by years of future minimum lease payments under
capital leases together with the present value of the net minimum lease payments
as of December 31, 1995:
<TABLE>
<CAPTION>
NURSING
EQUIPMENT FACILITIES TOTAL
------------- -------------- --------------
<S> <C> <C> <C>
Years ending December 31,
1996........................................ $ 1,124,408 $ 2,468,250 $ 3,592,658
1997........................................ 1,103,542 2,468,250 3,571,792
1998........................................ 719,802 2,468,250 3,188,052
1999........................................ 115,116 2,468,250 2,583,366
2000........................................ 115,116 2,468,250 2,583,366
Thereafter.................................. 250,744 25,829,946 26,080,690
------------- -------------- --------------
Total minimum lease payments.................. 3,428,728 38,171,196 41,599,924
Less amount representing interest............. 676,044 19,046,981 19,723,025
------------- -------------- --------------
Present value of minimum lease payments....... 2,752,684 19,124,215 21,876,899
Current portion............................... 809,275 582,027 1,391,302
------------- -------------- --------------
Noncurrent portion............................ $ 1,943,409 $ 18,542,188 $ 20,485,597
------------- -------------- --------------
------------- -------------- --------------
</TABLE>
F-50
<PAGE>
TRANSITIONAL HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. OPERATING LEASES
The Company had eighteen nursing facilities and related equipment and office
space under operating leases at December 31, 1994. During 1995, the Company
leased five additional facilities bringing the total facilities under operating
leases at December 31, 1995 to twenty-three. Initial terms of these operating
leases expire on various dates through 2011. Most of these operating leases
include provisions for increases in lease payments and provide the Company with
an option to renew after the initial lease term. Most leases also provide the
Company a right of first refusal to purchase the facilities upon termination of
the leases. Under terms of most of the leases, the Company is required to pay
all taxes, insurance and maintenance expenses.
The total future minimum annual lease payments under operating lease
arrangements are as follows:
<TABLE>
<CAPTION>
NURSING
OFFICES FACILITIES TOTAL
------------- ---------------- ----------------
<S> <C> <C> <C>
Years ending December 31,
1996..................................... $ 375,289 $ 11,450,398 $ 11,825,687
1997..................................... 394,688 11,568,693 11,963,381
1998..................................... 361,176 11,679,271 12,040,447
1999..................................... 371,751 11,523,824 11,895,575
2000..................................... 286,316 11,534,877 11,821,193
Thereafter............................... 254,514 71,342,227 71,596,741
------------- ---------------- ----------------
$ 2,043,734 $ 129,099,290 $ 131,143,024
------------- ---------------- ----------------
------------- ---------------- ----------------
</TABLE>
Rent expense under operating leases amounted to $8,018,211 for 1994
(including $96,034 of contingent rent expense) and $10,425,116 in 1995
(including $281,631 of contingent rent expense).
7. INCOME TAXES
Components of the Company's deferred income tax assets (liabilities) are as
follows:
<TABLE>
<CAPTION>
1994 1995
------------- -------------
<S> <C> <C>
Tax effects of:
Allowances for uncollectible receivables...................... $ 396,000 $ 2,688,000
Liabilities not deductible for tax purposes................... 89,000 1,400,000
------------- -------------
Current deferred income tax asset............................... $ 485,000 $ 4,088,000
------------- -------------
------------- -------------
Tax effects of:
Net operating loss carryforwards.............................. $ -- $ 3,924,825
Tax basis receivables in excess of book....................... 2,605,000 2,549,000
Net effect of capital leases.................................. 1,485,000 1,054,000
Goodwill write-off............................................ -- 1,460,000
Other......................................................... 350,000 (771,000)
------------- -------------
Net noncurrent deferred income tax asset........................ $ 4,440,000 $ 8,216,825
------------- -------------
------------- -------------
</TABLE>
The Company expects the deferred tax assets will be realized from future
taxable income of the merged company (see Note 15).
F-51
<PAGE>
TRANSITIONAL HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
The reconciliation of the provision (credit) for income taxes computed at
the U.S. federal statutory tax rate to amounts shown on the accompanying
consolidated statements of operations before extraordinary item is as follows:
<TABLE>
<CAPTION>
1994 1995
----------- --------------
<S> <C> <C>
Tax at U.S. statutory rate....................................... $ 530,046 $ (7,666,064)
State income tax, net of federal effect.......................... 44,880 (513,916)
Expenses for which no tax benefit has been recorded.............. 19,897 397,804
Other, net....................................................... (87,823) 169,351
----------- --------------
Provision (credit) for income taxes.............................. $ 507,000 $ (7,612,825)
----------- --------------
----------- --------------
</TABLE>
As of December 31, 1995, the Company has approximately $11,379,000 of
federal net operating loss carryforwards available to offset future taxable
income through 2010. In addition, the Company has approximately $69,000 in
alternative minimum tax loss carryforwards, $305,000 of federal targeted jobs
tax credit carryforwards, and various state net operating loss carryforwards.
8. MORTGAGE DEBT
At December 31, 1994, the Company had $9,991,884 of mortgage debt
outstanding, including a noncurrent portion of $9,903,260 and a current portion
of $88,584.
At December 31, 1995, the Company has $13,566,349 of mortgage debt
outstanding, including a noncurrent portion of $13,421,176 and a current portion
of $145,173. The mortgage debt requires monthly payments in total of
approximately $129,000. The debt agreements are for five to twenty year periods,
with amortization periods ranging from twenty to twenty-five years. Interest
rates on the mortgages range from 8.87% to 10.50%. Balloon payments are due as
follows: 1999, $4,728,419; 2002, $3,490,152; and 2003, $2,692,201. The mortgage
debt is secured by four facilities with a total net book value of $11,850,476 at
December 31, 1995.
9. SUBORDINATED DEBT
In 1994, subordinated debt with a face amount of $25,300,000 was issued,
replacing subordinated debt issued in 1993 with a face amount of $10,000,000
which was retired. Early extinguishment of the 1993 debt resulted in an
extraordinary charge in November 1994 of $550,000 after a related tax credit of
$284,000.
The $25,300,000 of subordinated debt was issued in two installments. On
November 28, 1994, 10.8% senior subordinated notes due October 30, 2002 in the
face amounts of $16,833,000 and $817,000 were issued, payable to WCAS II and CID
III, respectively. Common stock was issued in connection with the issuance of
the 10.8% notes (765,527 shares valued at $1,148,291), resulting in an original
issue discount of $1,148,291. Accretion of the discount is being charged to
interest expense, raising the effective rate to approximately 12% on the notes.
On December 28, 1994, 11.7% senior subordinated notes due October 30, 2002 in
the face amounts of $7,500,000 and $150,000 were issued, payable to WCAS II and
CID III, respectively.
F-52
<PAGE>
TRANSITIONAL HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. SUBORDINATED DEBT (CONTINUED)
Interest is due quarterly on the senior subordinated notes. The Company has
an option to prepay all or a portion of the notes at any time without penalty or
premium. Upon proper notice, scheduled mandatory prepayments beginning October
31, 2000 and each October thereafter are required to retire one-third of the
original aggregate principal amount of the notes (or, if less, the entire
outstanding principal amount of the notes). Mandatory prepayment of some or all
of the notes is also required if the Company undertakes a public offering or if
there is a change in control of the Company. Mandatory prepayment was waived in
connection with the merger discussed in Note 15.
In December 1994, a 12% junior subordinated note with a principal balance of
$120,000 was retired. The note was payable to a minority stockholder of the
Company.
10. ACCOUNTS RECEIVABLE FINANCING
On February 24, 1995, the Company closed a three-year $15,000,000 working
capital line of credit facility with Heller Financial. The line is supported by
resident accounts receivable and requires interest at 1% over prime. Terms of
the agreement require the Company to maintain certain financial ratios on a
monthly basis and to comply with certain covenants and conditions. The Company
was not in compliance with certain terms of the agreement as of December 31,
1995. See Note 16 for changes to the Heller Financial credit facility subsequent
to December 31, 1995.
11. COMMITMENTS AND CONTINGENCIES
In March 1994 the Company agreed to guarantee mortgage indebtedness of two
unrelated entities that lease five nursing facilities to the Company. The
outstanding principal balance of the debt amounted to approximately $16,460,000
at December 31, 1995.
At December 31, 1994, the Company had $9,058,396 of cash collateralizing
letters of credit. Of this amount, $5,500,000 was in cash and equivalents
collateralizing an acquisition obligation described in Note 3, $3,055,470 was in
restricted cash as collateral for various lease agreements, and $502,926 was in
restricted cash as collateral for a worker's compensation insurance arrangement.
At December 31, 1995, restricted cash of $4,613,848 collateralized letters of
credit issued by a bank in connection with various facility lease agreements, a
worker's compensation insurance arrangement, and certain other agreements.
The Company is a party to a lawsuit filed in October 1995 alleging liability
for various accounts receivable factoring transactions between the prior owner
of THS and the factor. It is the belief of management that this lawsuit as well
as other claims and actions that the Company is a party to in the normal course
of business will be resolved without a material adverse effect on the Company's
financial position, results of operations or liquidity.
12. CAPITAL STOCK
The preferred stock is nonvoting and requires dividends of $12 per share
annually. Dividends are cumulative and accrue from the date of issue of the
preferred stock. The preferred stock may be redeemed in whole or in part at any
time at a redemption price of $100 per share. On December 31, 2003, the Company
must redeem all the shares of preferred stock then outstanding at a redemption
price of $100 per share. The preferred shares have a liquidation value of $100
per share. The liquidation and
F-53
<PAGE>
TRANSITIONAL HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. CAPITAL STOCK (CONTINUED)
redemption value at December 31, 1994 and 1995 includes $1,669,371 and
$3,266,048 of accrued dividends, respectively.
A minority stockholder of the Company had a warrant to purchase up to
1,060,000 shares of common stock at $1 per share at any time prior to October
31, 2000. On October 20, 1994, the Company entered into an agreement with the
minority stockholder to purchase 75,000 shares of his common stock on December
1, 1994 at $1.15 per share, to purchase 4,400 shares of his preferred stock for
$440,000 on April 1, 1995, to purchase the 12% junior subordinated note of
$120,000 on December 1, 1994, to cancel the warrant described above, and to
grant options to purchase 300,000 shares of common stock at $1.15 per share. In
December 1995, the Company agreed to issue 330,300 shares of common stock at
$1.60 per share to the minority stockholder in exchange for a note receivable.
The stock was issued to replace stock options canceled in connection with the
merger discussed in Note 15. The $528,480 note requires interest at prime plus
1% until maturity on December 31, 2005. The principal amount of the note has
been charged to paid in capital with the corresponding common stock reported as
issued and outstanding.
The Company had three stock option plans:
Plan (a)--The Transitional Health Services Non-Qualified Stock Option Plan
under which 692,000 shares of the Company's common stock were reserved for
issuance.
Plan (b)--The Transitional Health Services Senior Executive Performance
Non-Qualified Stock Option Plan under which 692,000 shares of the Company's
common stock were reserved for issuance.
Plan (c)--The Transitional Health Services Outside Directors Non-Qualified
Stock Option Plan under which options for shares of the Company's common stock
could be issued to each member of the Company's Board who were not employed by
the Company or any of its principal stockholders (up to a maximum of 48,000
shares of the Company's common stock).
The following table sets forth stock option activity:
<TABLE>
<CAPTION>
PLAN (A) PLAN (B) PLAN (C)
--------- --------- -----------
<S> <C> <C> <C>
Options outstanding at December 31, 1993.......................................... 262,500 442,800 24,000
Options granted at $1.00 to $1.50 per share....................................... 402,500 149,200 --
Options canceled.................................................................. (40,000) (24,600) --
--------- --------- -----------
Options outstanding at December 31, 1994.......................................... 625,000 567,400 24,000
Options granted at $1.50 per share................................................ 75,000 20,000 --
Options exercised................................................................. (34,000) (19,680) (14,400)
Options canceled.................................................................. (346,000) (234,960) (9,600)
Options canceled upon cash payment by the Company................................. (98,000) (142,680) --
Options canceled upon receiving stock or successor company options................ (222,000) (190,080) --
--------- --------- -----------
Options outstanding at December 31, 1995.......................................... -- -- --
--------- --------- -----------
--------- --------- -----------
</TABLE>
Prior to the merger discussed in Note 15, a majority of the Company's issued
and outstanding common stock had been owned by Welsh, Carson, Anderson & Stowe
VI, L.P. (WCAS VI). WCAS VI's general partner is WCAS VI Partners, a general
partnership comprised of individual members of Welsh, Carson, Anderson & Stowe.
F-54
<PAGE>
TRANSITIONAL HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. 401(K) PLAN
On January 1, 1994, the Company established a 401(k) plan for all employees
not governed by a collective bargaining agreement. Employees of the Company on
January 1, 1994, were eligible to participate. Employees hired after January 1,
1994 could join the plan after completing one year of service and reaching age
21. Employees could defer up to 20% of their salary, subject to the maximum
permitted by law. The Company, at its discretion, has matched a portion of the
employee's contribution. Employee contributions are vested immediately. Employer
contributions vest over time. The Company contributed approximately $47,000 to
the plan in 1994 and $69,000 to the plan in 1995.
14. SUPPLEMENTARY CASH FLOW INFORMATION
The purchase of Paragon Rehabilitation, Inc. (see Note 3), the acquisition
of the Ann Arbor facility in 1995 (see Note 3) and the acquisition of the Oak
Grove facility in 1994 (see Note 4) were accomplished primarily through noncash
investing and financing transactions. In addition to these noncash transactions,
the Company entered into new capital leases in 1994 totaling $1,344,284 and in
1995 totaling $2,352,589.
Cash paid for interest was $4,000,888 in 1994 and $6,627,379 in 1995. Cash
paid for income taxes was $1,049,359 in 1994. Cash refunds for income taxes
amounted to $698,031 in 1995.
15. MERGER WITH CENTENNIAL HEALTHCARE CORPORATION
Effective December 31, 1995, THSI has merged with Centennial HealthCare
Corporation, formerly known as WelCare International, Inc. The combined
companies will operate under the name of Centennial HealthCare Corporation
("Centennial") with headquarters in Atlanta, Ga. In connection with the merger,
shares of the Company's common stock were converted into shares of special
voting common stock of Centennial. Also, shares of the Company's redeemable
preferred stock were converted into shares of Series C preferred stock of
Centennial. For accounting purposes, Centennial is considered the acquirer.
Centennial will include THSI in its consolidated financial statements at
December 31, 1995.
Centennial began operations in 1989 and, pre-merger, operated 39 long-term
care, subacute and rehabilitation centers in 17 states and the District of
Columbia. Post-merger, Centennial operates 76 long-term care and subacute
facilities with approximately 8,000 beds in 19 states and the District of
Columbia.
Various costs and expenses were incurred in connection with the merger
(severance pay, compensation payments in connection with "change of control"
provisions in stock option agreements, investment banker fees, attorney fees,
accounting fees, estimated sublease losses and the write-off of certain assets).
These costs and expenses have been reflected as a separate line on the
accompanying 1995 consolidated statement of operations. Certain of these merger
costs are not deductible for income tax purposes, which has an impact on the
Company's 1995 effective tax rate.
Immediately preceding the merger, WCAS VI was issued a $365,000 convertible
note, which provided for conversion rights at any time. The convertible note was
converted on December 31, 1995. Accordingly, 228,125 shares of common stock were
issued to WCAS VI. The $365,000 due from WCAS VI in connection with this
transaction is included in other receivables in the accompanying consolidated
balance sheet as of December 31, 1995.
F-55
<PAGE>
TRANSITIONAL HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SUBSEQUENT EVENTS
In March 1996, certain terms of the $15,000,000 Heller accounts receivable
line were revised, and the Company entered into a term loan with Heller for an
additional $5,000,000. The term loan is secured by accounts receivable, bears
interest at 1.75% over prime and is repayable over a ten month period at
$500,000 per month beginning in the second month of the agreement.
Centennial received, subsequent to December 31, 1995, commitments for a new
long-term credit facility to be used for various purposes including repayment
and elimination of its credit facilities, including the Company's Heller credit
facility. Accordingly, amounts borrowed under the Heller credit facility are
classified as long-term in the accompanying consolidated balance sheet as of
December 31, 1995.
F-56
<PAGE>
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NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 8
Use of Proceeds................................ 14
Dividend Policy................................ 14
Capitalization................................. 15
Dilution....................................... 16
Selected Consolidated Financial Data........... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations................................ 18
Business....................................... 28
Management..................................... 44
Certain Transactions........................... 54
Principal Shareholders......................... 56
Description of Capital Stock................... 58
Shares Eligible for Future Sale................ 62
Underwriting................................... 64
Legal Matters.................................. 66
Experts........................................ 66
Additional Information......................... 66
Index to Financial Statements.................. F-1
</TABLE>
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UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
SHARES
[LOGO]
COMMON STOCK
-------------
PROSPECTUS
-------------
ALEX. BROWN & SONS
INCORPORATED
DEAN WITTER REYNOLDS INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
EQUITABLE SECURITIES CORPORATION
, 1997
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- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 10.1
<PAGE>
WELCARE INTERNATIONAL, INC.
1994 EMPLOYEE STOCK OPTION PLAN
<PAGE>
WELCARE INTERNATIONAL, INC.
AMENDED AND RESTATED 1994 EMPLOYEE STOCK OPTION PLAN
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS................................................... 1
ARTICLE II THE PLAN...................................................... 3
2.1 Name.......................................................... 3
2.2 Purpose....................................................... 3
2.3 Effective Date................................................ 3
ARTICLE III PARTICIPANTS.................................................. 3
ARTICLE IV ADMINISTRATION................................................ 3
4.1 Duties and Powers of the Committee............................ 4
4.2 Interpretation; Rules......................................... 4
4.3 No Liability.................................................. 4
4.4 Majority Rule................................................. 4
4.5 Company Assistance............................................ 4
ARTICLE V SHARES OF STOCK SUBJECT TO PLAN............................... 4
5.1 Limitations................................................... 4
5.2 Antidilution.................................................. 5
ARTICLE VI OPTIONS....................................................... 6
6.1 Types of Options Granted...................................... 6
6.2 Option Grant and Agreement.................................... 6
6.3 Exercise Price................................................ 6
6.4 Exercise Period............................................... 6
6.5 Option Exercise............................................... 7
6.6 Nontransferability............................................ 8
6.8 Termination of Employment or Service.......................... 8
6.9 Employment Rights............................................. 8
6.10 Effect of Change in Control................................... 8
ARTICLE VII STOCK CERTIFICATES............................................ 8
ARTICLE VIII TERMINATION AND AMENDMENT..................................... 9
8.1 Termination and Amendment..................................... 9
8.2 Effect on Optionee's Rights................................... 9
ARTICLE IX RELATIONSHIP TO OTHER COMPENSATION PLANS...................... 9
ARTICLE X MISCELLANEOUS................................................. 10
10.1 Replacement or Amended Grants................................. 10
10.2 Plan Binding on Successors.................................... 10
10.3 Singular, Plural, Gender...................................... 10
10.4 Headings Not Part of Plan..................................... 10
10.6 Governing Law................................................. 10
i
<PAGE>
WELCARE INTERNATIONAL, INC.
EMPLOYEE STOCK OPTION PLAN
ARTICLE I
DEFINITIONS
As used herein, the following terms have the following meanings unless the
context clearly indicates to the contrary:
"Board" shall mean the Board of Directors of the Company.
"Change in Control" shall mean if any "person" (as such term is used
in Sections 13(d) and 14(d) of the Exchange Act), other than any
person who is a shareholder of the Company on or before the
effective date of this Plan, by the acquisition or aggregation of
securities is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing fifty percent
(50%) or more of the combined voting power of the Company's then
outstanding securities ordinarily (and apart from rights accruing
under special circumstances) having the right to vote at elections
of Directors (the "Base Capital Stock"); except that any change in
the relative beneficial ownership of the Company's securities by any
person resulting solely from a reduction in the aggregate number of
outstanding shares of Base Capital Stock shall be disregarded until
such person increases in any manner, directly or indirectly, such
person's beneficial ownership of any securities of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended,
including effective date and transition rules (whether or not
codified). Any reference herein to a specific section of the Code
shall be deemed to include a reference to any applicable
corresponding provision of future law.
"Committee" shall mean a committee of at least two (2) Directors
appointed from time to time by the Board, having the duties and
authority set forth herein in addition to any other authority
granted by the Board. At any time that the Board shall not have
appointed a committee as described above, any reference herein to
the Committee shall mean a reference to the Board.
"Company" shall mean WelCare International, Inc., a Georgia
corporation.
"Director" shall mean a member of the Board and any person who is an
advisory or honorary director of the Company if such person is
considered a director for the purposes of Section 16 of the Exchange
Act, as determined by reference to such Section 16 and to the rules,
regulations, judicial decisions and interpretative or "no-action"
positions with respect thereto of the Securities and Exchange
Commission, as the same may be in effect or set forth from time to
time.
"Disabled Optionee" shall mean an Optionee who suffers a Disability.
<PAGE>
"Disability" shall mean a physical or mental infirmity which impairs
an Optionee's ability to substantially perform his duties with the
Company or any Subsidiary for a period of 180 consecutive days, as
determined by an independent physician selected by agreement between
the Company and the Optionee or, failing such agreement, selected by
two physicians (one of which shall be selected by the Company and
the other by the Optionee).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended. Any reference herein to a specific section of the Exchange
Act shall be deemed to include a reference to any applicable
corresponding provision of future law.
"Exercise Price" shall mean the price at which an Optionee may
purchase a share of Stock under a Stock Option Agreement.
"Fair Market Value" on any date shall mean (i) the closing average
sales price of the Stock on such date on the national securities
exchange having the greatest volume of trading in the Stock during
the thirty (30) day period preceding such date or, if such exchange
was not open for trading on such date, the next preceding date on
which it was open; (ii) if the Stock is not traded on any national
securities exchange, the average of the closing high bid and low
asked prices of the Stock on the over-the-counter market on the date
such value is to be determined, or in the absence of closing bids on
such date, the closing bids on the next preceding date on which
there were bids; or (iii) if the Stock also is not traded on the
over-the-counter market, the fair market value as determined in good
faith by the Board or the Committee based on such relevant facts as
may be available to the Board or the Committee, as the case may be,
the price at which recent sales of Stock have been made, the book
value of the Stock, and the Company's past, current and future
earnings.
"For Cause" termination shall mean the termination of an Optionee's
employment as a result of: (i) any act that constitutes, on the part
of the Optionee, fraud, dishonesty, gross malfeasance of duty, or
conduct grossly inappropriate to the Optionee's position of
employment; or (ii) the conviction (from which no appeal may be or
is timely taken) of the Optionee of a felony.
"Incentive Stock Option" shall mean an Option that complies with and
is subject to the terms, limitations and conditions of Section 422
of the Code and the regulations promulgated thereunder.
"Officer" shall mean a person who constitutes an officer of the
Company for the purposes of Section 16 of the Exchange Act, as
determined by reference to such Section 16 and to the rules,
regulations, judicial decisions, and interpretative or "no-action"
positions with respect thereto of the Securities and Exchange
Commission, as the same may be in effect or set forth from time to
time.
"Option" shall mean an option to purchase Stock granted pursuant to
the provisions of Article VI hereof.
2
<PAGE>
"Optionee" shall mean a person to whom an Option has been granted
hereunder or his permitted assign.
"Plan" shall mean the WelCare International, Inc. 1994 Employee
Stock Option Plan, the terms of which are set forth herein.
"Purchasable" shall refer to Stock that may be purchased by an
Optionee under the terms of this Plan on or after a certain date
specified in an applicable Stock Option Agreement.
"Stock" shall mean the common stock, $.01 par value per share, of
the Company subject to applicable provisions of Section 5.2.
"Stock Option Agreement" shall mean a written agreement between the
Company and an Optionee under which the Optionee may purchase Stock
hereunder, as provided in Article VI hereof, substantially in the
form attached hereto as Exhibit A.
"Subsidiary" shall mean any corporation in which the Company
directly or indirectly owns stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock of
such corporation.
ARTICLE II
THE PLAN
2.1 Name. This Plan shall be known as the "WelCare International, Inc.
Amended and Restated 1994 Employee Stock Option Plan."
2.2 Purpose. The purpose of the Plan is to advance the interests of the
Company, its Subsidiaries and its shareholders by affording certain employees of
the Company and its Subsidiaries, as well as key consultants and advisors to the
Company or any Subsidiary, an opportunity to acquire or increase their
proprietary interests in the Company. The objective of the Options is to promote
the growth and profitability of the Company and its Subsidiaries by providing
the Optionees with an additional incentive to achieve the Company's objectives
through participation in its success and growth and by encouraging their
continued association with or service to the Company and its Subsidiaries.
2.3 Effective Date. The effective date of this Plan is January 1, 1994.
ARTICLE III
PARTICIPANTS
The class of persons eligible to participate in this Plan shall consist of
all persons whose participation in the Plan the Committee determines to be in
the best interests of the Company which shall include, but not be limited to,
all employees of the Company or any Subsidiary, as well as key consultants and
advisors to the Company or any Subsidiary, but shall not include Directors who
are not employees of the Company or a Subsidiary.
3
<PAGE>
ARTICLE IV
ADMINISTRATION
4.1 Duties and Powers of the Committee. This Plan shall be administered by
the Committee. The Committee shall select one of its members as its Chairman and
shall hold its meetings at such times and places as it may determine. The
Committee shall keep minutes of its meetings and shall make such rules and
regulations for the conduct of its business as it may deem necessary. The
Committee shall have the power to act by unanimous written consent in lieu of a
meeting, and to meet telephonically. In administering this Plan, the Committee's
actions and determinations shall be binding on all interested parties. The
Committee shall have the power to grant Options in accordance with the
provisions of this Plan. Subject to the provisions of this Plan, the Committee
shall have the discretion and authority to determine those persons to whom
Options will be granted, the number of shares of Stock subject to each Option,
such other matters as are specified herein, and any other terms and conditions
of a Stock Option Agreement. To the extent not inconsistent with the provisions
of this Plan, the Committee may give an Optionee an election to surrender an
Option in exchange for the grant of a new Option, and shall have the authority
to amend or modify an outstanding Stock Option Agreement, or to waive any
provision thereof, provided that the Optionee consents to such action.
Notwithstanding anything to the contrary herein contained, no Incentive Stock
Options shall be issued under this Plan.
4.2 Interpretation; Rules. Subject to the express provisions of this Plan,
the Committee shall have complete authority to interpret this Plan, to
prescribe, amend and rescind rules and regulations relating to it, to determine
the details and provisions of each Stock Option Agreement and to make all other
determinations necessary or advisable for the administration of this Plan,
including, without limitation, the amending or altering of this Plan and any
Options granted hereunder as may be required to comply with or to conform to any
federal, state or local laws or regulations.
4.3 No Liability. Neither any Director nor any member of the Committee
shall be liable to any person or entity for any act or determination made in
good faith with respect to this Plan or any Option granted hereunder.
4.4 Majority Rule. A majority of the members of the Committee shall
constitute a quorum, and any action taken by a majority at a meeting at which a
quorum is present, or any action taken without a meeting evidenced by a writing
executed by all the members of the Committee, shall constitute the action of the
Committee.
4.5 Company Assistance. The Company shall supply full and timely
information to the Committee on all matters relating to eligible persons, their
employment, death, retirement, disability or other termination of employment,
and such other pertinent facts as the Committee may require. The Company shall
furnish the Committee with such clerical and other assistance as is necessary in
the performance of its duties.
4
<PAGE>
ARTICLE V
SHARES OF STOCK SUBJECT TO PLAN
5.1 Limitations. Subject to any antidilution adjustment pursuant to the
provisions of Section 5.2, the maximum number of shares of Stock that may be
issued hereunder shall be two hundred sixteen thousand (216,000) Shares of Stock
subject to the Plan may only be issued in non-Incentive Stock Options. Shares
subject to an Option may be either authorized and unissued shares or shares
issued and later acquired by the Company. The shares of Stock covered by any
unexercised portion of an Option that has terminated for any reason (except as
set forth in the following paragraph), may again be optioned under this Plan,
and such shares shall not be considered as having been optioned or issued in
computing the number of shares of Stock remaining available for Options
hereunder.
If Options are issued in respect of options to acquire stock of any entity
acquired, by merger or otherwise, by the Company or any Subsidiary, to the
extent that such issuance shall not be inconsistent with the terms, limitations
and conditions of Rule 16b-3 under the Exchange Act, the aggregate number of
shares of Stock for which Options may be granted hereunder shall automatically
be increased by the number of shares subject to the Options so issued; provided,
however, that the aggregate number of shares of Stock for which Options may be
granted hereunder shall automatically be decreased by the number of shares
covered by any unexercised portion of an Option so issued that has terminated
for any reason, and the shares subject to any such unexercised portion may not
be optioned to any other person.
5.2 Antidilution.
(a) If (i) the outstanding shares of Stock are increased, decreased
or changed into or exchanged for a different number or kind of shares or other
securities of the Company by reason of merger, consolidation, reorganization,
recapitalization, reclassification, combination or exchange of shares, or stock
split or stock dividend, (ii) any spin-off, split-off or other distribution of
assets materially affects the price of the Company's stock, or (iii) there is
any assumption and conversion to this Plan by the Company of an acquired
company's outstanding option grants, then:
(A) the aggregate number and kind of shares of Stock for which
Options may be granted hereunder shall be adjusted appropriately by
the Committee; and
(B) the rights of Optionees (concerning the number of shares
of Stock subject to Options and the Exercise Price) under
outstanding Options shall be adjusted appropriately by the
Committee.
(b) If the Company is a party to any reorganization in which it does
not survive involving merger, consolidation or acquisition of the stock or
substantially all the assets of the Company, the Committee, in its discretion,
may:
(i) notwithstanding other provisions hereof, declare that all
Options granted under this Plan shall become exercisable immediately
notwithstanding the provisions of the respective Stock Option
Agreements regarding exercisability, that all such Options shall
terminate thirty (30) days after the
5
<PAGE>
Committee gives written notice of the immediate right to exercise
all such Options and of the decision to terminate all Options not
exercised within such 30-day period; and/or
(ii) notify all Optionees that all Options granted under this
Plan shall be assumed by the successor corporation or substituted on
an equitable basis with options issued by such successor
corporation.
(c) If the Company is to be liquidated or dissolved in connection
with a reorganization described in Section 5.2(b), the provisions of that
Section shall apply. In all other instances, the adoption of a plan of
dissolution or liquidation of the Company shall, notwithstanding other
provisions hereof, cause all then-remaining restrictions pertaining to Options
under the Plan to lapse, and shall cause every Option outstanding under the Plan
to terminate to the extent not exercised prior to the adoption of the plan of
dissolution or liquidation by the shareholders; provided that, notwithstanding
any other provisions hereof, the Committee may declare all Options granted under
the Plan to be exercisable at any time on or before the fifth (5th) business day
following such adoption, notwithstanding the provisions of the respective Stock
Option Agreements regarding exercisability.
(d) The adjustments described in paragraphs (a) through (c) of this
Section 5.2, and the manner of their application, shall be determined solely by
the Committee, and any such adjustment may provide for the elimination of
fractional share interests. The adjustments required under this Article V shall
apply to any successors of the Company and shall be made regardless of the
number or type of successive events requiring such adjustments.
ARTICLE VI
OPTIONS
6.1 Types of Options Granted. The Committee may, under this Plan, grant
only Options which do not qualify as Incentive Stock Options. Options may be
granted subject to conditions based on the financial performance of the Company
or any other factor the Committee deems relevant. Neither the Company, nor any
Subsidiary or any other person warrants or otherwise represents that (i) any
Option granted under this Plan shall be considered an Incentive Stock Option for
applicable tax purposes, or (ii) favorable or desirable tax treatment or
characterization will be applicable in respect of any Option or Stock.
6.2 Option Grant and Agreement. Each Option granted hereunder shall be
evidenced by minutes of a meeting or the written consent of the Committee and by
a written Stock Option Agreement executed by the Company and the Optionee. The
terms of the Option, including the Option's duration, time or times of exercise
and exercise price, shall be stated in the Stock Option Agreement.
6.3 Exercise Price. The Exercise Price of the Stock subject to each Option
shall be determined by the Committee.
6.4 Exercise Period. The period for the exercise of each Option granted
hereunder shall be determined by the Committee; provided, however, that no
Option granted to a Section 16 Insider shall be exercisable prior to the
expiration of six (6) months from the date such Option is granted, other than in
the case of the death or Disability of the Optionee.
6
<PAGE>
6.5 Option Exercise.
(a) Unless otherwise provided in the Stock Option Agreement or
Section 6.4 hereof, an Option may be exercised at any time or from time to time
during the term of the Option as to any or all full shares which have become
Purchasable under the provisions of the Option, but not at any time as to less
than one hundred (100) shares unless the remaining shares that have become so
Purchasable are less than one hundred (100) shares. The Committee shall have the
authority to prescribe in any Stock Option Agreement that the Option may be
exercised only in accordance with a vesting schedule during the term of the
Option.
(b) An Option shall be exercised by (i) delivery to the Company at
its principal office a written notice of exercise with respect to a specified
number of shares of Stock and (ii) payment to the Company at that office of the
full amount of the Exercise Price for such number of shares in accordance with
Section 6.5(c).
(c) The Exercise Price is to be paid in full in cash upon the
exercise of the Option and the Company shall not be required to deliver
certificates for the shares purchased until such payment has been made;
provided, however, that the Committee may provide in a Stock Option Agreement
(or may otherwise determine in its sole discretion at the time of exercise) that
in lieu of cash, all or any portion of the Exercise Price may be paid by
tendering to the Company shares of Stock duly endorsed for transfer and owned by
the Optionee, or by authorization to the Company to withhold shares of Stock
otherwise issuable upon exercise of the Option, in each case to be credited
against the Exercise Price at the Fair Market Value of such shares on the date
of exercise (however, no fractional shares may be so transferred, and the
Company shall not be obligated to make any cash payments in consideration of any
excess of the aggregate Fair Market Value of shares transferred over the
aggregate Exercise Price); provided further, that the Committee may provide in a
Stock Option Agreement (or may otherwise determine in its sole discretion at the
time of exercise) that, in lieu of cash or shares, all or a portion of the
Exercise Price may be paid by the Optionee's execution of a promissory note the
principal amount of which shall be equal to at least the Exercise Price or
relevant portion thereof, subject to compliance with applicable state and
federal laws, rules and regulations.
(d) In addition to and at the time of payment of the Exercise Price,
the Company may withhold, or require the Optionee to pay to the Company in cash,
the amount of any federal, state and local income, employment or other
withholding taxes which the Committee determines are required to be withheld
under federal, state or local law in connection with the exercise of an Option;
provided, however, the Committee may provide in a Stock Option Agreement (or may
otherwise determine in its sole discretion at the time of exercise) that all or
any portion of such tax obligations may, upon the election of the Optionee, be
paid by tendering to the Company whole shares of Stock duly endorsed for
transfer and owned by the Optionee, or by authorization to the Company to
withhold shares of Stock otherwise issuable upon exercise of the Option, in
either case in that number of shares having a Fair Market Value on the date of
exercise equal to the amount of such taxes thereby being paid, and subject to
such restrictions as to the approval and timing of any such election as the
Committee may from time to time determine to be necessary or appropriate to
satisfy the conditions of the exemption set forth in Rule 16b-3 under the
Exchange Act, if such rule is applicable. To the extent tax withholding is
required at an applicable time with respect to Options or Stock acquired under
this Plan by an Optionee, the Company, applicable Subsidiary
7
<PAGE>
or other entity upon which such withholding obligation arises shall be entitled
to withhold from such Optionee's compensation (derived from this Plan or
otherwise) the applicable amount required to be withheld.
(e) The holder of an Option shall not have any of the rights of a
shareholder with respect to the shares of Stock subject to the Option until such
shares have been issued and transferred to the Optionee upon the exercise of the
Option.
(f) Notwithstanding anything to the contrary herein or in a Stock
Option Agreement, a given Option shall not be exercisable to the extent the
exercise thereof would cause the Company to be a reporting company under the
Exchange Act.
6.6 Nontransferability. No Option shall be transferable by an Optionee
other than by will or the laws of descent and distribution. During the lifetime
of an Optionee, Options shall be exercisable only by such Optionee (or by such
Optionee's guardian or legal representative, should one be appointed).
6.8 Termination of Employment or Service. The Committee shall have the
power to specify, with respect to the Options granted to a particular Optionee,
the effect upon such Optionee's right to exercise an Option upon termination of
such Optionee's employment or service under various circumstances, which effect
may include immediate or deferred termination of such Optionee's rights under an
Option, or acceleration of the date at which an Option may be exercised in full.
6.9 Employment Rights. Nothing in this Plan or in any Stock Option
Agreement shall confer on any person any right to continue in the employ of the
Company or any of its Subsidiaries, or shall interfere in any way with the right
of the Company or any of its Subsidiaries to terminate such person's employment
at any time.
6.10 Effect of Change in Control. The Committee may determine, at the time
of granting an Option or thereafter, that such Option shall become exercisable
on an accelerated basis in the event that a Change in Control occurs with
respect to the Company (and the Committee shall have the discretion to modify
the definition of Change in Control in a particular Option Agreement). If the
Committee finds that there is a reasonable possibility that, within the
succeeding six (6) months, a Change in Control will occur with respect to the
Company, then the Committee may determine that all outstanding Options shall be
exercisable on an accelerated basis.
ARTICLE VII
STOCK CERTIFICATES
The Company shall not be required to issue or deliver any certificate for
shares of Stock purchased upon the exercise of any Option granted hereunder or
any portion thereof prior to fulfillment of all of the following conditions:
(a) the admission of such shares to listing on all stock exchanges
on which the Stock is then listed;
8
<PAGE>
(b) the completion of any registration or other qualification of
such shares which the Committee shall deem necessary or advisable under
any federal or state law or under the rulings or regulations of the
Securities and Exchange Commission or any other governmental regulatory
body;
(c) the obtaining of any approval or other clearance from any
federal or state governmental agency or body which the Committee shall
determine to be necessary or advisable; and
(d) the lapse of such reasonable period of time following the
exercise of the Option as the Board from time to time may establish for
reasons of administrative convenience.
Stock certificates issued and delivered to Optionees shall bear such
restrictive legends as the Company shall deem necessary or advisable pursuant to
applicable federal and state securities laws.
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 Termination and Amendment. The Board may at any time terminate this
Plan, and may at any time and from time to time and in any respect amend this
Plan; provided, however, that the Board (unless its actions are approved or
ratified by the shareholders of the Company within twelve (12) months of the
date that the Board amends the Plan) may not amend this Plan to:
(a) materially increase the number of shares of Stock subject to
this Plan;
(b) materially change the class of persons that may participate in
this Plan; or
(c) otherwise materially increase the benefits accruing to
participants under this Plan.
8.2 Effect on Optionee's Rights. No termination, amendment or modification
of this Plan shall adversely affect an Optionee's rights under a Stock Option
Agreement without the consent of the Optionee or his legal representative.
ARTICLE IX
RELATIONSHIP TO OTHER COMPENSATION PLANS
The adoption of this Plan shall not affect any other stock option,
incentive or other compensation plans in effect for the Company or any of its
Subsidiaries; nor shall the adoption of the Plan preclude the Company or any of
its Subsidiaries from establishing any other form of incentive or other
compensation plan for employees or Directors of the Company or any of its
Subsidiaries.
9
<PAGE>
ARTICLE X
MISCELLANEOUS
10.1 Replacement or Amended Grants. At the sole discretion of the
Committee, and subject to the terms of this Plan, the Committee may modify
outstanding Options or accept the surrender of outstanding Options and grant new
Options in substitution thereof. However, no modification of an Option shall
adversely affect an Optionee's rights under a Stock Option Agreement without the
consent of the Optionee or his legal representative.
10.2 Plan Binding on Successors. This Plan shall be binding upon the
successors and assigns of the Company.
10.3 Singular, Plural, Gender. Whenever used herein, nouns in the singular
shall include the plural, and the masculine pronoun shall include the feminine
gender and vice versa.
10.4 Headings Not Part of Plan. Headings of Articles and Sections hereof
are inserted for convenience and reference, and they do not constitute part of
this Plan.
10.6 Governing Law. This Plan shall be governed by the laws of the State
of Georgia, without regard to conflicts of laws principles.
* * * * *
10
<PAGE>
EXHIBIT "A"
FORM OF
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT ("Agreement") is made and entered into as of
January 1, 1994, by and between WelCare International, Inc., a Georgia
corporation ("Optionor"), and _______________ ("Optionee").
In consideration of Ten Dollars ($10.00) and other good and valuable
consideration paid by each party to the other, the parties hereto agree as
follows:
1.
Grant of Option
The Optionor hereby grants to Optionee the right and option to purchase
from Optionor a total of ________________ (________) shares of the common stock,
$.01 par value per share (the "Common Stock"), of the Optionor (the "Option").
The number of shares which may be purchased hereunder shall be subject to
adjustment pursuant to Section 6 hereof.
2.
Purchase Price
Upon exercise of this Option, the purchase price per share to be paid by
the Optionee (the "Option Price") for the shares of Common Stock shall be Six
Dollars ($6.00). The aggregate purchase price of the shares subject to this
Agreement shall be the product obtained by multiplying the number of shares
subject to this Agreement by the Option Price. The Option Price shall be subject
to adjustment pursuant to Section 6 hereof.
3.
Method of Exercising Option
(a) This Option may be exercised, in whole or in part, from time to time,
at any time during the five-year period beginning on ___________ (the fifth
anniversary of the date of Optionee's commencement of employment with Optionor)
(the "Option Period").
(b) This Option may be exercised from time to time by the Optionee during
the Option Period by delivering a written notice signed by the Optionee
(substantially in the form of Attachment "A" attached hereto with appropriate
insertions), to the Optionor, specifying the number of shares for which an
exercise is being made. Such notice shall be accompanied by a check of the
Optionee or, in the case of an exercise pursuant to Section 3(d) hereof, a check
and a promissory note (the "Note") (substantially in the form attached hereto as
Attachment "B") for the aggregate purchase price of such shares and shall be
accompanied by an appropriate representation and warranty to the effect set
forth in Section 5(a) hereof.
<PAGE>
(c) Notwithstanding the provisions of Section 3(a) above, after the death
of the Optionee, this Option shall become fully vested and immediately
exercisable for a period of six (6) months following the death of the Optionee,
by the Optionee's personal representative or by any person empowered to do so
under the Optionee's will or under the then applicable laws of descent and
distribution. Any such exercise shall be made in the manner specified in the
immediately preceding subsection.
(d) Optionor may, upon the determination of the Board of Directors of
Optionor, require that this Option be exercised, from time to time during the
term of this Agreement. Notwithstanding the provisions of Section 3(a) above, in
the event Optionor requires the exercise of the Option pursuant to this
subsection (d), this Option shall become fully vested and immediately
exercisable and Optionor shall provide partial financing to Optionee to exercise
the Option in full and Optionee shall be entitled to deliver the Note to
Optionor in payment of up to seventy-five percent (75%) of the Option Price.
(e) Optionee shall exercise any exercisable portion of this Option as of
the effective date of any significant corporate event, including, without
limitation, the merger, reorganization, business combination, or sale of
substantially all of the assets of Optionor, or a public offering of Common
Stock for cash which is offered and sold in a registered transaction on a firm
commitment underwritten basis. Notwithstanding the provisions of Section 3(a)
above, this Option shall become fully vested and immediately exercisable in full
as of the effective date of any merger or business combination, the result of
which Optionor is not the surviving entity.
(f) Promptly upon receipt of notice from and check or the Note, as
provided in Section 3(d) above, of the Optionee (or his representative), and
provided that Optionor is satisfied that all conditions precedent to this
exercise of the Option have been met, Optionor shall issue a certificate in the
name of the Optionee (or his representative) for the number of shares of Common
Stock for which the exercise was made.
4.
Non-Transferability of Option
This Option shall not be sold, assigned, transferred, pledged or
hypothecated in any way by Optionee without the prior written consent of
Optionor and shall not be subject to execution, attachment or any similar
process; provided, however, that this Option may be transferred without the
consent of Optionor by gift to any immediate family member of Optionee or any
trust of which Optionee or any immediate family member is beneficiary (each, a
"Permitted Transfer"). For the purposes of this Agreement, immediate family
members shall include Optionee's spouse, children and parents. Upon a Permitted
Transfer, the transferee shall become the Optionee for the purposes of this
Option.
5.
Investment Representation of Optionee
(a) Optionee agrees that the exercise of this Option and the delivery of
the shares of Common Stock in accordance herewith shall be contingent upon the
Optionor being furnished by Optionee a representation and warranty that the
Optionee is acquiring the shares
A-2
<PAGE>
purchased pursuant to this Option for investment for the Optionee's account and
not with a view toward distribution.
(b) THESE SECURITIES HAVE BEEN ISSUED OR SOLD IN RELIANCE ON PARAGRAPH
(13) OF CODE SECTION 10-5-9 OF THE "GEORGIA SECURITIES ACT OF 1973" AND MAY NOT
BE SOLD OR TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER SUCH ACT OR
PURSUANT TO AN EFFECTIVE REGISTRATION UNDER SUCH ACT.
This Option has been issued or sold in reliance on an exemption from the
registration requirements of the Securities Act of 1933, as amended, and has not
been registered thereunder. This Option may not be transferred except for a
Permitted Transfer, nor will any assignee or endorsee hereof be recognized as an
owner hereof by the Optionor for any purpose, except in transactions registered
under the Securities Act of 1933, as amended, or which are established to the
satisfaction of the Optionor to be exempt from registration thereunder.
(c) The Optionee understands and agrees that the certificate or
certificates representing any shares acquired hereunder may bear an appropriate
legend relating to registration and resale under federal and Georgia securities
laws.
(d) The Optionee shall not have any rights of a shareholder of Optionor
with respect to the shares which may be purchased upon exercise of this Option,
unless and until such shares shall have been issued and delivered and his name
has been entered as a shareholder on the stock transfer records of the Optionor.
6.
Adjustments
In the event that the outstanding shares of the Common Stock are changed
into or changed for a different number or kind of shares or other securities of
the Optionor or of another corporation by reason of merger, consolidation,
reorganization, recapitalization, reclassification, combination of shares, stock
split or stock dividend, the rights under this Agreement (both as to the number
and type of shares obtainable upon exercise of the Option and the Option Price)
shall be adjusted appropriately; provided, however, that no such adjustment
shall reduce the Option Price below the par value of shares issued. The manner
of application of the foregoing adjustments shall be determined solely by the
Board of Directors of the Optionor, and any such adjustment may provide for the
elimination of fractional interests. The adjustments required under this Section
6 shall apply to any successor or successors of the Optionor and shall be made
regardless of the number or type of successive events requiring adjustments
hereunder.
7.
Notices
Any notice, request, document or other communication pertaining to this
Agreement shall be deemed to be sufficiently given upon personal delivery to the
other party or upon depositing same in the United States mail, return receipt
requested, properly addressed to the
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<PAGE>
respective parties or such other address as they may give to the other party in
writing in the same manner as follows:
Optionor: WelCare International, Inc.
7000 Central Parkway
Suite 970
Atlanta, Georgia 30328
Attention: J. Stephen Eaton, President
Optionee: _______________________________
_______________________________
_______________________________
_______________________________
8.
Miscellaneous
This Agreement shall be governed by, and enforced and construed in
accordance with, the laws of the State of Georgia. This Agreement contains the
entire understanding of the parties hereto and supersedes any prior
understanding and/or written or oral agreement between them respecting the
subject matter hereof. No revision, modification or change of this Agreement
whatsoever shall be claimed or become valid unless the same is in writing and
executed by Optionor, or its assignee, and by Optionee.
A-4
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
OPTIONOR:
WELCARE INTERNATIONAL, INC.
ATTEST:
____________________________ By: _______________________________
Lisa A. Bennett J. Stephen Eaton
Secretary President
[CORPORATE SEAL]
OPTIONEE:
______________________________________
A-5
<PAGE>
ATTACHMENT "A"
FORM OF
NOTICE OF EXERCISE
The undersigned hereby notifies WelCare International, Inc. (the
"Company") of his election to exercise his stock option to purchase
___________________ (________) shares (the "Shares") of the Company's common
stock, $.01 par value (the "Common Stock"), pursuant to the Stock Option
Agreement (the "Agreement") between the undersigned and the Company dated as of
_________________. Accompanying this Notice is a check or, in the case of an
exercise pursuant to Section 3(d) of the Agreement, a check in the amount of
$___________ and a promissory note substantially in the form attached to the
Agreement as Attachment "B" in the amount of $________ payable to the Company,
such amount being equal to the purchase price per share set forth in Section 2
of the Agreement (subject to adjustment pursuant to Section 6 of the Agreement)
multiplied by the number of shares set forth above.
The undersigned hereby represents that he is purchasing the Shares for
purposes of investment for his own account, and without any present intention to
resell or dispose of said shares or otherwise to participate directly or
indirectly in a distribution thereof, and hereby agrees that all certificates
representing the Shares may bear a restrictive legend to this effect.
The undersigned is a resident of the State of Georgia.
DATE:____________________ ______________________________________
<PAGE>
ATTACHMENT "B"
FORM OF
PROMISSORY NOTE
$_______________ Atlanta, Georgia
FOR VALUE RECEIVED, _________________________, an individual resident of
Georgia ("Maker"), hereby promises to pay to the order of WELCARE INTERNATIONAL,
INC., a Georgia corporation (together with its successors and assigns,
"Holder"), in accordance with the terms of this Note, at the offices of Holder
at 7000 Central Parkway, Suite 970, Atlanta, Georgia 30328, or such other place
as Holder may designate in writing from time to time, the principal sum of
_________________________ AND ___/100 DOLLARS ($_____________), in legal tender
of the United States, together with interest thereon at the Prime Rate, as
determined on the date of this Note, plus one percent (1%) per annum; the
principal and interest due under this Note shall be due and payable in three
equal consecutive annual installments, on the first, second and third
anniversary of the date hereof. Prime Rate shall mean the per annum interest
rate publicly announced by [Holder's bank] (or its successors or assigns or
survivor by merger or consolidation) from time to time as its prime rate for
U.S. Dollar loans.
If default be made in the payment of principal or interest when due (and
after the running of a fifteen (15) day cure period) under this Note, which such
occurrence and continuance shall constitute an "Event of Default" hereunder, in
addition to all other remedies at law or in equity, at the option of Holder (i)
the outstanding principal balance of this Note and all accrued and unpaid
interest thereon and all other amounts payable by Maker to Holder may be
declared immediately due and payable, and (ii) all such amounts declared
immediately due and payable shall bear interest at the Default Rate until paid.
Such acceleration of this Note and imposition of the Default Rate shall be
effective upon Holder's notice thereof to Maker. If any payment of principal or
interest due hereunder is not made within fifteen (15) days of the due date of
such payment, interest shall accrue on any such amounts at the default rate of
interest, which shall be twelve percent (12%) per annum (the "Default Rate").
Maker may prepay without penalty all or any part of the outstanding
principal balance of this Note at any time or from time to time upon five (5)
days' written notice to Holder; provided any such prepayment includes accrued
interest. Any partial payments shall be credited in reverse order of maturity.
This Note shall be governed by, and construed and enforced in accordance
with, the laws of the State of Georgia.
If Maker shall file a voluntary petition in bankruptcy, be adjudicated as
a bankrupt or insolvent, file any petition or answer seeking or acquiescing in
any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief for Maker under any federal, state or other
statute relating to bankruptcy, insolvency or other similar relief for debtors,
or shall seek, consent to or acquiesce in the appointment of any trustee,
receiver or liquidator of Maker or of all or any substantial part of the assets
of Maker, or shall make a general assignment for the benefit of creditors, or
shall admit in writing the inability to pay its debts generally as they become
due, and Maker shall fail to negate the effect of any
<PAGE>
such action or proceeding not initiated by Maker (whether by dismissal of
proceedings, discharge of trustee or receiver or otherwise) within sixty (60)
days from and after the occurrence thereof, then Holder, at its option, shall be
entitled to accelerate any and all of the indebtedness evidenced by this Note
and the indebtedness shall become immediately due and payable, and to
cumulatively exercise all other rights and privileges provided by law.
Time is of the essence with respect to this Note, and except as otherwise
provided herein, demand, protest, notice of demand and non-payment and all other
notices whatsoever, are hereby waived by Maker.
This Note may be transferred or assigned by Holder with prior notice to
Maker.
All notices, requests, demands, consents and other communications required
or permitted hereunder shall be in writing and shall be given as provided in the
Stock Option Agreement.
If Holder initiates legal proceedings to secure payment of either
principal or interest on this Note, Maker shall pay Holder's costs and expenses
of such proceedings (including, without limitation, reasonable attorneys' fees
actually incurred and court costs).
WITNESS my hand and seal, as of this ___ day of _____________, 199__.
______________________________
B-2
<PAGE>
EXHIBIT 10.2
<PAGE>
WELCARE INTERNATIONAL, INC.
1996 EXECUTIVE STOCK PLAN
<PAGE>
WELCARE INTERNATIONAL, INC.
1996 EXECUTIVE STOCK PLAN
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS................................................1
ARTICLE II THE PLAN...................................................4
2.1 Name.......................................................4
2.2 Purpose....................................................4
2.3 Effective Date.............................................4
ARTICLE III PARTICIPANTS...............................................4
ARTICLE IV ADMINISTRATION.............................................5
4.1 Duties and Powers of the Committee.........................5
4.2 Interpretation; Rules......................................5
4.3 No Liability...............................................5
4.4 Majority Rule..............................................5
4.5 Company Assistance.........................................5
ARTICLE V SHARES OF STOCK SUBJECT TO PLAN............................6
5.1 Limitations................................................6
5.2 Antidilution...............................................6
ARTICLE VI OPTIONS....................................................7
6.1 Types of Options Granted...................................7
6.2 Option Grant and Agreement.................................7
6.3 Exercise Price.............................................8
6.4 Exercise Period............................................8
6.5 Option Exercise............................................8
6.6 Reload Options.............................................9
6.7 Nontransferability........................................10
6.8 Termination of Employment or Service......................10
6.9 Employment Rights.........................................10
6.10 Certain Successor Options.................................10
6.11 Effect of Change in Control...............................10
ARTICLE VII RESTRICTED STOCK..........................................10
7.1 Awards of Restricted Stock................................10
7.2 Nontransferability........................................11
7.3 Lapse of Restrictions.....................................11
7.4 Termination of Employment.................................11
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<PAGE>
Page
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7.5 Treatment of Dividends....................................11
7.6 Delivery of Shares........................................11
ARTICLE VIII STOCK APPRECIATION RIGHTS................................11
8.1 SAR Awards................................................11
8.2 Determination of Price....................................12
8.3 Exercise of a SAR.........................................12
8.4 Payment of a SAR Spread...................................12
8.5 Effect of SARs on Stock Subject to Plan...................12
8.6 Termination of SARs.......................................12
8.7 Nontransferability........................................13
8.8 No Shareholder Rights.....................................13
ARTICLE IX STOCK CERTIFICATES........................................13
ARTICLE X TERMINATION AND AMENDMENT.................................14
10.1 Termination and Amendment.................................14
10.2 Effect on Grantee's Rights................................14
ARTICLE XI RELATIONSHIP TO OTHER COMPENSATION PLANS..................14
ARTICLE XII MISCELLANEOUS.............................................14
12.1 Replacement or Amended Grants.............................14
12.2 Plan Binding on Successors................................14
12.3 Singular, Plural, Gender..................................14
12.4 Headings Not Part of Plan.................................14
12.5 Interpretation............................................15
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<PAGE>
WELCARE INTERNATIONAL, INC.
1996 EXECUTIVE STOCK PLAN
ARTICLE I
DEFINITIONS
As used herein, the following terms have the following meanings unless the
context clearly indicates to the contrary:
"Award" shall mean a grant of Restricted Stock or a SAR under this
Plan.
"Board" shall mean the Board of Directors of the Company.
"Change in Control" shall mean the occurrence of either of the
following events:
(a) A change in the composition of the Board as a result of which
fewer than one-half of the incumbent Directors are Directors
who either:
(i) were Directors of the Company twenty-four (24) months
prior to such change, or
(ii) were elected, or nominated for election, to the Board
with the affirmative votes of at least a majority of the
Directors who had been Directors of the Company
twenty-four (24) months prior to such change and who
were still in office at the time of the election or
nomination; or
(b) Any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act), other than any person who is a
shareholder of the Company on or before the effective date of
this Plan, by the acquisition or aggregation of securities is
or becomes the beneficial owner, directly or indirectly, of
securities of the Company representing fifty percent (50%) or
more of the combined voting power of the Company's then
outstanding securities ordinarily (and apart from rights
accruing under special circumstances) having the right to vote
at elections of directors (the "Base Capital Stock"); except
that any change in the relative beneficial ownership of the
Company's securities by any person resulting solely from a
reduction in the aggregate number of outstanding shares of
Base Capital Stock shall be disregarded until such person
increases in any manner, directly or indirectly, such person's
beneficial ownership of any securities of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended,
including effective date and transition rules (whether or not
codified). Any reference herein to a specific section of the Code
shall be deemed to include a reference to any applicable
corresponding provision of future law.
"Committee" shall mean a committee of at least three (3) Directors
appointed from time to time by the Board, having the duties and
authority set forth herein
<PAGE>
in addition to any other authority granted by the Board; provided,
however, that with respect to any Options or Awards granted to an
individual who is also a Section 16 Insider, the Committee shall
consist of at least two Directors (who need not be members of the
Committee with respect to Options or Awards granted to any other
individuals) who are Disinterested Persons, and all authority and
discretion shall be exercised by such Disinterested Persons, and
references herein to the "Committee" shall mean such Disinterested
Persons insofar as any actions or determinations of the Committee
shall relate to or affect Options or Awards made to or held by any
Section 16 Insider. At any time that the Board shall not have
appointed a committee as described above, any reference herein to
the Committee shall mean a reference to the Board.
"Company" shall mean WelCare International, Inc., a Georgia
corporation.
"Director" shall mean a member of the Board and any person who is an
advisory or honorary director of the Company if such person is
considered a director for the purposes of Section 16 of the Exchange
Act, as determined by reference to such Section 16 and to the rules,
regulations, judicial decisions and interpretative or "no-action"
positions with respect thereto of the Securities and Exchange
Commission, as the same may be in effect or set forth from time to
time.
"Disabled Optionee" shall mean a Grantee who suffers a Disability.
"Disability" shall mean a physical or mental infirmity which impairs
a Grantee's ability to substantially perform his duties with the
Company or a Subsidiary for a period of 180 consecutive days, as
determined by an independent physician selected by agreement between
the Company and the Grantee or, failing such agreement, selected by
two physicians (one of which shall be selected by the Company and
the other by the Grantee); provided, however, "Disability" shall
have the meaning set forth in Code Section 22(e)(3) and the
regulations promulgated thereunder in respect of an Optionee granted
Incentive Stock Options.
"Disinterested Person" shall have the meaning set forth in Rule
16b-3 under the Exchange Act, or in any successor rule thereto, and
shall be determined for all purposes under this Plan according to
interpretative or "no-action" positions with respect thereto issued
by the Securities and Exchange Commission.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended. Any reference herein to a specific section of the Exchange
Act shall be deemed to include a reference to any applicable
corresponding provision of future law.
"Exercise Price" shall mean the price at which an Optionee may
purchase a share of Stock under a Stock Option Agreement.
"Fair Market Value" on any date shall mean (i) the average closing
sales price of the Stock on such date on the national securities
exchange having the greatest volume of trading in the Stock during
the thirty (30) day period preceding such date or, if such exchange
was not open for trading on such
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<PAGE>
date, the next preceding date on which it was open; (ii) if the
Stock is not traded on any national securities exchange, the average
of the closing high bid and low asked prices of the Stock on the
over-the-counter market on the date such value is to be determined,
or in the absence of closing bids on such date, the closing bids on
the next preceding date on which there were bids; or (iii) if the
Stock also is not traded on the over-the-counter market, the fair
market value as determined in good faith by the Board or the
Committee, as the case may be, based on such relevant facts as may
be available, including, without limitation, the price at which
recent sales of Stock have been made, the book value of the Stock,
and the Company's past, current and future earnings.
"For Cause" termination shall mean the termination of the Grantee's
employment as a result of: (i) any act that constitutes, on the part
of the Grantee, fraud, dishonesty, gross malfeasance of duty, or
conduct grossly inappropriate to the Grantee's position of
employment; or (ii) the conviction (from which no appeal may be or
is timely taken) of the Grantee of a felony.
"Grantee" shall mean an Optionee (or his permitted assign) or a
person who has received an Award of Restricted Stock or a SAR.
"Officer" shall mean a person who constitutes an officer of the
Company for the purposes of Section 16 of the Exchange Act, as
determined by reference to such Section 16 and to the rules,
regulations, judicial decisions, and interpretative or "no-action"
positions with respect thereto of the Securities and Exchange
Commission, as the same may be in effect or set forth from time to
time.
"Option" shall mean an option to purchase Stock granted pursuant to
the provisions of Article VI hereof.
"Optionee" shall mean a person to whom an Option has been granted
hereunder or his permitted assign.
"Plan" shall mean the WelCare International, Inc. 1996 Executive
Stock Plan, the terms of which are set forth herein.
"Purchasable" shall refer to Stock that may be purchased by an
Optionee under the terms of this Plan on or after a certain date
specified in the applicable Stock Option Agreement.
"Reload Option" shall have the meaning set forth in Section 6.6
hereof.
"Restricted Stock" shall mean Stock issued to a Grantee pursuant to
Article VII hereof.
"Restriction Agreement" shall mean a written agreement setting forth
the terms of an Award of Restricted Stock, as provided in Section
7.1 hereof.
"SAR" shall mean a stock appreciation right, which is the right to
receive an amount equal to the SAR Spread.
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<PAGE>
"SAR Agreement" shall mean a written agreement setting forth the
terms of an Award of a SAR, as provided in Section 8.1 hereof.
"SAR Price" shall mean the base value established by the Committee
for a SAR on the date the SAR is granted and which is used in
determining the amount of benefit, if any, paid to a Grantee.
"SAR Spread" shall mean, with respect to any SAR, an amount equal to
(a) the Fair Market Value of a share of Stock on the date such SAR
is exercised, less (b) the SAR Price of such SAR.
"Section 16 Insider" shall mean any person who is subject to the
provisions of Section 16 of the Exchange Act, as provided in Rule
16a-2 promulgated pursuant to the Exchange Act.
"Stock" shall mean the Common Stock, par value $.01 per share, of
the Company, subject to applicable provisions of Section 5.2.
"Stock Option Agreement" shall mean a written agreement between the
Company and an Optionee under which the Optionee may purchase Stock
hereunder, as provided in Article VI hereof.
"Subsidiary" shall mean any corporation in which the Company
directly or indirectly owns stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock of
such corporation.
ARTICLE II
THE PLAN
2.1 Name. This Plan shall be known as the "WelCare International, Inc.
1996 Executive Stock Plan."
2.2 Purpose. The purpose of the Plan is to advance the interests of the
Company, its Subsidiaries and its shareholders by affording certain employees of
the Company and its Subsidiaries, as well as key consultants and advisors to the
Company or any Subsidiary, an opportunity to acquire or increase their
proprietary interests in the Company. The objective of the Options and Awards is
to promote the growth and profitability of the Company and its Subsidiaries by
providing the Grantees with an additional incentive to achieve the Company's
objectives through participation in its success and growth and by encouraging
their continued association with or service to the Company and its Subsidiaries.
2.3 Effective Date. The effective date of this Plan is December 31, 1995.
ARTICLE III
PARTICIPANTS
The class of persons eligible to participate in this Plan shall consist of
all persons whose participation in the Plan the Committee determines to be in
the best interests of the
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<PAGE>
Company which shall include, but not be limited to, all employees of the Company
or any Subsidiary, as well as key consultants and advisors to the Company or any
Subsidiary, but shall not include Directors who are not also employees of the
Company or a Subsidiary.
ARTICLE IV
ADMINISTRATION
4.1 Duties and Powers of the Committee. This Plan shall be administered by
the Committee. The Committee shall select one of its members as its Chairman and
shall hold its meetings at such times and places as it may determine. The
Committee shall keep minutes of its meetings and shall make such rules and
regulations for the conduct of its business as it may deem necessary. The
Committee shall have the power to act by unanimous written consent in lieu of a
meeting and to meet telephonically. In administering this Plan, the Committee's
actions and determinations shall be binding on all interested parties. The
Committee shall have the power to grant Options or Awards in accordance with the
provisions of this Plan and may grant Options and Awards singularly, in
combination, or in tandem. Subject to the provisions of this Plan, the Committee
shall have the discretion and authority to determine those persons to whom
Options or Awards will be granted and whether such Options will be accompanied
by the right to receive Reload Options, the number of shares of Stock subject to
each Option or Award, such other matters as are specified herein, and any other
terms and conditions of a Stock Option Agreement, Restriction Agreement and SAR
Agreement. To the extent not inconsistent with the provisions of this Plan, the
Committee may give a Grantee an election to surrender an Option or Award in
exchange for the grant of a new Option or Award, and shall have the authority to
amend or modify an outstanding Stock Option Agreement, Restriction Agreement or
SAR Agreement, or to waive any provision thereof, provided that the Grantee
consents to such action.
4.2 Interpretation; Rules. Subject to the express provisions of this Plan,
the Committee shall have complete authority to interpret this Plan, to
prescribe, amend and rescind rules and regulations relating to it, to determine
the details and provisions of each Stock Option Agreement, Restriction Agreement
and SAR Agreement, and to make all other determinations necessary or advisable
for the administration of this Plan, including, without limitation, the amending
or altering of this Plan and any Options or Awards granted hereunder as may be
required to comply with or to conform to any federal, state or local laws or
regulations.
4.3 No Liability. Neither any Director nor any member of the Committee
shall be liable to any person or entity for any act or determination made in
good faith with respect to this Plan or any Option or Award granted hereunder.
4.4 Majority Rule. A majority of the members of the Committee shall
constitute a quorum, and any action taken by a majority at a meeting at which a
quorum is present, or any action taken without a meeting evidenced by a writing
executed by all the members of the Committee, shall constitute the action of the
Committee.
4.5 Company Assistance. The Company shall supply full and timely
information to the Committee on all matters relating to eligible persons, their
employment, death, retirement, disability or other termination of employment,
and such other pertinent facts as the
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<PAGE>
Committee may require. The Company shall furnish the Committee with such
clerical and other assistance as is necessary in the performance of its duties.
ARTICLE V
SHARES OF STOCK SUBJECT TO PLAN
5.1 Limitations. Subject to any antidilution adjustment pursuant to the
provisions of Section 5.2, the maximum number of shares of Stock that may be
issued hereunder pursuant to Option grants and Awards shall be five hundred
thousand (500,000). Any or all shares of Stock subject to the Plan may be issued
in any combination of Options, Restricted Stock and SARs, and the amount of
Stock subject to the Plan may be increased from time to time in accordance with
Article X hereof. Shares subject to an Option or issued as an Award may be
either authorized and unissued shares or shares issued and later acquired by the
Company. The shares covered by any unexercised portion of an Option that has
terminated for any reason (except as set forth in the following paragraph), or
any forfeited portion of an Award, may again be optioned or awarded under this
Plan, and such shares shall not be considered as having been optioned or issued
in computing the number of shares of Stock remaining available for Options or
Awards hereunder.
If Options are issued in respect of options to acquire stock of any entity
acquired, by merger or otherwise, by the Company or any Subsidiary, to the
extent that such issuance shall not be inconsistent with the terms, limitations
and conditions of Rule 16b-3 under the Exchange Act, the aggregate number of
shares of Stock for which Options may be granted hereunder shall automatically
be increased by the number of shares subject to the Options so issued.
5.2 Antidilution.
(a) If (i) the outstanding shares of Stock are increased, decreased,
or changed into or exchanged for a different number or kind of shares or other
securities of the Company, by reason of merger, consolidation, reorganization,
recapitalization, reclassification, combination or exchange of shares, or stock
split or stock dividend, (ii) any spin-off, split-off or other distribution of
assets materially affects the price of the Company's stock, or (iii) there is
any assumption and conversion to this Plan by the Company of an acquired
company's outstanding option grants, then:
(A) the aggregate number and kind of shares of Stock for which
Options or Awards may be granted hereunder shall be adjusted
appropriately by the Committee; and
(B) the rights of Optionees (concerning the number of shares
subject to Options and the Exercise Price) under outstanding Options
and the rights of the holders of Awards (concerning the terms and
conditions of the lapse of any then-remaining restrictions) shall be
adjusted appropriately by the Committee.
(b) If the Company is a party to any reorganization in which it does
not survive, involving merger, consolidation, or acquisition of the stock or
substantially all the assets of the Company, the Committee, in its discretion,
may:
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(i) notwithstanding other provisions hereof, declare that all
Options granted under this Plan shall become exercisable immediately
notwithstanding the provisions of the respective Stock Option
Agreements regarding exercisability, that all such Options shall
terminate thirty (30) days after the Committee gives written notice
of the immediate right to exercise all such Options and of the
decision to terminate all Options not exercised within such 30-day
period, and that all then-remaining restrictions pertaining to
Awards under this Plan shall immediately lapse; and/or
(ii) notify all Grantees that all Options and Awards granted
under this Plan shall be assumed by the successor corporation or
substituted on an equitable basis with options or restricted stock
issued by such successor corporation.
(c) If the Company is to be liquidated or dissolved in connection
with a reorganization described in Section 5.2(b), the provisions of Section
5.2(b) shall apply. In all other instances, the adoption of a plan of
dissolution or liquidation of the Company shall, notwithstanding other
provisions hereof, cause all then-remaining restrictions pertaining to Options
and Awards under the Plan to lapse, and shall cause every Option outstanding
under the Plan to terminate to the extent not exercised prior to the adoption of
the plan of dissolution or liquidation by the shareholders; provided, however,
that, notwithstanding any other provisions hereof, the Committee may, in its
discretion, declare all Options granted under the Plan to be exercisable at any
time on or before the fifth (5th) business day following such adoption,
notwithstanding the provisions of the respective Stock Option Agreements
regarding exercisability.
(d) The adjustments described in paragraphs (a) through (c) of this
Section 5.2, and the manner of their application, shall be determined solely by
the Committee, and any such adjustment may provide for the elimination of
fractional share interests. The adjustments required under this Article V shall
apply to any successors of the Company and shall be made regardless of the
number or type of successive events requiring such adjustments.
ARTICLE VI
OPTIONS
6.1 Types of Options Granted. The Committee may, under this Plan, grant
Options which do not qualify as incentive stock options pursuant to Section 422
of the Code. Within the limitations provided in this Plan, Options may be
granted to the same person at the same time, or at different times, under
different terms and conditions, as long as the terms and conditions of each
Option are consistent with the provisions of this Plan. Without limitation of
the foregoing, Options may be granted subject to conditions based on the
financial performance of the Company or any other factor the Committee deems
relevant. Neither the Company, nor any Subsidiary or any other person warrants
or otherwise represents that favorable or desirable tax treatment or
characterization will be applicable with respect to any Options, Award or Stock.
6.2 Option Grant and Agreement. Each Option granted hereunder shall be
evidenced by minutes of a meeting or the written consent of the Committee and by
a written
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Stock Option Agreement executed by the Company and the Optionee. The terms of
the Option, including the Option's duration, time or times of exercise, exercise
price, and whether the Option is to be accompanied by the right to receive a
Reload Option, shall be stated in the Stock Option Agreement.
6.3 Exercise Price. The Exercise Price of the Stock subject to each Option
shall be determined by the Committee.
6.4 Exercise Period. The period for the exercise of each Option granted
hereunder shall be determined by the Committee. No Option granted to a Section
16 Insider shall be exercisable prior to the expiration of six (6) months from
the date such Option is granted, other than in the case of the death or
Disability of the Optionee.
6.5 Option Exercise.
(a) Unless otherwise provided in the Stock Option Agreement or
Section 6.4 hereof, an Option may be exercised at any time or from time to time
during the term of the Option as to any or all full shares which have become
Purchasable under the provisions of the Option, but not at any time as to less
than one hundred (100) shares unless the remaining shares that have become so
Purchasable are less than one hundred (100) shares. The Committee shall have the
authority to prescribe in any Stock Option Agreement that the Option may be
exercised only in accordance with a vesting schedule during the term of the
Option.
(b) An Option shall be exercised by (i) delivery to the Company at
its principal office a written notice of exercise with respect to a specified
number of shares of Stock and (ii) payment to the Company at that office of the
full amount of the Exercise Price for such number of shares in accordance with
Section 6.5(c). If requested by an Optionee, an Option may be exercised with the
involvement of a stockbroker in accordance with the federal margin rules set
forth in Regulation T (in which case the certificates representing the
underlying shares will be delivered by the Company directly to the stockbroker).
(c) The Exercise Price is to be paid in full in cash upon the
exercise of the Option and the Company shall not be required to deliver
certificates for the shares purchased until such payment has been made;
provided, however, that the Committee may provide in a Stock Option Agreement
(or may otherwise determine in its sole discretion at the time of exercise) that
in lieu of cash, all or any portion of the Exercise Price may be paid by
tendering to the Company shares of Stock duly endorsed for transfer and owned by
the Optionee, or by authorization to the Company to withhold shares of Stock
otherwise issuable upon exercise of the Option, in each case to be credited
against the Exercise Price at the Fair Market Value of such shares on the date
of exercise (however, no fractional shares may be so transferred, and the
Company shall not be obligated to make any cash payments in consideration of any
excess of the aggregate Fair Market Value of shares transferred over the
aggregate Exercise Price); provided, further, the Committee may provide in a
Stock Option Agreement (or may otherwise determine in its sole discretion at the
time of exercise) that, in lieu of cash or shares, all or a portion of the
Exercise Price may be paid by the Optionee's execution of a promissory note the
principal amount of which shall be equal to at least the Exercise Price or
relevant portion thereof, subject to compliance with applicable state and
federal laws, rules and regulations.
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(d) In addition to and at the time of payment of the Exercise Price,
the Company may withhold, or require the Optionee to pay to the Company in cash,
the amount of any federal, state and local income, employment or other
withholding taxes which the Committee determines are required to be withheld
under federal, state or local law in connection with the exercise of an Option;
provided, however, the Committee may provide in a Stock Option Agreement (or may
otherwise determine in its sole discretion at the time of exercise) that all or
any portion of such tax obligations may, upon the election of the Optionee, be
paid by tendering to the Company whole shares of Stock duly endorsed for
transfer and owned by the Optionee, or by authorization to the Company to
withhold shares of Stock otherwise issuable upon exercise of the Option, in
either case in that number of shares having a Fair Market Value on the date of
exercise equal to the amount of such taxes thereby being paid, and subject to
such restrictions as to the approval and timing of any such election as the
Committee may from time to time determine to be necessary or appropriate to
satisfy the conditions of the exemption set forth in Rule 16b-3 under the
Exchange Act, if such rule is applicable. To the extent tax withholding is
required at an applicable time with respect to Options, Awards or Stock acquired
under this Plan by a Grantee, the Company, the applicable Subsidiary or other
entity upon which such withholding obligation arises shall be entitled to
withhold from such Grantee's compensation (derived from this Plan or otherwise)
the applicable amount required to be withheld.
(e) The holder of an Option shall not have any of the rights of a
shareholder with respect to the shares of Stock subject to the Option until such
shares have been issued and transferred to the Optionee upon the exercise of the
Option.
(f) Notwithstanding anything to the contrary herein or in a Stock
Option Agreement, a given Option shall not be exercisable to the extent the
exercise thereof would cause the Company to be a reporting company under the
Exchange Act.
6.6 Reload Options.
(a) The Committee may specify in a Stock Option Agreement (or may
otherwise determine in its sole discretion) that a Reload Option shall be
granted (except to a Section 16 Insider), without further action of the
Committee, (i) to an Optionee who exercises an Option (including a Reload
Option) by surrendering shares of Stock in payment of amounts specified in
Sections 6.5(c) or 6.5(d) hereof, (ii) for the same number of shares as are
surrendered to pay such amounts, (iii) as of the date of such payment and at an
Exercise Price equal to the Fair Market Value of the Stock on such date, and
(iv) otherwise on the same terms and conditions as the Option whose exercise has
occasioned such payment, except as provided below and subject to such other
contingencies, conditions or other terms as the Committee shall specify at the
time such exercised Option is granted; provided that the shares surrendered in
payment as provided above must have been held by the Optionee for at least six
(6) months prior to such surrender.
(b) Unless provided otherwise in the Stock Option Agreement, a
Reload Option may not be exercised by an Optionee (i) prior to the end of a one
(1) year period from the date that the Reload Option is granted, and (ii) unless
the Optionee retains beneficial ownership of the shares of Stock issued to such
Optionee upon exercise of the Option referred to above in Section 6.6(a)(i), for
a period of one (1) year from the date of such exercise.
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6.7 Nontransferability. No Option shall be transferable by an Optionee
other than by will or the laws of descent and distribution; provided, however,
that no Option shall be transferable by an Optionee who is a Section 16 Insider
prior to shareholder approval of the Plan. During the lifetime of an Optionee,
Options shall be exercisable only by such Optionee (or by such Optionee's
guardian or legal representative, should one be appointed).
6.8 Termination of Employment or Service. The Committee shall have the
power to specify, with respect to the Options granted to a particular Optionee,
the effect upon such Optionee's right to exercise an Option upon termination of
such Optionee's employment or service under various circumstances, which effect
may include immediate or deferred termination of such Optionee's rights under an
Option, or acceleration of the date at which an Option may be exercised in full.
6.9 Employment Rights. Nothing in this Plan or in any Stock Option
Agreement shall confer on any person any right to continue in the employ of the
Company or any of its Subsidiaries, or shall interfere in any way with the right
of the Company or any of its Subsidiaries to terminate such person's employment
at any time.
6.10 Certain Successor Options. An Option issued in respect of an option
held by an employee to acquire stock of any entity acquired, by merger or
otherwise, by the Company or any Subsidiary, may contain terms that differ from
those stated in this Article VI, but solely to the extent necessary to preserve
for any such employee the rights and benefits contained in such predecessor
option.
6.11 Effect of Change in Control. The Committee may determine, at the time
of granting an Option or thereafter, that such Option shall become exercisable
on an accelerated basis in the event that a Change in Control (except a Change
of Control related to the merger effected pursuant to that certain Agreement and
Plan of Merger, dated as of December 31, 1995, by and among the Company, WelCare
Transitional Acquirors, Inc. and Transitional Health Services, Inc.) occurs with
respect to the Company (and the Committee shall have the discretion to modify
the definition of Change in Control in a particular Stock Option Agreement). If
the Committee finds that there is a reasonable possibility that, within the
succeeding six (6) months, a Change in Control will occur with respect to the
Company, then the Committee may determine that all outstanding Options shall be
exercisable on an accelerated basis.
ARTICLE VII
RESTRICTED STOCK
7.1 Awards of Restricted Stock. The Committee may grant Awards of
Restricted Stock, which shall be governed by a Restriction Agreement between the
Company and the Grantee. Each Restriction Agreement shall contain such
restrictions, terms and conditions as the Committee may, in its discretion,
determine, and may require that an appropriate legend be placed on the
certificates evidencing the subject Restricted Stock. Shares of Restricted Stock
granted pursuant to an Award hereunder shall be issued in the name of the
Grantee as soon as reasonably practicable after the Award is granted, provided
that the Grantee has executed the Restriction Agreement governing the Award, the
appropriate blank stock powers and, in the discretion of the Committee, an
escrow agreement and any other documents which the Committee may require as a
condition to the issuance of such shares. If a Grantee
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shall fail to execute the foregoing documents within the time period prescribed
by the Committee, if any, the Award shall be void. Shares issued in connection
with an Award shall be deposited together with the stock powers with an escrow
agent designated by the Committee. Unless the Committee determines otherwise and
as set forth in the Restriction Agreement, upon delivery of the shares to the
escrow agent, the Grantee shall have all of the rights of a shareholder with
respect to such shares, including the right to vote the shares and to receive
all dividends or other distributions paid or made with respect to the shares.
7.2 Nontransferability. Until any restrictions upon Restricted Stock
awarded to a Grantee shall have lapsed in a manner set forth in Section 7.3,
such shares of Restricted Stock shall not be transferable other than by will or
the laws of descent and distribution, nor shall they be delivered to the
Grantee.
7.3 Lapse of Restrictions. Restrictions upon Restricted Stock awarded
hereunder shall lapse at such time or times (but, with respect to any Award to a
Grantee who is also a Section 16 Insider, not less than six (6) months after the
date of the Award) and on such terms and conditions as the Committee may, in its
discretion, determine at the time the Award is granted or thereafter.
7.4 Termination of Employment. The Committee shall have the power to
specify, with respect to each Award granted to any particular Grantee, the
effect upon such Grantee's rights with respect to such Restricted Stock of the
termination of such Grantee's employment under various circumstances, which
effect may include immediate or deferred forfeiture of such Restricted Stock or
acceleration of the date on which any then remaining restrictions shall lapse.
7.5 Treatment of Dividends. At the time an Award of Restricted Stock is
made the Committee may, in its discretion, determine that the payment to the
Grantee of any dividends, or a specified portion thereof, declared or paid on
such Restricted Stock shall be (a) deferred until the lapsing of the relevant
restrictions and (b) held by the Company for the account of the Grantee until
such lapsing. In the event of such deferral, there shall be credited at the end
of each year (or portion thereof) interest on the amount of the account
outstanding during such year at a rate per annum determined by the Committee.
Payment of deferred dividends, together with interest thereon, shall be made
upon the lapsing of restrictions imposed on such Restricted Stock, and any
dividends deferred (together with any interest thereon) in respect of Restricted
Stock shall be forfeited upon any forfeiture of such Restricted Stock.
7.6 Delivery of Shares. Except as provided otherwise in Article IX below,
within a reasonable period of time following the lapse of the restrictions on
shares of Restricted Stock, the Committee shall cause a stock certificate to be
delivered to the Grantee with respect to such shares and such shares shall be
free of all restrictions hereunder.
ARTICLE VIII
STOCK APPRECIATION RIGHTS
8.1 SAR Awards. The Committee may grant Awards of SARs under this Plan
upon such restrictions, terms and conditions as the Committee may prescribe.
Each Award shall be governed by a SAR Agreement between the Company and the
Grantee which shall contain the restrictions, terms and conditions prescribed by
the Committee, including, without
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limitation, restrictions on the time of exercise of the SAR to specified periods
as may be necessary to satisfy the requirements of Rule 16b-3. Awards of SARs
may be granted singularly, or in combination or in tandem with Options granted
under this Plan, and may be granted at the same time as or later than the grant
of the Option to which it relates.
8.2 Determination of Price. The SAR Price shall be established by the
Committee in its sole discretion. The SAR Price shall not be less than one
hundred percent (100%) of the Fair Market Value of the Stock on the date the SAR
is granted for a SAR issued in tandem with an Incentive Stock Option.
8.3 Exercise of a SAR. A SAR shall be exercisable at such time as may be
determined by the Committee, provided that a SAR issued in tandem with an Option
shall be exercisable to the extent that the related Option is exercisable. Upon
exercise of a SAR, the Grantee shall be entitled, subject to the terms and
conditions of this Plan and the SAR Agreement, to receive an amount equal to the
SAR Spread.
8.4 Payment of a SAR Spread. Payment of the SAR Spread for any SAR shall
be made, at the sole discretion of the Committee, in (a) cash, (b) shares of
Stock, or (c) a combination of both. Shares of Stock used for this payment shall
be valued at their Fair Market Value on the date of exercise of the applicable
SAR.
8.5 Effect of SARs on Stock Subject to Plan. Stock issued in payment of
the SAR Spread shall reduce the number of shares of Stock remaining available
for issuance under this Plan. The exercise of a SAR which results in the
termination of an unexercised Option issued in tandem with such SAR shall also
reduce the number of shares of Stock remaining available for issuance under this
Plan by the number of shares of Stock subject to the terminated Option.
8.6 Termination of SARs. A SAR may be terminated as follows:
(a) During the period of a Grantee's continuous employment with the
Company or a Subsidiary, a SAR will be terminated only if it has been
fully exercised or it has expired by its terms.
(b) Upon termination of a Grantee's employment with the Company or a
Subsidiary, the SAR will terminate upon the earliest of (i) the full
exercise of the SAR, (ii) the expiration of the SAR by its terms, and
(iii) not more than three (3) months following the date of employment
termination; provided, however, should termination of employment (A)
result from the death or Disability of the Grantee, the period referenced
in clause (iii) hereof shall be one (1) year, or (B) be For Cause, the SAR
will terminate on the date of employment termination. For purposes of this
Plan, a leave of absence approved by the Company shall not be deemed to be
termination of employment unless otherwise provided in the SAR Agreement
or by the Company on the date of the leave of absence.
(c) Subject to the terms of the SAR Agreement with the Grantee, if a
Grantee should die or become subject to a Disability prior to the
termination of employment with the Company or any Subsidiary and prior to
the termination of a SAR, such SAR may be exercised to the extent that the
Grantee shall have been entitled to exercise it at the time of death or
Disability, as the case may be, by the
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Grantee, the estate of the Grantee or the person or persons to whom the
SAR shall have been transferred by will or by the laws of descent and
distribution.
(d) Except as otherwise expressly provided in the SAR Agreement with
the Grantee, in no event will the continuation of the term of a SAR beyond
the date of termination of employment allow the Grantee or his
beneficiaries or heirs, to accrue additional rights under this Plan, have
additional SARs available for exercise, or receive a higher benefit than
the benefit payable as if the SAR had been exercised on the date of
employment termination.
8.7 Nontransferability. No SAR shall be transferable by a Grantee;
provided, however, that a SAR issued in tandem with an Option shall be
transferable, if at all, to the same extent and upon the same terms and
conditions as the related Option.
8.8 No Shareholder Rights. The Grantee of a SAR shall have no rights as a
shareholder with respect to such SAR. In addition, no adjustment shall be made
for dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or rights except as provided in Section 5.2 hereof.
ARTICLE IX
STOCK CERTIFICATES
The Company shall not be required to issue or deliver any certificate for
shares of Stock purchased upon the exercise of any Option granted hereunder or
any portion thereof, or deliver any certificate for shares of Restricted Stock
granted hereunder, prior to fulfillment of all of the following conditions:
(a) the admission of such shares to listing on all stock exchanges
on which the Stock is then listed;
(b) the completion of any registration or other qualification of
such shares which the Committee shall deem necessary or advisable under
any federal or state law or under the rulings or regulations of the
Securities and Exchange Commission or any other governmental regulatory
body;
(c) the obtaining of any approval or other clearance from any
federal or state governmental agency or body which the Committee shall
determine to be necessary or advisable; and
(d) the lapse of such reasonable period of time following the
exercise of the Option as the Board from time to time may establish for
reasons of administrative convenience.
Stock certificates issued and delivered to Grantees shall bear such
restrictive legends as the Company shall deem necessary or advisable pursuant to
applicable federal and state securities laws.
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ARTICLE X
TERMINATION AND AMENDMENT
10.1 Termination and Amendment. The Board may at any time terminate this
Plan, and may at any time and from time to time and in any respect amend this
Plan; provided, however, that the Board (unless its actions are approved or
ratified by the shareholders of the Company within twelve (12) months of the
date that the Board amends the Plan) may not amend this Plan to:
(a) materially increase the number of shares of Stock subject to
this Plan, except as contemplated in Section 5.2 hereof;
(b) materially change the class of persons that may participate in
this Plan; or
(c) otherwise materially increase the benefits accruing to
participants under this Plan.
10.2 Effect on Grantee's Rights. No termination, amendment or modification
of this Plan shall adversely affect a Grantee's rights under a Stock Option
Agreement, Restriction Agreement or SAR Agreement without the consent of the
Grantee or his legal representative.
ARTICLE XI
RELATIONSHIP TO OTHER COMPENSATION PLANS
The adoption of this Plan shall not affect any other stock option,
incentive or other compensation plans in effect for the Company or any of its
Subsidiaries; nor shall the adoption of the Plan preclude the Company or any of
its Subsidiaries from establishing any other form of incentive or other
compensation plan for employees or Directors of the Company or any of its
Subsidiaries.
ARTICLE XII
MISCELLANEOUS
12.1 Replacement or Amended Grants. At the sole discretion of the
Committee, and subject to the terms of this Plan, the Committee may modify
outstanding Options or Awards or accept the surrender of outstanding Options or
Awards and grant new Options or Awards in substitution thereof. However, no
modification of an Option or Award shall adversely affect a Grantee's rights
under a Stock Option Agreement, Restriction Agreement or SAR Agreement without
the consent of the Grantee or his legal representative.
12.2 Plan Binding on Successors. This Plan shall be binding upon the
successors and assigns of the Company.
12.3 Singular, Plural, Gender. Whenever used herein, nouns in the singular
shall include the plural, and the masculine pronoun shall include the feminine
gender and vice versa.
12.4 Headings Not Part of Plan. Headings of Articles and Sections hereof
are inserted for convenience and reference and do not constitute part of this
Plan.
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12.5 Interpretation. With respect to Section 16 Insiders, transactions
under this Plan are intended to comply with all applicable conditions of Rule
16b-3 or its successors under the Exchange Act, and shall be interpreted
consistent therewith.
12.6 Governing Law. This Plan shall be governed by, and construed in
accordance with, the laws of the State of Georgia, without regard to conflicts
of laws principles.
* * * * *
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WelCare International, Inc.
1996 Executive Stock Plan
Form of Stock Option Agreement
WELCARE INTERNATIONAL, INC.
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement"), entered into as of this
_____ day of ________________, 199 by and between WelCare International, Inc., a
Georgia corporation (the "Company"), and _________________ (the "Optionee").
WHEREAS, on December 31, 1995, the Board of Directors of the Company
adopted a stock plan known as the "WelCare International, Inc. 1996 Executive
Stock Plan" (the "Plan"); and
WHEREAS, the Committee has granted the Optionee an Option (as defined
below) to purchase the number of shares of the Company's common stock, $.01 par
value per share, as set forth below, and in consideration of the granting of the
Option the Optionee intends to remain in the employ of the Company; and
WHEREAS, the Company and the Optionee desire to enter into a written
agreement with respect to the Option in accordance with the Plan; and
WHEREAS, capitalized terms not defined herein shall have the meanings
ascribed to them in the Plan;
NOW, THEREFORE, as a service incentive and to encourage stock ownership,
and also in consideration of the mutual covenants contained herein, the parties
hereto agree as follows.
1. Incorporation of Plan. This Option is granted pursuant to the
provisions of the Plan and the terms and definitions of the Plan are
incorporated herein by reference and made a part hereof. A copy of the Plan has
been delivered to, and receipt is hereby acknowledged by, the Optionee.
Notwithstanding anything in this Agreement to the contrary, to the extent the
terms of this Agreement conflict with or otherwise attempt to exceed the
authority set forth under the terms of the Plan, the Plan shall govern and
control in all respects.
2. Grant of Option. Subject to the terms, restrictions, limitations, and
conditions stated herein and under the Plan, the Company hereby evidences its
grant to the Optionee, not in lieu of salary or other compensation, of the right
and option to purchase all or any part of the number of shares of Stock (as
defined under the Plan), set forth on Schedule A attached hereto and
incorporated herein by reference (the "Option"). The Option shall be exercisable
in the amounts and at the times specified on Schedule A. The Option shall expire
and shall not be exercisable after the date specified on Schedule A as the
expiration date or on such earlier date as determined pursuant to the Plan.
Neither the Company, nor any Subsidiary or any other person warrants or
otherwise represents that favorable or desirable tax treatment or
characterization will be applicable in respect of any Option, Award or Stock.
3. Purchase Price. The price per share to be paid by the Optionee for the
shares subject to this Option (the "Exercise Price") shall be as specified on
Schedule A.
<PAGE>
4. Exercise Terms. The Optionee must exercise the Option for at least the
lesser of 100 shares or the number of shares of Purchasable Stock as to which
the Option remains unexercised. In the event this Option is not exercised with
respect to all or any part of the shares of Stock subject to this Option prior
to its expiration, the shares with respect to which this Option was not
exercised shall no longer be subject to this Option.
5. Restrictions on Transferability. No Option shall be transferable by an
Optionee other than by will or the laws of descent and distribution; provided,
however, that no Option shall be transferable by an Optionee who is a Section 16
Insider prior to shareholder approval of the Plan. During the lifetime of an
Optionee, Options shall be exercisable only by such Optionee (or by such
Optionee's guardian or legal representative, should one be appointed).
6. Notice of Exercise of Option. This Option may be exercised by the
Optionee, or by the Optionee's administrators, executors or personal
representatives, by a written notice (in substantially the form of the Notice of
Exercise attached hereto as Schedule B) signed by the Optionee, or by such
administrators, executors or personal representatives, and delivered or mailed
to the Company as specified in Section 15 hereof to the attention of the Chief
Financial Officer or such other officer as the Company may designate. Any such
notice shall (a) specify the number of shares of Stock which the Optionee or the
Optionee's administrators, executors or personal representatives, as the case
may be, then elects to purchase hereunder, (b) contain such information as may
be reasonably required pursuant to Section 12 hereof, and (c) be accompanied by
(i) a certified or cashier's check payable to the Company in payment of the
total Exercise Price applicable to such shares as provided herein, (ii) shares
of Stock owned by the Optionee and duly endorsed or accompanied by stock
transfer powers having a Fair Market Value equal to the total Exercise Price
applicable to such shares purchased hereunder, or (iii) a certified or cashier's
check accompanied by the number of shares of Stock whose Fair Market Value when
added to the amount of the check equals the total Exercise Price applicable to
such shares purchased hereunder. Upon receipt of any such notice and
accompanying payment, and subject to the terms hereof, the Company agrees to
issue to the Optionee or the Optionee's administrators, executors or personal
representatives, as the case may be, stock certificates for the number of shares
specified in such notice registered in the name of the person exercising this
Option.
7. Adjustment in Option. The number of shares of Stock subject to this
Option, the Exercise Price and other matters are subject to adjustment during
the term of this Option in accordance with the Plan.
8. Termination of Employment.
(a) Except as otherwise specified in Schedule A hereto, in the event
of the termination of the Optionee's employment with the Company or any of its
Subsidiaries, other than a termination that is either (i) For Cause, or (ii) for
reasons of death or Disability or retirement, the Optionee (or his or her
personal representative) must exercise this Option at any time within sixty (60)
days after such termination to the extent of the number of shares which were
Purchasable hereunder at the date of such termination.
(b) Except as specified in Schedule A, in the event of a termination
of the Optionee's employment that is For Cause, this Option, to the extent not
previously exercised, shall terminate immediately and shall not thereafter be or
become exercisable.
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(c) Unless and to the extent otherwise provided in Schedule A, in
the event of the retirement of the Optionee at the normal retirement date as
prescribed from time to time by the Company or any Subsidiary, the Optionee
shall continue to have the right to exercise any Options for shares which were
Purchasable at the date of the Optionee's retirement until the expiration date
of such Options. This Option does not confer upon the Optionee any right with
respect to continuance of employment by the Company or by any of its
Subsidiaries. This Option shall not be affected by any change of employment so
long as the Optionee continues to be an employee of the Company or one of its
Subsidiaries.
9. Disabled Optionee. In the event of termination of employment because of
the Optionee's becoming a Disabled Optionee, the Optionee (or his or her legal
representative) may exercise this Option within a period ending on the earlier
of (a) the last day of the one (1) year period following the beginning of the
Optionee's Disability or (b) the expiration date of this Option, to the extent
of the number of shares which were Purchasable hereunder at the date of such
termination.
10. Death of Optionee. Except as otherwise set forth in Schedule A with
respect to the rights of the Optionee upon termination of employment under
Section 8(a) above, in the event of the Optionee's death, the appropriate
persons described in Section 6 hereof or persons to whom all or a portion of
this Option is transferred in accordance with Section 5 hereof may exercise this
Option at any time within a period ending on the earlier of (a) the last day of
the one (1) year period following the Optionee's death or (b) the expiration
date of this Option. If the Optionee was an employee of the Company at the time
of death, this Option may be so exercised to the extent of the number of shares
that were Purchasable hereunder at the date of death. If the Optionee's
employment terminated prior to his or her death, this Option may be exercised
only to the extent of the number of shares covered by this Option which were
Purchasable hereunder at the date of such termination.
11. Date of Grant. This Option was granted by the Board or Committee of
the Company on the date set forth in Schedule A (the "Date of Grant").
12. Compliance with Regulatory Matters. The Optionee acknowledges that the
issuance of capital stock of the Company is subject to limitations imposed by
federal and state law and the Optionee hereby agrees that the Company shall not
be obligated to issue any shares of Stock upon exercise of this Option that
would cause the Company to violate law or any rule, regulation, order or consent
decree of any regulatory authority (including without limitation the Securities
and Exchange Commission) having jurisdiction over the affairs of the Company.
The Optionee agrees that he or she will provide the Company with such
information as is reasonably requested by the Company or its counsel to
determine whether the issuance of Stock complies with the provisions described
by this Section.
13. Restriction on Disposition of Shares. The shares of Stock purchased
pursuant to the exercise pursuant to this Option shall not be transferred by the
Optionee except pursuant to the Optionee's will or the laws of descent and
distribution until such date which is the later of two (2) years after the grant
of such Option or one (1) year after the transfer of the shares of Stock to the
Optionee pursuant to the exercise of such Option.
-3-
<PAGE>
14. Investment Representation of Optionee
(a) The Optionee agrees that the exercise of this Option and the delivery
of the shares of Stock in accordance herewith shall be contingent upon the
Company being furnished by Optionee a representation and warranty that the
Optionee is acquiring the shares purchased pursuant to this Option for
investment for the Optionee's account and not with a view toward distribution.
(b) THIS OPTION AND ALL SHARES OF STOCK ACQUIRED PURSUANT TO THE EXERCISE
OF THIS OPTION HAVE BEEN ISSUED OR SOLD IN RELIANCE ON AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
AND ON AN EXEMPTION PURSUANT TO THE APPLICABLE STATE SECURITIES LAWS AND
CONSEQUENTLY HAVE NOT BEEN REGISTERED. THE OPTIONEE ACKNOWLEDGES THAT THIS
OPTION AND ALL SHARES OF STOCK ACQUIRED PURSUANT TO THE EXERCISE OF THIS OPTION
ARE DEEMED TO BE "RESTRICTED SECURITIES" AS DEFINED IN RULE 144 PROMULGATED
PURSUANT TO THE ACT AND MAY NOT BE SOLD OR TRANSFERRED, NOR WILL ANY ASSIGNEE OR
ENDORSEE HEREOF BE RECOGNIZED AS AN OWNER HEREOF BY THE COMPANY FOR ANY PURPOSE,
EXCEPT IN A TRANSACTION WHICH IS ESTABLISHED TO THE SATISFACTION OF THE COMPANY
TO BE EXEMPT FROM REGISTRATION UNDER FEDERAL AND STATE SECURITIES LAWS OR
PURSUANT TO AN EFFECTIVE REGISTRATION UNDER SUCH LAWS.
(c) The Optionee understands and agrees that the certificate or
certificates representing any shares of Stock acquired hereunder may bear an
appropriate legend relating to registration and resale under federal and state
securities laws.
(d) The Optionee shall not have any rights of a shareholder of the Company
with respect to the shares of Stock which may be purchased upon exercise of this
Option, unless and until such shares shall have been issued and delivered and
his/her name has been entered as a shareholder on the stock transfer records of
the Company.
15. Miscellaneous.
(a) This Agreement shall be binding upon the parties hereto and
their representatives, successors and assigns.
(b) This Agreement is executed and delivered in, and shall be
governed by the laws of, the State of Georgia, without regard to conflicts of
laws principles.
(c) Any notice, request, document or other communication given
hereunder shall be deemed to be sufficiently given upon personal delivery to the
other party or upon the expiration of three (3) days after depositing same in
the United States mail, return receipt requested, properly addressed to the
respective parties or such other address as they may give to the other party in
writing in the same manner as follows:
-4-
<PAGE>
Company: WelCare International, Inc.
7000 Central Parkway
Suite 970
Atlanta, Georgia 30328
Attention: Alan C. Dahl
Executive Vice President
and Chief Financial Officer
Optionee: ___________________________________
___________________________________
___________________________________
___________________________________
(d) This Agreement may not be modified except in writing executed by
each of the parties hereto.
(e) This Agreement, together with the Plan, contains the entire
understanding of the parties hereto and supersedes any prior understanding
and/or written or oral agreement between them respecting the subject matter
hereof.
(f) The parties agree that the provisions of this Agreement are
severable and the invalidity or unenforceability of any provision in whole or
part shall not affect the validity or enforceability of any enforceable part of
such provision or any other provisions hereof.
(g) The headings with Sections herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
(h) No waiver of any breach or default hereunder shall be considered
valid unless in writing, and no such waiver shall be deemed a waiver of any
subsequent breach or default of the same or similar nature.
(i) This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original but all of which together shall constitute
one and the same instrument.
-5-
<PAGE>
IN WITNESS WHEREOF, the Board or the Committee has caused this Stock
Option Agreement to be executed on behalf of the Company and attested by the
Secretary or an Assistant Secretary of the Company, and the Optionee has
executed this Stock Option Agreement, all as of the day and year first above
written.
COMPANY:
WELCARE INTERNATIONAL, INC.
Attest:
______________________________ By:______________________________________
Paul A. Quiros Alan C. Dahl, Executive Vice President
Secretary and Chief Financial Officer
OPTIONEE:
By:______________________________________
-6-
<PAGE>
SCHEDULE A
TO
STOCK OPTION AGREEMENT
BETWEEN
WELCARE INTERNATIONAL, INC.
AND
[Name of Optionee]
Dated
1. Number of Shares Subject to Option: _______________ shares of Stock.
2. Option Exercise Price: $________ per share.
3. Date of Grant: _______________
4. Option Vesting Schedule:
(a) Options for __________ shares of Stock are exercisable with respect
to the number of shares of Stock indicated below on or after the
date indicated next to the number of shares:
No. of Shares Vesting Date
------------- ------------
5. Option Exercise Period: Options shall expire and shall not be exercisable
on _________ or on such earlier date as determined in accordance with the
provisions of the Plan and the Stock Option Agreement.
<PAGE>
SCHEDULE B
TO
STOCK OPTION AGREEMENT
BETWEEN
WELCARE INTERNATIONAL, INC.
AND
[Name of Optionee]
Dated ________________
NOTICE OF EXERCISE
The undersigned hereby notifies WelCare International, Inc. (the
"Company") of this election to exercise the undersigned's stock option to
purchase ________________ shares of Stock (as defined under the Plan), pursuant
to the Stock Option Agreement (the "Agreement") between the undersigned and the
Company dated ________________. Accompanying this Notice is (1) a certified or a
cashier's check in the amount of $________________ payable to the Company,
and/or (2) _______________ shares of Stock (as defined under the Plan) presently
owned by the undersigned and duly endorsed or accompanied by stock transfer
powers, having an aggregate Fair Market Value (as defined under the Plan) as of
the date hereof of $__________________, such amounts being equal, in the
aggregate, to the purchase price per share set forth in Section 3 of the
Agreement multiplied by the number of shares being purchased hereby (in each
instance subject to appropriate adjustment pursuant to Section 7 of the
Agreement).
The undersigned hereby represents and warrants that he is purchasing
the shares of Stock pursuant to the Agreement for purposes of investment for his
own account, and without any present intention to resell or dispose of said
shares or otherwise to participate directly or indirectly in a distribution
thereof, and hereby agrees that all certificates representing such shares of
Stock may bear a restrictive legend to this effect
The undersigned is a resident of the State of ______________.
IN WITNESS WHEREOF, the undersigned has set his hand and seal, this
________ day of ________________, ______.
OPTIONEE [OR OPTIONEE'S ADMINISTRATOR,
EXECUTOR OR PERSONAL REPRESENTATIVE]
Name:_______________________________________
Position (if other than Optionee):__________
<PAGE>
EXHIBIT 10.3
<PAGE>
WELCARE INTERNATIONAL, INC.
1996 EMPLOYEE STOCK OPTION PLAN
<PAGE>
WELCARE INTERNATIONAL, INC.
1996 EMPLOYEE STOCK OPTION PLAN
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS.....................................................1
ARTICLE II THE PLAN........................................................4
2.1 Name............................................................4
2.2 Purpose.........................................................4
2.3 Effective Date..................................................4
ARTICLE III PARTICIPANTS....................................................4
ARTICLE IV ADMINISTRATION..................................................4
4.1 Duties and Powers of the Committee..............................4
4.2 Interpretation; Rules...........................................5
4.3 No Liability....................................................5
4.4 Majority Rule...................................................5
4.5 Company Assistance..............................................5
ARTICLE V SHARES OF STOCK SUBJECT TO PLAN.................................5
5.1 Limitations.....................................................5
5.2 Antidilution....................................................6
ARTICLE VI OPTIONS.........................................................7
6.1 Types of Options Granted........................................7
6.2 Option Grant and Agreement......................................7
6.3 Optionee Limitations............................................7
6.4 $100,000 Limitation.............................................8
6.5 Exercise Price..................................................8
6.6 Exercise Period.................................................8
6.7 Option Exercise.................................................8
6.8 Reload Options..................................................9
6.9 Nontransferability of Option...................................10
6.10 Termination of Employment or Service...........................10
6.11 Employment Rights..............................................10
6.12 Certain Successor Options......................................10
6.13 Effect of Change in Control....................................10
ARTICLE VII STOCK CERTIFICATES.............................................11
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<PAGE>
Page
----
ARTICLE VIII TERMINATION AND AMENDMENT OF PLAN..............................11
8.1 Termination and Amendment......................................11
8.2 Effect on Optionee's Rights....................................12
ARTICLE X MISCELLANEOUS..................................................12
10.1 Replacement or Amended Grants..................................12
10.2 Plan Binding on Successors.....................................12
10.3 Singular, Plural; Gender.......................................12
10.4 Headings Not Part of Plan......................................12
10.5 Interpretation.................................................12
10.6 Governing Law..................................................12
- ii -
<PAGE>
WELCARE INTERNATIONAL, INC.
1996 EMPLOYEE STOCK OPTION PLAN
ARTICLE I
DEFINITIONS
As used herein, the following terms have the following meanings unless the
context clearly indicates to the contrary:
"Board" shall mean the Board of Directors of the Company.
"Change in Control" shall mean the occurrence of either of the
following events:
(a) A change in the composition of the Board as a result of which
fewer than one-half of the incumbent Directors are Directors
who either:
(i) were Directors of the Company twenty-four (24) months
prior to such change; or
(ii) were elected, or nominated for election, to the Board
with the affirmative votes of at least a majority of the
Directors who had been Directors of the Company
twenty-four (24) months prior to such change and who
were still in office at the time of the election or
nomination; or
(b) Any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act), other than any person who is a
shareholder of the Company on or before the effective date of
the Plan, by the acquisition or aggregation of securities is
or becomes the beneficial owner, directly or indirectly, of
securities of the Company representing fifty percent (50%) or
more of the combined voting power of the Company's then
outstanding securities ordinarily (and apart from rights
accruing under special circumstances) having the right to vote
at elections of directors (the "Base Capital Stock"); except
that any change in the relative beneficial ownership of the
Company's securities by any person resulting solely from a
reduction in the aggregate number of outstanding shares of
Base Capital Stock, and any decrease thereafter in such
person's ownership of securities, shall be disregarded until
such person increases in any manner, directly or indirectly,
such person's beneficial ownership of any securities of the
Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended,
including effective date and transition rules (whether or not
codified). Any reference herein to a specific section of the Code
shall be deemed to include a reference to any applicable
corresponding provision of future law.
"Committee" shall mean a committee of at least three (3) Directors
appointed from time to time by the Board, having the duties and
authority set forth herein in addition to any other authority
granted by the Board; provided, however, that
<PAGE>
with respect to any Options granted to an individual who is also a
Section 16 Insider, the Committee shall consist of at least two (2)
Directors (who need not be members of the Committee with respect to
Options granted to any other individuals) who are Disinterested
Persons, and all authority and discretion shall be exercised by such
Disinterested Persons, and references herein to the "Committee"
shall mean such Disinterested Persons insofar as any actions or
determinations of the Committee shall relate to or affect Options
made to or held by any Section 16 Insider. At any time that the
Board shall not have appointed a committee as described above, any
reference herein to the Committee shall mean a reference to the
Board.
"Company" shall mean WelCare International, Inc., a Georgia
corporation.
"Director" shall mean a member of the Board and any person who is an
advisory, honorary or emeritus director of the Company if such
person is considered a director for the purposes of Section 16 of
the Exchange Act, as determined by reference to such Section 16 and
to the rules, regulations, judicial decisions, and interpretative or
"no-action" positions with respect thereto of the Securities and
Exchange Commission, as the same may be in effect or set forth from
time to time.
"Disabled Optionee" shall mean an Optionee who suffers a Disability.
"Disability" shall mean shall mean a physical or mental infirmity
which impairs an Optionee's ability to substantially perform his
duties with the Company or a Subsidiary for a period of 180
consecutive days, as determined by an independent physician selected
by agreement between the Company and the Optionee or, failing such
agreement, selected by two physicians (one of which shall be
selected by the Company and the other by the Optionee); provided,
however, that "Disability" shall have the meaning set forth in Code
Section 22(e)(3) and the regulations promulgated thereunder with
respect to an Optionee granted Incentive Stock Options.
"Disinterested Person" shall have the meaning set forth in Rule
16b-3 under the Exchange Act or in any successor rule thereto, and
shall be determined for all purposes under this Plan according to
interpretative or "no-action" positions with respect thereto issued
by the Securities and Exchange Commission.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended. Any reference herein to a specific section of the Exchange
Act shall be deemed to include a reference to any applicable
corresponding provision of future law.
"Exercise Price" shall mean the price at which an Optionee may
purchase a share of Stock under a Stock Option Agreement.
"Fair Market Value" on any date shall mean (i) the average closing
sales price of the Stock on such date on the national securities
exchange having the greatest volume of trading in the Stock during
the thirty (30) day period preceding such date or, if such exchange
was not open for trading on such date, the next preceding date on
which it was open; (ii) if the Stock is
- 2 -
<PAGE>
not traded on any national securities exchange, the average of the
closing high bid and low asked prices of the Stock on the
over-the-counter market on the date such value is to be determined,
or in the absence of closing bids on such date, the closing bids on
the next preceding date on which there were bids; or (iii) if the
Stock also is not traded on the over-the-counter market, the fair
market value as determined in good faith by the Board or the
Committee based on such relevant facts as may be available,
including, without limitation, the price at which recent sales of
Stock have been made, the book value of the Stock and the Company's
current and future earnings.
"For Cause" termination shall mean the termination of an Optionee's
employment as a result of: (i) any act that constitutes on the part
of the Optionee, fraud, dishonesty, gross malfeasance of duty, or
conduct grossly inappropriate to the Optionee's position of
employment; or (ii) the conviction (from which no appeal may be or
is timely taken) of the Optionee of a felony.
"Incentive Stock Option" shall mean an option to purchase Stock of
the Company which complies with and is subject to the terms,
limitations, and conditions of Section 422 of the Code and any
regulations promulgated with respect thereto.
"Officer" shall mean a person who constitutes an officer of the
Company for the purposes of Section 16 of the Exchange Act, as
determined by reference to such Section 16 and to the rules,
regulations, judicial decisions, and interpretative or "no-action"
positions with respect thereto of the Securities and Exchange
Commission, as the same may be in effect or set forth from time to
time.
"Option" shall mean an option, including an Incentive Stock Option,
to purchase Stock granted pursuant to the provisions of Article
hereof.
"Optionee" shall mean a person to whom an Option has been granted
hereunder or his permitted assign.
"Plan" shall mean the WelCare International, Inc. 1996 Employee
Stock Option Plan, the terms of which are set forth herein.
"Purchasable" shall refer to Stock which may be purchased by an
Optionee under the terms of this Plan on or after a certain date
specified in an applicable Stock Option Agreement.
"Reload Option" shall have the meaning set forth in Section hereof.
"Section 16 Insider" shall mean any person who is subject to the
provisions of Section 16 of the Exchange Act, as provided in Rule
16a-2 promulgated pursuant to the Exchange Act.
"Stock" shall mean the special voting common stock, no par value per
share, of the Company, subject to applicable provisions of Section
5.2.
- 3 -
<PAGE>
"Stock Option Agreement" shall mean a written agreement between the
Company and an Optionee under which the Optionee may purchase Stock
hereunder, as provided in Article VI hereof.
"Subsidiary" shall mean any corporation in which the Company
directly or indirectly owns stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock of
such corporation.
ARTICLE II
THE PLAN
2.1 Name. This Plan shall be known as the "WelCare International, Inc.
1996 Employee Stock Option Plan."
2.2 Purpose. The purpose of the Plan is to advance the interests of the
Company, its Subsidiaries and its shareholders by affording certain employees of
the Company and its Subsidiaries an opportunity to acquire or increase their
proprietary interests in the Company. The objective of the Options is to promote
the growth and profitability of the Company and its Subsidiaries by providing
Optionees with an additional incentive to achieve the Company's objectives
through participation in its success and growth and by encouraging their
continued association with or service to the Company and its Subsidiaries.
2.3 Effective Date. The effective date of this Plan is January 31, 1996,
subject to shareholder approval of the Plan on or before January 31, 1997.
ARTICLE III
PARTICIPANTS
The class of persons eligible to participate in the Plan shall consist of
all employees of the Company or any Subsidiary whose participation in the Plan
the Committee determines to be in the best interests of the Company.
ARTICLE IV
ADMINISTRATION
4.1 Duties and Powers of the Committee. This Plan shall be administered by
the Committee. The Chairman of the Board of the Company shall be a member of the
Committee. The Committee shall select one of its members as its Chairman and
shall hold its meetings at such times and places as it may determine. The
Committee shall keep minutes of its meetings and shall make such rules and
regulations for the conduct of its business as it may deem necessary. The
Committee shall have the power to act by unanimous written consent in lieu of a
meeting, and to meet telephonically. In administering this Plan, the Committee's
actions and determinations shall be binding on all interested parties. The
Committee shall have the power to grant Options in accordance with the
provisions of this Plan. Subject to the provisions of this Plan, the Committee
shall have the discretion and authority to determine those persons to whom
Options will be granted and whether such Options will be accompanied by the
right to receive Reload Options, the number of shares of Stock subject to each
Option, such other matters as are specified herein, and any other terms and
conditions of a Stock Option Agreement. To the extent not inconsistent with the
provisions of this Plan,
- 4 -
<PAGE>
the Committee may give an Optionee an election to surrender an Option in
exchange for the grant of a new Option, and shall have the authority to amend or
modify an outstanding Stock Option Agreement or to waive any provision thereof,
provided that the Optionee consents to such action.
4.2 Interpretation; Rules. Subject to the express provisions of the Plan,
the Committee shall have complete authority to interpret the Plan, to prescribe,
amend and rescind rules and regulations relating to it, to determine the details
and provisions of each Stock Option Agreement, and to make all other
determinations necessary or advisable for the administration of the Plan,
including, without limitation, the amending or altering of the Plan and any
Options granted hereunder as may be required to comply with or to conform to any
federal, state or local laws or regulations.
4.3 No Liability. Neither any Director nor any member of the Committee
shall be liable to any person for any act or determination made in good faith
with respect to the Plan or any Option granted hereunder.
4.4 Majority Rule. A majority of the members of the Committee shall
constitute a quorum, and any action taken by a majority at a meeting at which a
quorum is present, or any action taken without a meeting evidenced by a writing
executed by all the members of the Committee, shall constitute the action of the
Committee.
4.5 Company Assistance. The Company shall supply full and timely
information to the Committee on all matters relating to eligible persons, their
employment, death, retirement, disability, or other termination of employment,
and such other pertinent facts as the Committee may require. The Company shall
furnish the Committee with such clerical and other assistance as is necessary in
the performance of its duties.
ARTICLE V
SHARES OF STOCK SUBJECT TO PLAN
5.1 Limitations. Subject to any antidilution adjustment pursuant to the
provisions of Section hereof, the maximum number of shares of Stock that may be
issued hereunder shall be ninety-three thousand two hundred eighty-nine
(93,289). The amount of Stock subject to the Plan may be increased from time to
time in accordance with Article VIII hereof; provided, however, that the total
number of shares of Stock issuable pursuant to Incentive Stock Options shall not
exceed 93,289 (other than pursuant to anti-dilution adjustments) without
shareholder approval. Shares subject to an Option may be either authorized and
unissued shares or shares issued and later acquired by the Company. The shares
covered by any unexercised portion of an Option that has terminated for any
reason (except as set forth in the following paragraph) may again be optioned
under this Plan, and such shares shall not be considered as having been optioned
or issued in computing the number of shares of Stock remaining available for
Options hereunder.
If Options are issued in respect of options to acquire stock of any entity
acquired, by merger or otherwise, by the Company or any Subsidiary, to the
extent that such issuance shall not be inconsistent with the terms, limitations
and conditions of Code Section 422 (only with respect to Options which are
Incentive Stock Options) or Rule 16b-3 under the Exchange Act, the aggregate
number of shares of Stock for which Options may be granted hereunder shall
automatically be increased by the number of shares subject to the Options so
issued.
- 5 -
<PAGE>
5.2 Antidilution.
(a) If (i) the outstanding shares of Stock are increased, decreased
or changed into or exchanged for a different number or kind of shares or other
securities of the Company by reason of merger, consolidation, reorganization,
recapitalization, reclassification, combination or exchange of shares, or stock
split or stock dividend, (ii) any spin-off, split-off or other distribution of
assets materially affects the price of the Company's stock, or (iii) there is
any assumption and conversion to this Plan by the Company of an acquired
company's outstanding option grants, then:
(A) the aggregate number and kind of shares of Stock for which
Options may be granted hereunder shall be adjusted appropriately by
the Committee; and
(B) the rights of Optionees (concerning the number of shares
of Stock subject to Options and the Exercise Price) under
outstanding Options shall be adjusted appropriately by the
Committee.
(b) If the Company is a party to any reorganization in which it does
not survive involving merger, consolidation or acquisition of the stock or
substantially all the assets of the Company, the Committee, in its discretion,
may:
(i) notwithstanding other provisions hereof, declare that all
Options granted under this Plan shall become exercisable immediately
notwithstanding the provisions of the respective Stock Option
Agreements regarding exercisability, that all such Options shall
terminate thirty (30) days after the Committee gives written notice
of the immediate right to exercise all such Options and of the
decision to terminate all Options not exercised within such 30-day
period; and/or
(ii) notify all Optionees that all Options granted under this
Plan shall be assumed by the successor corporation or substituted on
an equitable basis with options issued by such successor
corporation.
(c) If the Company is to be liquidated or dissolved in connection
with a reorganization described in Section 5.2(b), the provisions of Section
5.2(b) shall apply. In all other instances, the adoption of a plan of
dissolution or liquidation of the Company shall, notwithstanding other
provisions hereof, cause all then-remaining restrictions pertaining to Options
under the Plan to lapse, and shall cause every Option outstanding under the Plan
to terminate to the extent not exercised prior to the adoption of the plan of
dissolution or liquidation by the shareholders; provided, however, that,
notwithstanding any other provisions hereof, the Committee may declare all
Options granted under the Plan to be exercisable at any time on or before the
fifth (5th) business day following such adoption, notwithstanding the provisions
of the respective Stock Option Agreements regarding exercisability.
(d) The adjustments described in paragraphs (a) through (c) of this
Section 5.2, and the manner of their application, shall be determined solely by
the Committee, and any such adjustment may provide for the elimination of
fractional share interests; provided, however, that any adjustment made by the
Committee shall be made in a manner
- 6 -
<PAGE>
that will not cause an Incentive Stock Option to be other than an Incentive
Stock Option under applicable statutory and regulatory provisions. The
adjustments required under this Article V shall apply to any successors of the
Company and shall be made regardless of the number or type of successive events
requiring such adjustments.
ARTICLE VI
OPTIONS
6.1 Types of Options Granted. The Committee may, under this Plan, grant
either Incentive Stock Options or Options which do not qualify as Incentive
Stock Options. Within the limitations provided in this Plan, both types of
Options may be granted to the same person at the same time, or at different
times, under different terms and conditions, as long as the terms and conditions
of each Option are consistent with the provisions of this Plan. Without
limitation of the foregoing, Options may be granted subject to conditions based
on the financial performance of the Company or any other factor the Committee
deems relevant. Neither the Company, nor any Subsidiary or any other person
warrants or otherwise represents that (i) any Option granted under this Plan
shall be considered an Incentive Stock Option for applicable tax purposes, or
(ii) favorable or desirable tax treatment or characterization will be applicable
in respect of any Option or Stock.
6.2 Option Grant and Agreement. Each Option granted hereunder shall be
evidenced by minutes of a meeting or the written consent of the Committee and by
a written Stock Option Agreement executed by the Company and the Optionee. The
terms of the Option, including the Option's duration, time or times of exercise,
exercise price and whether the Option is to be accompanied by the right to
receive a Reload Option, shall be stated in the Stock Option Agreement. No
Incentive Stock Option may be granted more than ten (10) years after the earlier
to occur of the effective date of the Plan or the date the Plan is approved by
the Company's shareholders. Every Optionee shall be given a copy of the Plan.
6.3 Optionee Limitations. The Committee shall not grant an Incentive Stock
Option to any person who, at the time the Incentive Stock Option is granted:
(a) is not an employee of the Company or any of its Subsidiaries; or
(b) owns or is considered to own stock possessing at least 10% of
the total combined voting power of all classes of stock of the Company or any of
its Subsidiaries (within the meaning of Code Sections 422 and 424); provided,
however, that this limitation shall not apply if at the time an Incentive Stock
Option is granted the Exercise Price is at least 110% of the Fair Market Value
of the Stock subject to such Option and such Option by its terms would not be
exercisable after five (5) years from the date on which the Option is granted.
For the purpose of this subsection (b), a person shall be considered to own (i)
the Stock owned, directly or indirectly, by or for his or her brothers and
sisters (whether by whole or half blood), spouse, ancestors and lineal
descendants; (ii) the stock owned, directly or indirectly, by or for a
corporation, partnership, estate or trust in proportion to such person's stock
interest, partnership interest or beneficial interest therein; (iii) the stock
which such person may purchase under any outstanding options of the Company or
of any Subsidiary; and (iv) or stock otherwise considered to be owned by such
person pursuant to Code Sections 422 and 424.
- 7 -
<PAGE>
6.4 $100,000 Limitation. Except as provided below, the Committee shall not
grant an Incentive Stock Option to, or modify the exercise provisions of, any
outstanding Incentive Stock Option held by any person who, at the time the
Incentive Stock Option is granted (or modified), would thereby receive or hold
any Incentive Stock Options of the Company and any Subsidiary, such that the
aggregate Fair Market Value (determined as of the respective dates of grant or
modification of each Option) of the Stock with respect to which such Incentive
Stock Options are exercisable for the first time during any calendar year is in
excess of $100,000 (or such other limit as may be prescribed by the Code from
time to time); provided, that the foregoing restriction on modification of
outstanding Incentive Stock Options shall not preclude the Committee from
modifying an outstanding Incentive Stock Option if, as a result of such
modification and with the consent of the Optionee, such Option no longer
constitutes an Incentive Stock Option; and provided further that, if the
$100,000 limitation (or such other limitation prescribed by the Code) described
in this Section 6.4 is exceeded, the Incentive Stock Option, the granting or
modification of which resulted in the exceeding of such limit, shall be treated
as an Incentive Stock Option up to the limitation and the excess shall be
treated as an Option not qualifying as an Incentive Stock Option.
6.5 Exercise Price. The Exercise Price of the Stock subject to each Option
shall be determined by the Committee. Subject to the provisions of Section
hereof, the Exercise Price of an Incentive Stock Option shall not be less than
the Fair Market Value of the Stock as of the date such Option is granted (or in
the case of an Incentive Stock Option that is subsequently modified, on the date
of such modification).
6.6 Exercise Period. The period for the exercise of each Option granted
hereunder shall be determined by the Committee, but the Stock Option Agreement
with respect to each Option intended to be an Incentive Stock Option shall
provide that such Option shall not be exercisable after the expiration of ten
(10) years from the date of grant (or modification) of the Option. In addition,
no Option granted to a Section 16 Insider shall be exercisable prior to the
expiration of six (6) months from the date such Option is granted, other than in
the case of the death or Disability of the Optionee.
6.7 Option Exercise.
(a) Unless otherwise provided in the Stock Option Agreement or
Section 6.6 hereof, an Option may be exercised at any time or from time to time
during the term of the Option as to any or all full shares which have become
Purchasable under the provisions of the Option, but not at any time as to less
than one hundred (100) shares unless the remaining shares that have become so
Purchasable are less than one hundred (100) shares. The Committee shall have the
authority to prescribe in any Stock Option Agreement that the Option may be
exercised only in accordance with a vesting schedule during the term of the
Option.
(b) An Option shall be exercised by (i) delivery to the Company at
its principal office a written notice of exercise with respect to a specified
number of shares of Stock and (ii) payment to the Company at that office of the
full amount of the Exercise Price for such number of shares in accordance with
Section 6.7(c). If requested by an Optionee, an Option may be exercised with the
involvement of a stockbroker in accordance with the federal margin rules set
forth in Regulation T (in which case the certificates representing the
underlying shares will be delivered by the Company directly to the stockbroker).
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<PAGE>
(c) The Exercise Price is to be paid in full in cash upon the
exercise of the Option and the Company shall not be required to deliver
certificates for the shares purchased until such payment has been made;
provided, however, that the Committee may provide in a Stock Option Agreement
(or may otherwise determine in its sole discretion at the time of exercise) that
in lieu of cash, all or any portion of the Exercise Price may be paid by
tendering to the Company shares of Stock duly endorsed for transfer and owned by
the Optionee, or by authorization to the Company to withhold shares of Stock
otherwise issuable upon exercise of the Option, in each case to be credited
against the Exercise Price at the Fair Market Value of such shares on the date
of exercise (however, no fractional shares may be so transferred, and the
Company shall not be obligated to make any cash payments in consideration of any
excess of the aggregate Fair Market Value of shares transferred over the
aggregate Exercise Price); provided further, the Committee may provide in a
Stock Option Agreement (or may otherwise determine in its sole discretion at the
time of exercise) that, in lieu of cash or shares, all or a portion of the
Exercise Price may be paid by the Optionee's execution of a recourse promissory
note the principal amount of which shall be equal to at least the Exercise Price
or relevant portion thereof, subject to compliance with applicable state and
federal laws, rules and regulations.
(d) In addition to and at the time of payment of the Exercise Price,
the Company may withhold, or require the Optionee to pay to the Company in cash,
the amount of any federal, state and local income, employment or other
withholding taxes which the Committee determines are required to be withheld
under federal, state or local law in connection with the exercise of an Option;
provided, however, the Committee may provide in a Stock Option Agreement (or may
otherwise determine in its sole discretion at the time of exercise) that all or
any portion of such tax obligations may, upon the election of the Optionee, be
paid by tendering to the Company whole shares of Stock duly endorsed for
transfer and owned by the Optionee, or by authorization to the Company to
withhold shares of Stock otherwise issuable upon exercise of the Option, in
either case in that number of shares having a Fair Market Value on the date of
exercise equal to the amount of such taxes thereby being paid, and subject to
such restrictions as to the approval and timing of any such election as the
Committee may from time to time determine to be necessary or appropriate to
satisfy the conditions of the exemption set forth in Rule 16b-3 under the
Exchange Act, if such rule is applicable. To the extent tax withholding is
required at an applicable time with respect to Options or Stock acquired under
this Plan by an Optionee, the Company, applicable Subsidiary or other entity
upon which such withholding obligation arises shall be entitled to withhold from
such Optionee's compensation (derived from this Plan or otherwise) the
applicable amount required to be withheld).
(e) The holder of an Option shall not have any of the rights of a
shareholder with respect to the shares of Stock subject to the Option until such
shares have been issued and transferred to the Optionee upon the exercise of the
Option.
(f) Notwithstanding anything to the contrary herein or in a Stock
Option Agreement, a given Option shall not be exercisable to the extent the
exercise thereof would cause the Company to be a reporting company under the
Exchange Act.
6.8 Reload Options.
(a) The Committee may specify in a Stock Option Agreement (or may
otherwise determine in its sole discretion) that a Reload Option shall be
granted (except to a
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<PAGE>
Section 16 Insider), without further action of the Committee, (i) to an Optionee
who exercises an Option (including a Reload Option) by surrendering shares of
Stock in payment of amounts specified in Sections 6.7(c) or 6.7(d) hereof, (ii)
for the same number of shares as are surrendered to pay such amounts, (iii) as
of the date of such payment and at an Exercise Price equal to the Fair Market
Value of the Stock on such date, and (iv) otherwise on the same terms and
conditions as the Option whose exercise has occasioned such payment, except as
provided below and subject to such other contingencies, conditions, or other
terms as the Committee shall specify at the time such exercised Option is
granted; provided that the shares surrendered by a Section 16 Insider in payment
as provided above must have been held by the Optionee for at least six (6)
months prior to such surrender.
(b) Unless provided otherwise in the Stock Option Agreement, a
Reload Option may not be exercised by an Optionee (i) prior to the end of a
2-year period from the date that the Reload Option is granted, and (ii) unless
the Optionee retains beneficial ownership of the shares of Stock issued to such
Optionee upon exercise of the Option referred to above in Section for a period
of one (1) year from the date of such exercise.
6.9 Nontransferability of Option. No Option shall be transferable by an
Optionee other than by will or the laws of descent and distribution; provided,
however, that no Option shall be transferable by an Optionee who is a Section 16
Insider prior to shareholder approval of the Plan. During the lifetime of an
Optionee, Options shall be exercisable only by such Optionee (or by such
Optionee's guardian or legal representative, should one be appointed).
6.10 Termination of Employment or Service. The Committee shall have the
power to specify, with respect to the Options granted to a particular Optionee,
the effect upon such Optionee's right to exercise an Option of termination of
such Optionee's employment or service under various circumstances, which effect
may include immediate or deferred termination of such Optionee's rights under an
Option, or acceleration of the date at which an Option may be exercised in full;
provided, however, that in no event may an Incentive Stock Option be exercised
after the expiration of ten (10) years from the date of grant thereof.
6.11 Employment Rights. Nothing in the Plan or in any Stock Option
Agreement shall confer on any person any right to continue in the employ of the
Company or any of its Subsidiaries, or shall interfere in any way with the right
of the Company or any of its Subsidiaries to terminate such person's employment
at any time.
6.12 Certain Successor Options. To the extent not inconsistent with the
terms, limitations and conditions of Code Section 422 and any regulations
promulgated with respect thereto, an Option issued in respect of an option held
by an employee to acquire stock of any entity acquired, by merger or otherwise,
by the Company (or any Subsidiary of the Company) may contain terms that differ
from those stated in this Article, but solely to the extent necessary to
preserve for any such employee the rights and benefits contained in such
predecessor option, or to satisfy the requirements of Code Section 424(a).
6.13 Effect of Change in Control. The Committee may determine, at the time
of granting an Option or thereafter, that such Option shall become exercisable
on an accelerated basis in the event that a Change in Control (except a Change
of Control related to the merger effected pursuant to that certain Agreement and
Plan of Merger, dated as of December 31, 1995, by and among the Company, WelCare
Transitional Acquirors, Inc. and Transitional
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<PAGE>
Health Services, Inc.) occurs with respect to the Company. If the Committee
finds that there is a reasonable possibility that, within the succeeding six (6)
months, a Change in Control will occur with respect to the Company, then the
Committee may determine that all outstanding Options shall be exercisable on an
accelerated basis.
ARTICLE VII
STOCK CERTIFICATES
The Company shall not be required to issue or deliver any certificate for
shares of Stock purchased upon the exercise of any Option granted hereunder or
any portion thereof, or deliver any certificate for shares of Restricted Stock
granted hereunder, prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges
on which the Stock is then listed;
(b) The completion of any registration or other qualification of
such shares which the Committee shall deem necessary or advisable under any
federal or state law or under the rulings or regulations of the Securities and
Exchange Commission or any other governmental regulatory body;
(c) The obtaining of any approval or other clearance from any
federal or state governmental agency or body which the Committee shall determine
to be necessary or advisable; and
(d) The lapse of such reasonable period of time following the
exercise of the Option as the Board from time to time may establish for reasons
of administrative convenience.
Stock certificates issued and delivered to Optionees shall bear such
restrictive legends as the Company shall deem necessary or advisable pursuant to
applicable federal and state securities laws.
ARTICLE VIII
TERMINATION AND AMENDMENT OF PLAN
8.1 Termination and Amendment. The Board may at any time terminate the
Plan, and may at any time and from time to time and in any respect amend the
Plan; provided, however, that the Board (unless its actions are approved or
ratified by the shareholders of the Company within twelve (12) months of the
date that the Board amends the Plan) may not amend the Plan to:
(a) Increase the total number of shares of Stock issuable pursuant
to Incentive Stock Options under the Plan or materially increase the number of
shares of Stock subject to the Plan, in each case except as contemplated in
Section hereof;
(b) Change the class of employees eligible to receive Incentive
Stock Options that may participate in the Plan or materially change the class of
persons that may participate in the Plan; or
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<PAGE>
(c) Otherwise materially increase the benefits accruing to
participants under the Plan.
8.2 Effect on Optionee's Rights. No termination or amendment modification
of the Plan shall affect adversely an Optionee's rights under a Stock Option
Agreement without the consent of the Optionee or his legal representative.
ARTICLE IX
RELATIONSHIP TO OTHER COMPENSATION PLANS
The adoption of the Plan shall not affect any other stock option,
incentive, or other compensation plans in effect for the Company or any of its
Subsidiaries; nor shall the adoption of the Plan preclude the Company or any of
its Subsidiaries from establishing any other form of incentive or other
compensation plan for employees or Directors of the Company or any of its
Subsidiaries.
ARTICLE X
MISCELLANEOUS
10.1 Replacement or Amended Grants. At the sole discretion of the
Committee, and subject to the terms of the Plan, the Committee may modify
outstanding Options or accept the surrender of outstanding Options and grant new
Options in substitution for them. However no modification of an Option shall
adversely affect a Optionee's rights under a Stock Option Agreement without the
consent of the Optionee or his legal representative.
10.2 Plan Binding on Successors. The Plan shall be binding upon the
successors and assigns of the Company.
10.3 Singular, Plural; Gender. Whenever used herein, nouns in the singular
shall include the plural and the masculine pronoun shall include the feminine
gender and vice versa.
10.4 Headings Not Part of Plan. Headings of Articles and Sections hereof
are inserted for convenience and reference and do not constitute part of the
Plan.
10.5 Interpretation. With respect to Section 16 Insiders, transactions
under this Plan, are intended to comply with all applicable conditions of Rule
16b-3 or its successors under the Exchange Act. To the extent any provision of
the Plan or action by the Plan administrators fails to so comply, it shall be
deemed void to the extent permitted by law and deemed advisable by the Plan
administrators.
10.6 Governing Law. This Plan shall be governed by, and construed in
accordance with, the laws of the State of Georgia, without regard to conflicts
of laws principles.
* * * *
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<PAGE>
WelCare International, Inc.
1996 Employee Stock Option Plan
Form of Stock Option Agreement
WELCARE INTERNATIONAL, INC.
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement"), entered into as of this
_____ day of ________________, 199 by and between WelCare International, Inc., a
Georgia corporation (the "Company"), and _________________ (the "Optionee").
WHEREAS, on January 31, 1996, the Board of Directors of the Company
adopted a stock option plan known as the "WelCare International, Inc. 1996
Employee Stock Option Plan" (the "Plan") and recommended that the Plan be
approved by the Company's shareholders; and
WHEREAS, the shareholders of the Company must approve the Plan on or
before January 31, 1997; and
WHEREAS, the Committee has granted the Optionee an Option (as described
below) to purchase the number of shares of the Company's Special Voting Common
Stock (the "Stock") as set forth below, and in consideration of the granting of
the Option the Optionee intends to remain in the employ of the Company; and
WHEREAS, the Company and the Optionee desire to enter into a written
agreement with respect to the Option in accordance with the Plan; and
WHEREAS, capitalized terms not defined herein shall have the meanings
ascribed to them in the Plan;
NOW, THEREFORE, as an employment incentive and to encourage stock
ownership, and also in consideration of the mutual covenants contained herein,
the parties hereto agree as follows.
1. Incorporation of Plan. This Option is granted pursuant to the
provisions of the Plan and the terms and definitions of the Plan are
incorporated herein by reference and made a part hereof. A copy of the Plan has
been delivered to, and receipt is hereby acknowledged by, the Optionee.
Notwithstanding anything in this Agreement to the contrary, to the extent the
terms of this Agreement conflict with or otherwise attempt to exceed the
authority set forth under the Plan, the Plan shall govern and control in all
respects.
2. Grant of Option. Subject to the terms, restrictions, limitations, and
conditions stated herein and the terms of the Plan, the Company hereby evidences
its grant to the Optionee, not in lieu of salary or other compensation, of the
right and option to purchase all or any part of the number of shares of Stock
(as defined under the Plan), set forth on Schedule A attached hereto and
incorporated herein by reference (the "Option"). The Option shall be exercisable
in the amounts and at the times specified on Schedule A. The Option shall expire
and shall not be exercisable after the date specified on Schedule A as the
expiration date or on such earlier date as determined pursuant to the Plan.
Schedule A states whether or not the Option is intended to be an Incentive Stock
Option.
<PAGE>
3. Purchase Price. The price per share to be paid by the Optionee for the
shares subject to this Option (the "Exercise Price") shall be as specified on
Schedule A, which price shall be an amount not less than the Fair Market Value
of a share of Stock as of the Date of Grant (as defined in Section 11 below) if
the Option is an Incentive Stock Option.
4. Exercise Terms. The Optionee must exercise the Option for at least the
lesser of 100 shares or the number of shares of Purchasable Stock as to which
the Option remains unexercised. In the event this Option is not exercised with
respect to all or any part of the shares subject to this Option prior to its
expiration, the shares with respect to which this Option was not exercised shall
no longer be subject to this Option.
5. Restrictions on Transferability. No Option shall be transferable by an
Optionee other than by will or the laws of descent and distribution; provided,
however, that no Option shall be transferable by an Optionee who is a Section 16
Insider prior to shareholder approval of the Plan. During the lifetime of an
Optionee, Options shall be exercisable only by such Optionee (or by such
Optionee's guardian or legal representative, should one be appointed).
6. Notice of Exercise of Option. This Option may be exercised by the
Optionee, or by the Optionee's administrators, executors or personal
representatives, by a written notice (in substantially the form of the Notice of
Exercise attached hereto as Schedule B) signed by the Optionee, or by such
administrators, executors or personal representatives, and delivered or mailed
to the Company as specified in Section 15 hereof to the attention of the Chief
Financial Officer or such other officer as the Company may designate. Any such
notice shall (a) specify the number of shares of Stock which the Optionee or the
Optionee's administrators, executors or personal representatives, as the case
may be, then elects to purchase hereunder, (b) contain such information as may
be reasonably required pursuant to Section 12 hereof, and (c) be accompanied by
(i) a certified or cashier's check payable to the Company in payment of the
total Exercise Price applicable to such shares as provided herein, (ii) shares
of Stock owned by the Optionee and duly endorsed or accompanied by stock
transfer powers having a Fair Market Value equal to the total Exercise Price
applicable to such shares purchased hereunder, or (iii) a certified or cashier's
check accompanied by the number of shares of Stock whose Fair Market Value when
added to the amount of the check equals the total Exercise Price applicable to
such shares purchased hereunder. Upon receipt of any such notice and
accompanying payment, and subject to the terms hereof, the Company agrees to
issue to the Optionee or the Optionee's administrators, executors or personal
representatives, as the case may be, stock certificates for the number of shares
specified in such notice registered in the name of the person exercising this
Option.
7. Adjustment in Option. The number of shares of Stock subject to this
Option, the Exercise Price and other matters are subject to adjustment during
the term of this Option in accordance with the Plan.
8. Termination of Employment.
(a) Except as otherwise specified in Schedule A hereto, in the event
of the termination of the Optionee's employment with the Company or any of its
Subsidiaries, other than a termination that is either (i) For Cause, or (ii) for
reasons of death or Disability or retirement, the Optionee (or his or her
personal representative) may exercise this Option at any time within sixty (60)
days after such termination to the extent of the number of shares which were
Purchasable hereunder at the date of such termination.
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<PAGE>
(b) Except as specified in Schedule A, in the event of a termination
of the Optionee's employment that is For Cause, this Option, to the extent not
previously exercised, shall terminate immediately and shall not thereafter be or
become exercisable.
(c) Unless and to the extent otherwise provided in Schedule A, in
the event of the retirement of the Optionee at the normal retirement date as
prescribed from time to time by the Company or any Subsidiary, the Optionee
shall continue to have the right to exercise any Options for shares which were
Purchasable at the date of the Optionee's retirement until the expiration date
of such Option. This Option does not confer upon the Optionee any right with
respect to continuance of employment by the Company or by any of its
Subsidiaries. This Option shall not be affected by any change of employment so
long as the Optionee continues to be an employee of the Company or any of its
Subsidiaries.
9. Disabled Optionee. In the event of termination of employment because of
the Optionee's becoming a Disabled Optionee, the Optionee (or his or her legal
representative) may exercise this Option within a period ending on the earlier
of (a) the last day of the one (1) year period following the beginning of the
Optionee's Disability or (b) the expiration date of this Option, to the extent
of the number of shares which were Purchasable hereunder at the date of such
termination.
10. Death of Optionee. Except as otherwise set forth in Schedule A with
respect to the rights of the Optionee upon termination of employment under
Section 8(a) above, in the event of the Optionee's death, the appropriate
persons described in Section 6 hereof or persons to whom all or a portion of
this Option is transferred in accordance with Section 5 hereof may exercise this
Option at any time within a period ending on the earlier of (a) the last day of
the one (1) year period following the Optionee's death or (b) the expiration
date of this Option. If the Optionee was an employee of the Company at the time
of death, this Option may be so exercised to the extent of the number of shares
that were Purchasable hereunder at the date of death. If the Optionee's
employment terminated prior to his or her death, this Option may be exercised
only to the extent of the number of shares covered by this Option which were
Purchasable hereunder at the date of such termination.
11. Date of Grant. This Option was granted by the Board or Committee on
the date set forth in Schedule A (the "Date of Grant").
12. Compliance with Regulatory Matters. The Optionee acknowledges that the
issuance of capital stock of the Company is subject to limitations imposed by
federal and state law and the Optionee hereby agrees that the Company shall not
be obligated to issue any shares of Stock upon exercise of this Option that
would cause the Company to violate law or any rule, regulation, order or consent
decree of any regulatory authority (including without limitation the Securities
and Exchange Commission) having jurisdiction over the affairs of the Company.
The Optionee agrees that he or she will provide the Company with such
information as is reasonably requested by the Company or its counsel to
determine whether the issuance of Stock complies with the provisions described
by this Section.
13. Restriction on Disposition of Shares. The shares of Stock purchased
pursuant to the exercise of this Option shall not be transferred by the Optionee
except pursuant to the Optionee's will or the laws of descent and distribution
until such date which is the later of two (2) years after the Date of Grant or
one (1) year after the transfer of the shares of Stock to the Optionee pursuant
to the exercise of such Option.
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<PAGE>
14. Investment Representation of Optionee
(a) The Optionee agrees that the exercise of this Option and the delivery
of the shares of Stock in accordance herewith shall be contingent upon the
Company being furnished by Optionee a representation and warranty that the
Optionee is acquiring the shares purchased pursuant to this Option for
investment for the Optionee's account and not with a view toward distribution.
(b) THIS OPTION AND ALL SHARES OF STOCK ACQUIRED PURSUANT TO THE EXERCISE
OF THIS OPTION HAVE BEEN ISSUED OR SOLD IN RELIANCE ON AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
AND ON AN EXEMPTION PURSUANT TO THE APPLICABLE STATE SECURITIES LAWS AND
CONSEQUENTLY HAVE NOT BEEN REGISTERED. THE OPTIONEE ACKNOWLEDGES THAT THIS
OPTION AND ALL SHARES OF STOCK ACQUIRED PURSUANT TO THE EXERCISE OF THIS OPTION
ARE DEEMED TO BE "RESTRICTED SECURITIES" AS DEFINED IN RULE 144 PROMULGATED
PURSUANT TO THE ACT AND MAY NOT BE SOLD OR TRANSFERRED, NOR WILL ANY ASSIGNEE OR
ENDORSEE HEREOF BE RECOGNIZED AS AN OWNER HEREOF BY THE COMPANY FOR ANY PURPOSE,
EXCEPT IN A TRANSACTION WHICH IS ESTABLISHED TO THE SATISFACTION OF THE COMPANY
TO BE EXEMPT FROM REGISTRATION UNDER FEDERAL AND STATE SECURITIES LAWS OR
PURSUANT TO AN EFFECTIVE REGISTRATION UNDER SUCH LAWS.
(c) The Optionee understands and agrees that the certificate or
certificates representing any shares of Stock acquired hereunder may bear an
appropriate legend relating to registration and resale under federal and state
securities laws.
(d) The Optionee shall not have any rights of a shareholder of the Company
with respect to the shares of Stock which may be purchased upon exercise of this
Option, unless and until such shares shall have been issued and delivered and
his/her name has been entered as a shareholder on the stock transfer records of
the Company.
15. Miscellaneous.
(a) This Agreement shall be binding upon the parties hereto and
their representatives, successors and assigns.
(b) This Agreement is executed and delivered in, and shall be
governed by the laws of, the State of Georgia, without regard to conflicts of
laws principles.
(c) Any notice, request, document or other communication given
hereunder shall be deemed to be sufficiently given upon personal delivery to the
other party or upon the expiration of three (3) days after depositing same in
the United States mail, return receipt requested, properly addressed to the
respective parties or such other address as they may give to the other party in
writing in the same manner as follows:
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<PAGE>
Company: WelCare International, Inc.
7000 Central Parkway
Suite 970
Atlanta, Georgia 30328
Attention: Alan C. Dahl
Executive Vice President
and Chief Financial Officer
Optionee: ___________________________________
___________________________________
___________________________________
___________________________________
(d) This Agreement may not be modified except in writing executed by
each of the parties hereto.
(e) This Agreement, together with the Plan, contains the entire
understanding of the parties hereto and supersedes any prior understanding
and/or written or oral agreement between them respecting the subject matter
hereof.
(f) The parties agree that the provisions of this Agreement are
severable and the invalidity or unenforceability of any provision in whole or
part shall not affect the validity or enforceability of any enforceable part of
such provision or any other provisions hereof.
(g) The headings with Sections herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
(h) No waiver of any breach or default hereunder shall be considered
valid unless in writing, and no such waiver shall be deemed a waiver of any
subsequent breach or default of the same or similar nature.
(i) This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original but all of which together shall constitute
one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the Board or Committee has caused this Stock
Option Agreement to be executed on behalf of the Company and attested by the
Secretary or an Assistant Secretary of the Company, and the Optionee has
executed this Stock Option Agreement, all as of the day and year first above
written.
COMPANY:
WELCARE INTERNATIONAL, INC.
Attest:
________________________________ By:______________________________________
Paul A. Quiros Alan C. Dahl, Executive Vice President
Secretary and Chief Financial Officer
OPTIONEE:
By:______________________________________
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<PAGE>
SCHEDULE A
TO
STOCK OPTION AGREEMENT
BETWEEN
WELCARE INTERNATIONAL, INC.
AND
[Name of Optionee]
Dated ________________
1. Number of Shares Subject to Option: ________________ shares of Stock.
2. This Option (Check one) [ ] is [ ] is not an Incentive Stock Option.
3. Option Exercise Price: _____________ per share.
4. Date of Grant: ________________________
5. Option Vesting Schedule:
Check one:
( ) Options are exercisable with respect to all shares of Stock on
or after the date hereof.
( ) Options are exercisable with respect to the number of shares
of Stock indicated below on or after the date indicated next
to the number of shares:
No. of Shares Vesting Date
------------- ------------
6. Option Exercise Period:
<PAGE>
SCHEDULE B
TO
STOCK OPTION AGREEMENT
BETWEEN
WELCARE INTERNATIONAL, INC.
AND
[Name of Optionee]
Dated ________________
NOTICE OF EXERCISE
The undersigned hereby notifies WelCare International, Inc. (the
"Company") of this election to exercise the undersigned's stock option to
purchase ________________ shares of Stock (as defined under the Plan) pursuant
to the Stock Option Agreement (the "Agreement") between the undersigned and the
Company dated ________________. Accompanying this Notice is (1) a certified or a
cashier's check in the amount of $________________ payable to the Company,
and/or (2) _______________ shares of Stock (as defined under the Plan) presently
owned by the undersigned and duly endorsed or accompanied by stock transfer
powers, having an aggregate Fair Market Value (as defined under the Plan) as of
the date hereof of $__________________, such amounts being equal, in the
aggregate, to the purchase price per share set forth in Section 3 of the
Agreement multiplied by the number of shares being purchased hereby (in each
instance subject to appropriate adjustment pursuant to Section 7 of the
Agreement).
The undersigned represents and warrants that he/she is purchasing shares
of the Stock for purposes of investment for his/her own account, and without any
present intention to resell or dispose of said Stock or otherwise to participate
directly or indirectly in a distribution thereof, and hereby agrees that all
certificates representing shares of Stock may bear a restrictive legend to this
effect.
The undersigned is a resident of the State of .
IN WITNESS WHEREOF, the undersigned has set his/her hand and seal,
this ________ day of ________________, ______.
OPTIONEE [OR OPTIONEE'S ADMINISTRATOR,
EXECUTOR OR PERSONAL REPRESENTATIVE]
_________________________________________
Name:____________________________________
Position (if other than Optionee):
<PAGE>
EXHIBIT 10.5
<PAGE>
AMENDED AND RESTATED
CREDIT AGREEMENT
BY AND AMONG
CENTENNIAL HEALTHCARE CORPORATION
(formerly known as WelCare International, Inc.)
AND ITS SUBSIDIARIES
IDENTIFIED ON SCHEDULE 1
("Borrowers");
THE LENDERS IDENTIFIED ON
SCHEDULE 2
("Lenders");
AND
CORESTATES BANK, N.A.,
AS AGENT FOR THE LENDERS
("Agent")
December 18, 1996
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1 DEFINITIONS............................................ 1
1.1. Definitions............................................ 1
1.2. Rule of Construction................................... 16
SECTION 2 FACILITY............................................... 16
2.1. Commitment............................................. 16
2.2. Promissory Notes....................................... 17
2.3. Lenders' Participation................................. 17
2.4. Use of Proceeds........................................ 17
2.5. Repayment.............................................. 18
2.6. Interest............................................... 19
2.7. Advances............................................... 25
2.8. Adjustments to Commitment.............................. 27
2.9. Prepayment; Repayment.................................. 28
2.10. Funding Costs and Loss of Earnings..................... 28
2.11. Payments............................................... 28
2.12. Commitment Fee......................................... 28
2.13. Closing Fee............................................ 29
2.14. Fees to Agent.......................................... 29
2.15. Regulatory Changes in Capital Requirements............. 29
2.16. Taxes.................................................. 30
SECTION 2A LETTERS OF CREDIT...................................... 30
2A.1. Availability of Credits................................ 30
2A.2. Commitment Availability................................ 31
2A.3. Approval and Issuance.................................. 32
2A.4. Obligations of the Borrowers........................... 32
2A.5. Payment by Lenders on Letters of Credit................ 33
2A.6. Collateral Security.................................... 34
2A.7. General Terms of Credits............................... 35
SECTION 3 REPRESENTATIONS AND WARRANTIES......................... 35
3.1. Organization and Good Standing......................... 35
3.2. Power and Authority; Validity of Agreement............. 36
3.3. No Violation of Laws or Agreements..................... 36
3.4. Health Care Facilities................................. 36
3.5. Material Contracts..................................... 36
3.6. Compliance............................................. 37
3.7. Litigation............................................. 37
3.8. Title to Assets........................................ 37
3.9. Corporate Organization; Capital Stock.................. 37
3.10. Accuracy of Information; Full Disclosure............... 38
3.11. Taxes and Assessments.................................. 38
3.12. Indebtedness........................................... 39
3.13. Management Agreements.................................. 39
3.14. Investments............................................ 39
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3.15. ERISA.................................................. 39
3.16. No Extension of Credit for Securities.................. 40
3.17. Perfection of Security Interests....................... 40
3.18. Perfection of Liens.................................... 40
3.19. Hazardous Substances................................... 40
3.20. Solvency............................................... 41
3.21. Employee Controversies................................. 41
3.22. SouthTrust Financings.................................. 42
3.23. Other Financings....................................... 43
3.24. CGC.................................................... 43
SECTION 4 CONDITIONS............................................. 44
4.1. Effectiveness of Agreement; First Advance.............. 44
4.2. Subsequent Advances.................................... 47
4.3. Additional Condition to Lenders' Obligations........... 47
SECTION 5 AFFIRMATIVE COVENANTS.................................. 48
5.1. Existence and Good Standing............................ 48
5.2. Interim Financial Information.......................... 48
5.3. Annual Financial Statements............................ 48
5.4. Quarterly Compliance Certification..................... 49
5.5. Receivables Aging Report............................... 49
5.6. Additional Information................................. 49
5.7. Books and Records...................................... 49
5.8. Maintenance of Assets; Insurance....................... 49
5.9. Notifications.......................................... 50
5.10. Taxes.................................................. 50
5.11. Costs and Expenses..................................... 50
5.12. Additional Collateral Documentation.................... 51
5.13. Compliance............................................. 51
5.14. ERISA.................................................. 52
5.15. Funded Debt to Capital Ratio........................... 53
5.16. Consolidated Senior Debt to Adjusted EBITDA............ 53
5.17. Adjusted Total Debt to Adjusted EBITDAR................ 54
5.18. Consolidated Net Worth................................. 54
5.19. Fixed Charge Coverage Ratio............................ 54
5.20. Borrowing Base......................................... 54
5.21. Management Changes..................................... 54
5.22. Successor Agent........................................ 54
5.23. Transactions Among Affiliates.......................... 54
5.24. Inspections............................................ 55
5.25. The Funds.............................................. 55
5.26. Other Information...................................... 55
SECTION 6 NEGATIVE COVENANTS..................................... 55
6.1. Indebtedness........................................... 55
6.2. Guaranties............................................. 55
6.3. Loans.................................................. 56
6.4. Liens and Encumbrances................................. 56
6.5. Additional Negative Pledge............................. 57
6.6. Restricted Payments.................................... 57
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<PAGE>
6.7. Transfer of Assets; Liquidation........................ 57
6.8. Acquisitions and Investments........................... 57
6.9. New Leases............................................. 59
6.10. Use of Proceeds........................................ 59
SECTION 7 COLLATERAL AND RIGHT OF SET-OFF........................ 60
SECTION 8 DEFAULT................................................ 60
8.1. Events of Default...................................... 60
8.2. Remedies............................................... 63
SECTION 9 THE LENDERS............................................ 63
9.1. Application of Payments................................ 63
9.2. Set-Off................................................ 64
9.3. Modifications and Waivers.............................. 64
9.4. Obligations Several.................................... 64
9.5. Lenders' Representations............................... 64
9.6. Investigation.......................................... 65
9.7. Powers of Agent........................................ 65
9.8. General Duties of Agent, Immunity and
Indemnity.............................................. 65
9.9. No Responsibility for Representations or
Validity, etc.......................................... 65
9.10. Action on Instruction of Lenders; Right to
Indemnity.............................................. 65
9.11. Employment of Agents................................... 66
9.12. Reliance on Documents.................................. 66
9.13. Agent's Rights as a Lender............................. 66
9.14. Expenses............................................... 66
9.15. Resignation of Agent................................... 66
9.16. Successor Agent........................................ 66
9.17. Collateral Security.................................... 67
9.18. Enforcement by Agent................................... 67
SECTION 10 MISCELLANEOUS.......................................... 67
10.1. Indemnification and Release Provisions................. 67
10.2. Participations and Assignments......................... 67
10.3. Binding and Governing Law.............................. 68
10.4. Survival............................................... 68
10.5. No Waiver; Delay....................................... 68
10.6. Modification........................................... 69
10.7. Headings............................................... 69
10.8. Notices................................................ 69
10.9. Payment on Non-Business Days........................... 69
10.10. Time of Day............................................ 69
10.11. Severability........................................... 69
10.12. Counterparts........................................... 70
10.13. Consent to Jurisdiction and Service of Process......... 70
10.14. Waiver of Jury Trial................................... 70
10.15. Acknowledgements....................................... 70
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<PAGE>
LIST OF SCHEDULES AND EXHIBITS
Schedule 1: Borrowers
Schedule 2: The Lenders, their respective Maximum Principal Amounts
and Percentages of Commitment
Schedule 3: Funds and Fund Service Corporations
Exhibit A: Advance Request Form
Exhibit B-1: Letter of Credit Request Form
Exhibit B-2: Letter of Credit Application
Exhibit C: Form of Note
Exhibit D: Funding Costs and Loss of Earnings Calculation
Exhibit E: Disclosure Pursuant to Representations and Warranties
Exhibit F: Compliance Certificate
Exhibit G-1: Form of Third Party Note
Exhibit G-2: Form of Security Agreement
Exhibit G-3: Form of Pledge Agreement (Collateral Assignment)
Exhibit G-4: Form of Long-Term Management Contract
Exhibit H: Form of Notice of Permitted Acquisition
Exhibit I: UCC Financing Statements
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<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT (this "Agreement") is
made this 18th day of December, 1996, by and among CENTENNIAL HEALTHCARE
CORPORATION (formerly known as WelCare International, Inc.), a Georgia
corporation (the "Company") and the subsidiaries of the Company listed on
Schedule 1 attached hereto (together with the Company and such additional
Subsidiaries as may become Borrowers from time to time as hereinafter provided,
each individually, a "Borrower" and individually and collectively, "Borrowers");
CORESTATES BANK, N.A., a national banking association ("CoreStates") and the
other lenders listed on Schedule 2 attached hereto (together with CoreStates and
such additional financial institutions as may become lenders from time to time
as hereinafter provided, each individually a "Lender" and individually and
collectively, "Lenders"); and CoreStates, as agent for the Lenders ("Agent").
W I T N E S S E T H:
WHEREAS, Borrowers are in the business of operating, either by
lease, management agreement or ownership, nursing homes and related ancillary
businesses in the United States of America; and
WHEREAS, certain of the Borrowers (the "Existing Borrowers") are
parties with CoreStates (as Lender and as Agent) to that certain Credit
Agreement dated August 15, 1995, as amended (as amended, the "Existing Credit
Agreement"); and
WHEREAS, Borrowers have requested, and CoreStates and the other
Lenders have agreed, to amend the Existing Credit Agreement to increase the
aggregate availability to up to Sixty-Five Million Dollars ($65,000,000), to add
the Borrowers in addition to the Existing Borrowers, to add the Lenders in
addition to CoreStates, and in certain additional respects, all on the terms and
conditions as set forth herein.
NOW, THEREFORE, in consideration of the foregoing background and the
promises and the agreements hereinafter set forth, and intending to be legally
bound hereby, the parties hereto hereby amend and restate the Existing Credit
Agreement to read in its entirety as follows:
SECTION 1
DEFINITIONS
1.1. Definitions. When used in this Agreement, the following terms
shall have the meanings set forth below; certain terms relating to interest
rates are defined in Paragraph 2.6 and shall have the meanings set forth
thereunder.
<PAGE>
"Acquired Operations" shall mean operations of the Company and its
Consolidated Subsidiaries with respect to (i) a Health Care Facility as to which
the Company and its Consolidated Subsidiaries acquires ownership, a leasehold
interest or the right to manage such facility after September 30, 1996, or (ii)
any other business(es) acquired pursuant to a Permitted Acquisition.
"Acquisition Price" shall mean, with respect to any Permitted
Acquisition, the total consideration to be paid, incurred or assumed by
Borrowers in connection with such Permitted Acquisition, including the full
amount of any deferred purchase price or contingent obligations.
"Adjusted EBITDA" shall mean EBITDA for the Company and its
Consolidated Subsidiaries for the two (2) most-recently ended fiscal quarters,
multiplied by two (2), provided, that in the event that any Permitted
Acquisition has been consummated during such two (2) fiscal quarters and
Borrowers have delivered to Lenders pro forma combined historical financial
statements in form and substance satisfactory to Required Lenders, then for
purposes of calculating Adjusted EBITDA hereunder, EBITDA for such two (2)
fiscal quarters shall be calculated for the Company and its Consolidated
Subsidiaries including such Permitted Acquisition, based on such pro forma
combined historical financial statements.
"Adjusted EBITDAR" shall mean EBITDAR for the Company and its
Consolidated Subsidiaries for the two (2) most-recently ended fiscal quarters,
multiplied by two (2), provided, that in the event that any Permitted
Acquisition has been consummated during such two (2) fiscal quarters and
Borrowers have delivered to Lenders pro forma combined historical financial
statements in form and substance satisfactory to Required Lenders, then for
purposes of calculating Adjusted EBITDAR hereunder, EBITDAR for such two (2)
fiscal quarters shall be calculated for the Company and its Consolidated
Subsidiaries including such Permitted Acquisition, based on such pro forma
combined historical financial statements.
"Adjusted Fixed Charges" shall mean the sum of (i) two (2) times
interest expense and operating lease expense for the Company and its
Consolidated Subsidiaries for the two (2) most- recently ended fiscal quarters,
plus (ii) current maturities of Funded Debt for the Company and its Consolidated
Subsidiaries as of the last day of such period, and (iii) two (2) times the
aggregate amount of cash dividends paid on Preferred Stock for the Company and
its Consolidated Subsidiaries for the two (2) most-recently ended fiscal
quarters; provided, that in the event that any Permitted Acquisition has been
consummated during such two (2) fiscal quarters and the pro forma results of the
business so acquired are included in the calculation of Adjusted EBITDAR, then
Adjusted Fixed Charges for such two (2) fiscal quarters shall be calculated for
the Company and its Consolidated Subsidiaries including such Permitted
Acquisition based on such pro forma combined historical financial statements.
2
<PAGE>
"Adjusted Total Debt" shall mean, as of any date of determination,
the sum of (i) all Funded Debt of the Company and its Consolidated Subsidiaries
as of such date, plus (ii) the amount of all operating leases, based on the
amount of the underlying debt with respect to operating leases where known or
the present value of all payments required under all other operating leases
calculated using a discount rate of ten percent (10%) per annum.
"Advance" shall mean an advance of funds by Lenders under the
Commitment.
"Advance Request Form" shall mean the certificate in the form
attached hereto as Exhibit A to be delivered to the Agent pursuant to Paragraph
2.7 hereof as a condition to each Advance.
"Affiliate" shall mean, with respect to a Person, (i) any Person
directly or indirectly owning, controlling or holding five percent (5%) or more
of the outstanding beneficial interest in such Person, (ii) any Person five
percent (5%) or more of the outstanding beneficial interest of which is directly
or indirectly owned, controlled, or held by such Person, (iii) any Person
directly or indirectly controlling, controlled by, or under common control with
such other Person, or (iv) any officer, director or partner of such Person. For
purposes hereof, "control" shall mean the power to direct the affairs of any
Person, whether by voting rights, contract or otherwise.
"Agent" shall mean CoreStates Bank, N.A., in its capacity as agent
for the Lenders hereunder, and any successor appointed pursuant to Paragraph
9.15 hereof.
"Agreement" shall mean this Amended and Restated Credit Agreement
and all the exhibits and schedules attached hereto, as amended from time to
time.
"Annualized EBITDA" shall mean (i) for the period from the date of
this Agreement through the date of delivery of a Compliance Certificate with
respect to the period ended September 30, 1996, EBITDA for the Existing
Operations of the Company and its Consolidated Subsidiaries for the fiscal
quarter ended June 30, 1996 multiplied by four (4); (ii) for the period from the
delivery of a Compliance Certificate with respect to the period ended September
30, 1996 through the date of delivery of a Compliance Certificate with respect
to the period ended December 31, 1996, EBITDA for the Existing Operations of the
Company and its Consolidated Subsidiaries for the two (2) fiscal quarters ending
September 30, 1996 multiplied by two (2); (iii) for the period from the date of
delivery of a Compliance Certificate with respect to the period ended December
31, 1996 through the date of delivery of a Compliance Certificate for the period
ended March 31, 1997, EBITDA for the Existing Operations of the Company and its
Consolidated Subsidiaries for the three (3) fiscal quarters ending December 31,
1996 multiplied by one and one-third (1-1/3); and (iv) thereafter, EBITDA for
the Existing Operations of the
3
<PAGE>
Company and its Consolidated Subsidiaries for the four (4) most- recently ended
fiscal quarters, adjusting as of the date following each delivery of a
Compliance Certificate.
"Arden Facility" means the Nursing Home known as The Oaks at Sweeten
Creek (formerly Evangeline of Arden) in North Carolina and, prior to the
acquisition thereof by NCHC, leased by a subsidiary of Evangeline Health Care,
Inc. from HCPI, including, without limitation, all real and personal property
and tangible and intangible assets comprising such Nursing Home.
"Assignments of Rents" shall mean the assignment of rents and leases
delivered from time to time pursuant to Paragraph 5.12 hereof, as the same may
be amended, modified or restated from time to time.
"Borrower" shall mean individually, and "Borrowers" shall mean
individually and collectively, each of the Borrowers identified on Schedule 1
attached hereto on the date of this Agreement, as supplemented from time to time
as provided in Paragraph 5.12 hereof.
"Borrowing Base" shall mean, as of any date of determination, the
sum of (i) Annualized EBITDA for the Existing Operations of the Company and its
Consolidated Subsidiaries, multiplied by (A) 2.50, for fiscal quarters ending on
or prior to December 31, 1996, (B) 2.25, for each fiscal quarter ending on or
prior to December 31, 1997, and (C) 2.00 for each fiscal quarter thereafter,
plus (ii) 3.00 times Qualified EBITDA of any Acquired Operations of the Company
and its Consolidated Subsidiaries for the four (4) most-recently ended fiscal
quarters for which a Compliance Certificate has been delivered, calculated for
any portion of such period prior to the date of acquisition of such Acquired
Operations based on the pro forma historical financial statements with respect
to such Acquired Operations delivered pursuant to the definition of Qualified
EBITDA.
"Business Day" shall mean any day not a Saturday, Sunday or public
holiday under the laws of the Commonwealth of Pennsylvania.
"Capital" shall mean, as of any date of determination, the sum of
Funded Debt and Consolidated Net Worth for the Company and its Consolidated
Subsidiaries as of such date.
"Capital Expenditures" shall mean expenditures for any fixed assets
or improvements, replacements, substitutions or additions thereto, which have a
useful life of more than one (1) year, including direct or indirect acquisition
of such assets, provided, that Permitted Acquisitions shall not constitute
Capital Expenditures.
"Capital Leases" shall mean capital leases and subleases, as defined
in the Financial Accounting Standards Board Statement of
4
<PAGE>
Financial Accounting Standards No. 13 dated November 1976, as amended and
updated from time to time.
"CGC" means CGC Liquidation Company, a Delaware general partnership.
"CHMC" shall mean Centennial HealthCare Management Corporation
(formerly known as WelCare International Management Corporation), a Georgia
corporation and a wholly-owned Subsidiary of the Company.
"CHPC" shall mean Centennial HealthCare Properties Corporation
(formerly known as WelCare International Properties Corporation), a Georgia
corporation and wholly-owned Subsidiary of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended and
regulations promulgated thereunder.
"Collateral" shall mean the collateral security afforded to Agent on
behalf of the Lenders from time to time under the Collateral Security Documents.
"Collateral Security Documents" shall mean collectively, this
Agreement; the Security Agreements and the landlord consents and waivers,
mortgagee consents and waivers and financing statements delivered pursuant
thereto; the Pledge Agreements, and related stock certificates and stock powers;
the Note Pledges and related notes and collateral security documents; the
Mortgages; the Assignment of Rents; and the Leasehold Assignments and any
associated landlord consents and any additional documents granting security to
Agent on behalf of the Lenders pursuant to this Agreement.
"Commitment" shall mean the maximum aggregate principal amount up to
which the Lenders, on a several basis, have agreed to make Advances under
Section 2 hereof and/or participate in the issuance of Letters of Credit under
Section 2A hereof, being Sixty- Five Million Dollars ($65,000,000) on the date
hereof, as such maximum aggregate principal amount may be decreased pursuant to
Paragraph 2.8 hereof.
"Company" shall mean Centennial HealthCare Corporation (formerly
known as WelCare International, Inc.), a Georgia corporation.
"Compliance Certificate" shall mean a certificate in the form of
Exhibit F attached hereto delivered by Borrowers to Lenders pursuant to
Paragraph 5.4 or Paragraph 4.1 hereof.
"Consolidated Fixed Charge Coverage Ratio" shall mean, as of any
date of determination, the ratio of Adjusted EBITDAR to Adjusted Fixed Charges.
5
<PAGE>
"Consolidated Net Worth" shall mean, as of any date of
determination, Consolidated Total Assets less Consolidated Total Liabilities.
"Consolidated Senior Debt" shall mean all Funded Debt of the Company
and its Consolidated Subsidiaries other than Subordinated Debt.
"Consolidated Subsidiary" shall mean individually, and "Consolidated
Subsidiaries" shall mean individually and collectively, with respect to any
Person, those Subsidiaries of such Person whose accounts, financial results or
position, for financial accounting purposes, are consolidated with those of such
Person. Unless the context specifies otherwise, all references in this Agreement
to a Consolidated Subsidiary shall refer to a Consolidated Subsidiary of the
Company.
"Consolidated Total Assets" shall mean, as of any date of
determination, all assets, as defined in accordance with GAAP, of the Company
and its Consolidated Subsidiaries as of such date provided, however, that the
assets of the Funds and the THS Inactive Partnerships shall be excluded from
such determination.
"Consolidated Total Liabilities" shall mean, as of any date of
determination, all liabilities and deferred items, as defined in accordance with
GAAP, of the Company and its Consolidated Subsidiaries as of such date;
provided, however, that the Preferred Stock and any Indebtedness of the Funds
and the THS Inactive Partnerships shall be excluded from such determination.
"Default" shall mean an event or circumstance which, with the giving
of notice or the passage of time or both, would constitute an Event of Default.
"EBITDA" shall mean, for any period, Net Income of the Company and
its Consolidated Subsidiaries for such period plus (to the extent deducted from
revenue in calculating net income) depreciation, amortization and other non-cash
charges and expenses, taxes and interest expense (including interest expense on
Capital Leases) for the Company and its Consolidated Subsidiaries for such
period.
"EBITDAR" shall mean for any period, EBITDA of the Company and its
Consolidated Subsidiaries for such period plus operating lease expense for the
Company and its Consolidated Subsidiaries for such period.
"EBT" means EBT Healthcare Properties, L.P., a Delaware limited
partnership.
"Effective Date" shall mean the date that this Agreement becomes
effective in accordance with Paragraph 4.1 hereof.
6
<PAGE>
"Environmental Control Statutes" shall mean all federal, state or
local laws and regulations regarding environmental or pollution concerns
including without limitation the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (as amended, "CERCLA"), the Solid Waste
Disposal Act, the Clean Water Act and the Clean Air Act, the Resource
Conservation and Recovery Act of 1976, the Federal Water Pollution Control Act
Amendments of 1972 and the Occupational Safety and Health Act, each as amended
from time to time, and all regulations, directives, policies or interpretations
issued in connection with any such statute.
"EPA" shall mean the United States Environmental Protection Agency,
or any successor thereto.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, all amendments thereto and all rules and regulations in effect at any time
thereunder.
"ERISA Affiliate" shall mean any company, whether or not
incorporated, and any other Person which is considered a single employer or an
affiliated service group with any Borrower under Titles I, II or IV of ERISA.
"Evangeline Leased Facilities" means the Nursing Homes known as
Scenic View Health and Rehabilitation Center, Gateway Nursing Center and Emerald
Ridge Rehabilitation and Care Center (formerly known as Evangeline of King,
Evangeline of Lenoir, and Evangeline of Woodfin, respectively), each located in
North Carolina and, prior to the acquisition thereof by NCHC, leased by a
subsidiary of Evangeline Health Care, Inc. from HCPI, including, without
limitation, all real and personal property and tangible and intangible assets
comprising such Nursing Homes.
"Evangeline Owned Facilities" means the Nursing Homes known as
Forrest Oaks Healthcare Center, Valley View Care and Rehabilitation Center,
Westwood Health and Rehabilitation Center and Down East Health and
Rehabilitation Center (formerly known as Evangeline of Albemerle, Evangeline of
Andrews, Evangeline of Archdale and Evangeline of Gates, respectively), each
located in North Carolina, including, without limitation, all real and personal
property and tangible and intangible assets comprising such Nursing Homes.
"Event of Default" shall mean each of the events described in
Paragraph 8.1 hereof.
"Existing Credit Agreement" shall mean the Credit Agreement dated
August 15, 1995 among Borrowers, Agent and CoreStates as Lender, as amended by
Amendment No. 1 dated as of October 31, 1995, Amendment No. 2 dated March 25,
1996, Amendment No. 3 dated March 29, 1996, Amendment No. 4 dated as of June 30,
1996, Amendment No. 5 dated July 18, 1996 and Amendment No. 6 dated November 26,
1996.
7
<PAGE>
"Existing Operations" shall mean the existing operations of the
Company and its Consolidated Subsidiaries with respect to Health Care Facilities
and ancillary businesses as of September 30, 1996.
"Funded Debt" shall mean, as of any date of determination, the sum
of (i) the aggregate amount available to be drawn under Letters of Credit and
the aggregate amount of unreimbursed draws under Letters of Credit; plus (ii)
the aggregate principal amount of all Indebtedness for (A) borrowed money other
than trade indebtedness incurred in the normal and ordinary course of business
for value received, (B) installment purchases of real or personal property, (C)
Capital Leases, and (D) guaranties of Funded Debt of others, without
duplication.
"Fund Service Corporations" shall mean those corporations listed as
the Fund Service Corporations on Schedule 3 attached hereto.
"Funds" shall mean those entities listed as the Funds on Schedule 3
attached hereto and made a part hereof.
"GAAP" shall mean generally accepted accounting principles, which
shall be (i) applied in accordance with Statement on Auditing Standards No. 69
"The Meaning of Present Fairly in Conformity with Generally Accepted Accounting
Principles in the Independent Auditor's Report," (SAS 69) or superseding
pronouncements, issued by the Auditing Standards Board of the American Institute
of Certified Public Accountants and (ii) in the form and content of any
requirements for financial statements filed with the Securities and Exchange
Commission, as long as the Company is subject to such requirements, in all cases
applied on a consistent basis. The requirement that such principles be applied
on a consistent basis shall mean that the accounting principles observed in a
current period are comparable in all material respects to those applied in a
preceding period; provided, however, that changes in the application of
accounting principles required under SAS 69, or superseding pronouncements or
requirements of the Securities and Exchange Commission shall not, by themselves,
be considered inconsistent applications of such principles.
"Hazardous Substance" shall mean petroleum products, explosives, or
any other substance which is defined as a hazardous or toxic substance, waste,
pollutant or contaminant by any of the Environmental Control Statutes.
"HCFA" shall mean the Health Care Financing Administra- tion of the
United States Department of Health and Human Services and any successor thereto.
"HCPI" means Health Care Property Investors, Inc., a Maryland
corporation.
8
<PAGE>
"Health Care Facility" shall mean any Nursing Home or other property
or facility which any Borrower or any Subsidiary owns, leases, operates or
manages on or after the date hereof.
"House Investments I" means House Investments - Nursing Home
Partners I, an Indiana limited partnership.
"House Investments II" means House Investments - Nursing Home
Partners II, L.P., an Indiana limited partnership.
"Indebtedness" shall mean, for any Person, all obligations of such
Person which in accordance with GAAP shall be classified on a balance sheet of
such Person as liabilities of such Person and in any event shall include,
without duplication, all (a) obligations of such Person for borrowed money or
which have been incurred in connection with the acquisition of property or
assets, (b) obligations secured by any lien upon property or assets owned by
such Person, notwithstanding that such Person has not assumed or become liable
for the payment of such obligations, (c) obligations created or arising under
any conditional sale or other title retention agreement with respect to property
acquired by such Person, notwithstanding the fact that the rights and remedies
of the seller, lender or lessor under such agreement in the event of default are
limited to repossession or sale of property, (d) Capital Leases, (e) guarantees
and (f) letters of credit and letter of credit reimbursement obligations. In
determining the Indebtedness of the Company and its Consolidated Subsidiaries,
the Preferred Stock and any Indebtedness of the Funds shall be excluded.
"Knowledge of Borrowers" shall mean the actual knowledge of
Borrowers and the actual knowledge of any senior officer of Borrowers, or
knowledge which Borrowers or any such senior officers should have possessed in
the ordinary course of managing the business and affairs of the Borrowers in a
manner consistent with the standards of a reasonably prudent business person in
the long-term care industry.
"Leasehold Assignments" shall mean the assignments by Borrowers of
their interests as tenants under leases, executed and delivered pursuant to the
Existing Credit Agreement and confirmed pursuant to Paragraph 4.1 hereof, and
the leasehold assignments delivered from time to time pursuant to Paragraph 5.12
hereof, as the same may be amended, modified or restated from time to time.
"Lender" shall mean individually and "Lenders" shall mean
individually and collectively, the institutions identified on Schedule 2
attached hereto and their respective successors and assigns in accordance with
Paragraph 10.2 hereof (which as provided therein, requires the prior written
consent of the Borrowers under certain circumstances), so long as such
institution retains any portion of the Commitment or Loan hereunder.
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<PAGE>
"Letter of Credit" shall mean individually, and "Letters of Credit"
shall mean individually and collectively, the letter(s) of credit issued
hereunder or under the Existing Credit Agreement in the form agreed upon at the
time of issuance thereof participated in by all the Lenders pursuant to the
terms and conditions of Section 2A hereof.
"Letter of Credit Request Form" shall mean the certificate in the
form attached as Exhibit B-1 hereto to be delivered by Borrowers to Agent as a
condition of each issuance of a Letter of Credit pursuant to Paragraph 2A.3
hereof.
"Letter of Credit Sublimit" shall mean the portion of the Commitment
up to which Lenders have agreed to participate in the issuance by Agent of
Letters of Credit pursuant to Section 2A hereof, being Fifteen Million Dollars
($15,000,000).
"Licenses" shall mean all licenses, permits or other grants of
authority obtained or required to be obtained by any Borrower from the United
States government, HCFA or any Local Authority in connection with the ownership
or operation of any Health Care Facility or other business of Borrowers.
"Loan" shall mean the outstanding principal balance of indebtedness
advanced, and the face amount of Letters of Credit issued, under the Commitment,
and without duplication the amount of all unreimbursed draws under Letters of
Credit, together with interest accrued on and fees and expenses incurred in
connection with any of the foregoing.
"Loan Documents" shall mean this Agreement, the Notes, the
Collateral Security Documents, and all other agreements, documents and
instruments required hereunder or executed and delivered in connection with this
Agreement (or in connection with the Existing Credit Agreement and confirmed by
written agreement in connection herewith).
"Local Authorities" shall mean individually and collectively all
state and local governmental authorities and administrative agencies which
possess statutory or regulatory authority over the ownership or operation of any
Health Care Facility or other business of Borrowers.
"Long-Term Management Contract" shall mean a contract providing for
the management of a Health Care Facility by a Borrower substantially in the form
of Exhibit G-4 attached hereto having a term of not less than five (5) years.
"Material Adverse Effect" shall mean a material adverse effect on
the business, financial condition, assets or prospects of the Company and its
Consolidated Subsidiaries taken as a whole as a result of any event, condition,
circumstance or contingency.
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"Maximum Principal Amount" shall mean the maximum principal amount
of the Commitment up to which the applicable Lender has agreed to lend funds
and/or participate in the issuance of Letters of Credit, as set forth in
Schedule 2 attached hereto.
"Mortgages" shall mean, individually and collectively, the Deed of
Trust delivered to Agent, for the benefit of Lenders, with respect to the
Nursing Home known as Garden Court, the Mortgages delivered to Agent, for the
benefit of Lenders, with respect to the Nursing Homes known as Mather Nursing
Center and Cypress Manor, and any mortgages and deeds of trust from time to time
delivered pursuant to Paragraph 5.12 hereof, as the same may be amended,
modified or restated from time to time.
"NC Health Care" means NC Health Care, Inc., a Georgia corporation.
"NC Health Care Loans" means a loan by the Company to NC Health Care
pursuant to a Promissory Note dated as of June 30, 1996 in the original
principal amount of $4,857,847.00 executed by NC Health Care, and loans by CHMC
to each of the subsidiaries of NC Health Care, pursuant to Promissory Notes
dated as of June 30, 1996, each in the original principal of $125,000.00
executed by the applicable subsidiary, each secured by (i) a pledge of the
outstanding shares of capital stock of NC Health Care by the holder of such
shares pursuant to pledge agreements by the owners of such shares dated as of
June 30, 1996, (ii) a pledge of the outstanding shares of capital stock of the
subsidiaries of NC Health Care pursuant to a pledge agreement by NC Health Care
dated as June 30, 1996, and (iii) additional collateral as may be granted
thereunder from time to time.
"NCHC" means NCHC, Inc., a Louisiana corporation.
"NCHC Loan" means a loan of funds by the Company to NCHC pursuant to
an Amended and Restated Promissory Note dated as of March 25, 1996 in the
original principal amount of $4,546,926.00 executed by NCHC in favor of the
Company secured by a (i) a security interest in all personal property of NCHC
pursuant to a Security Agreement dated March 25, 1996, (ii) leasehold deeds of
trust dated March 25, 1996 with respect to the leasehold interests of NCHC under
the leases with HCPI with respect to each of the Evangeline Leased Facilities,
and a leasehold deed of trust dated July 18, 1996 with respect to the leasehold
interests of NCHC under the lease with HCPI with respect to the Arden Facility,
(iii) assignments of rents and profits dated March 25, 1996 by NCHC with respect
to each of the Evangeline Leased Facilities, and an assignment of rents and
profits dated July 18, 1996 by NCHC with respect to the Arden Facility, (iv) a
pledge of the outstanding shares of capital stock of NCHC by the holder of such
shares pursuant to a pledge agreement, (v) a collateral assignment of certain
certificates of deposit pursuant to an Assignment of Certificates of Deposit
dated March 25, 1996 and an Assignment of
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<PAGE>
Certificates of Deposit dated July 18, 1996, and (vi) additional collateral as
may be granted thereunder from time to time.
"Net Cash Proceeds" shall mean, with respect to any Sale of Material
Assets, the cash proceeds received by the seller in such a transaction less (i)
the reasonable costs of the transaction, (ii) reasonable reserves for retained
liabilities, (iii) applicable taxes arising out of the transaction, and (iv) any
Medicare or Medicaid reimbursement adjustments caused by and which are required
to be and are paid or reserved in connection with such transaction.
"Net Income" shall mean, for any period, the net income of the
Company and its Consolidated Subsidiaries for such period, as determined in
accordance with GAAP, provided that any gains or losses from the operation of
the Funds and the THS Inactive Partnerships shall be excluded from such
determination.
"Net Worth Requirement" shall mean Thirty-Three Million Seven
Hundred Fifty Thousand Dollars ($33,750,000) plus (i) as of the last day of each
fiscal quarter ending after September 30, 1996, an amount equal to seventy-five
percent (75%) of Net Income of the Company and its Consolidated Subsidiaries for
such fiscal quarter (if positive, with no reduction for losses), on a cumulative
basis, and plus (ii) an amount equal to one hundred percent (100%) of the
proceeds of any issuance of equity securities or other capital investments in
any Borrower.
"North Florida" shall mean North Florida Health Properties II, Ltd.,
a Florida limited partnership.
"Note" shall mean individually, and "Notes" shall mean individually
and collectively the Notes in the form of Exhibit C attached hereto, to be
delivered by Borrowers to Lenders pursuant to Paragraph 4.1 hereof, as the same
may be amended, modified, extended, consolidated or restated from time to time.
"Note Pledges" shall mean the Pledge Agreements (Collateral
Assignment) pursuant to which the Company has pledged to Agent, for the benefit
of Lenders, all of its right, title and interest in and to the NCHC Loan and the
NC Health Care Loans, as collateral for the Loan hereunder, and any additional
similar pledges delivered from time to time pursuant to Paragraph 6.3(iv)
hereof.
"Nursing Home" shall mean individually and "Nursing Homes" shall
mean individually and collectively the nursing homes owned, leased, operated or
managed by any Borrower, and any similar facilities owned or operated by any
Borrower on or after the date hereof.
"OGRLP" means Oak Grove of Rutherford Limited Partnership, a North
Carolina limited partnership.
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"PBGC" shall mean the Pension Benefit Guaranty Corporation, or any
successor thereto.
"Permitted Acquisition" shall mean any acquisition by a Borrower of
a business, by merger or by purchase of stock or assets, if: (i) such business,
when acquired, would be within the Permitted Lines of Business; and (ii) the
Agent on behalf of the Lenders receives a first priority security interest in
substantially all of the stock and assets, including real and personal property,
of the acquired business in accordance with Paragraph 5.12(c) hereof; and such
transaction otherwise is in compliance with Paragraph 6.8 hereof.
"Permitted Investments" shall mean (i) investments in commercial
paper maturing in one hundred eighty (180) days or less from the date of
issuance which are rated A1 or better by Standard & Poor's Corporation or P1 or
better by Moody's Investors Services, Inc.; (ii) investments in marketable
direct obligations of the United States of America or obligations of any agency
thereof which are guaranteed by the United States of America, provided that such
obligations mature within three (3) years of the date of acquisition thereof;
(iii) investments in certificates of deposit issued by a bank or trust company
organized under the laws of the United States or any state thereof, having a
rating of A or better from Moody's Investors Services, Inc.; and (iv)
investments of Borrowers existing on the date hereof and disclosed on Exhibit E
attached hereto, but without increase in the principal amount thereof after the
date of this Agreement. Permitted Investments shall not include the Shares of
any Borrower.
"Permitted Lines of Business" shall mean the provision of nursing
care, home health, speech therapy, occupational therapy, pharmacy, respiratory,
pain and intravenous therapy, enterals and urological therapy or physical
therapy services and products and all other ancillary services related to the
operation of a Nursing Home, and the ownership, management, or operation under
lease, of facilities related thereto.
"Person" shall mean any individual, corporation, partnership,
company, association, limited liability corporation or other legal entity.
"Plan" shall mean any pension benefit or welfare benefit plan
program or arrangement that is an employee benefit plan within the meaning of
Section 3(3) of ERISA covering employees of any Borrower or any ERISA Affiliate
or to which any Borrower or any ERISA Affiliate makes contributions.
"Pledge Agreements" shall mean the pledge agreements executed and
delivered or confirmed pursuant to Paragraph 4.1 hereof, or delivered from time
to time pursuant to Paragraph 5.12 of this Agreement, as the same may be
amended, modified or restated from time to time.
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"Preferred Stock" shall mean collectively the South Atlantic
Preferred Stock and the Welsh Carson Preferred Stock.
"Pro Rata Share" shall mean, as to a Lender, the ratio which the
outstanding principal balance of its portion of the Loan hereunder bears to the
aggregate outstanding principal balance of the Loan at any time; or if no
indebtedness is outstanding hereunder, its percentage share of the Commitment as
set forth in Schedule 2 attached hereto.
"Qualified EBITDA" shall mean, for any period, EBITDA for any
Acquired Operations (based on the pro forma historical financial information
referred to in clause (iii) below as to periods prior to the date of
Acquisition) as to which (i) Borrowers have ownership of all of the assets of
such Acquired Operations, free and clear of any liens or encumbrances other than
those in favor of Agent, for the benefit of Lenders, and as otherwise permitted
pursuant to Paragraph 6.4 hereof; (ii) Agent, for the benefit of Lenders, has
received a perfected first priority lien on substantially all of the assets of
such Acquired Operations, as required pursuant to Paragraph 5.12 hereof, and
(iii) Borrowers have delivered to Lenders pro forma historical financial
statements with respect to such Acquired Operations in form and substance
satisfactory to Required Lenders.
"Required Lenders" shall mean those Lenders (which may include Agent
in its capacity as a Lender) holding Pro Rata Shares of the Loan aggregating
sixty-six and two-thirds percent (66-2/3%) or more.
"Restricted Payments" shall mean redemptions, purchases,
repurchases, dividends and distributions of any kind in respect of Shares of the
Company (except dividends payable solely in the common stock of the Company) and
payments of principal and interest on Subordinated Debt.
"Sale of Material Assets" shall mean the sale or other disposition
(including damage, destruction or condemnation of assets, but excluding any
foreclosure, transfer in lieu of foreclosure or similar event following a
default) by any Borrower, in a single transaction or in the aggregate as to all
transactions within any twelve (12) consecutive months, of assets (including
stock or other investments or interests in a Person) which, valued at the
greater of book value or fair market value, have a value of Five Million Dollars
($5,000,000) or more; excluding dispositions of equipment no longer used by
Borrowers and inventory, in each case in the ordinary course of business, and
the sale of Permitted Investments for cash or the conversion into cash of
Permitted Investments.
"Security Agreement" shall mean individually and "Security
Agreements" shall mean individually and collectively, the Amended and Restated
Security Agreement and the Security Agreement (Partnership Interests) executed
and delivered pursuant to
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Paragraph 4.1 hereof, and any additional security agreement from time to time
delivered pursuant to Paragraph 5.12 hereof, as the same may be amended,
modified or restated from time to time.
"Shares" shall mean, with respect to any Person, any and all shares
of capital stock of any class or other shares, interests, participations or
other equivalents (however designated) in the capital of such Person.
"South Atlantic Preferred Stock" shall mean the shares of Series A
Preferred Stock and Series B Preferred Stock issued and outstanding as of the
date hereof and having terms and conditions as set forth in the Articles of
Incorporation of the Company in effect as of the date hereof.
"SouthTrust" means SouthTrust Bank of Alabama, National Association.
"SouthTrust Financing" means financing provided by SouthTrust with
respect to any Health Care Facility.
"Subordinated Debt" shall mean (i) the Transitional Subordinated
Notes, and (ii) any other Indebtedness of the Company or any Consolidated
Subsidiary of the Company subordinated to the Loan with subordination and
repayment provisions and covenants as are in form and substance satisfactory to
Lenders.
"Subsidiary" shall mean, with respect to any Person, any other
Person of which such other Person owns, directly or indirectly, more than fifty
percent (50%) of any class or classes of securities and any Partnership of which
such Person is a General Partner, provided, however, that the Funds shall not
constitute Subsidiaries of any Borrowers provided that the general partner(s) of
such Funds are no longer Subsidiaries of the Company by January 31, 1997.
"Taxes" shall have the meaning specified in Paragraph 2.16 hereof.
"Termination Date" shall mean the earlier of (i) December 18, 1998,
or (ii) the date on which a Commitment is terminated pursuant to Paragraph 2.8
hereof.
"TFS" shall mean Transitional Financial Services, Inc., a Delaware
corporation.
"THS Group" means Transitional Health Services Inc. and all of the
corporations which were part of the affiliated group (as defined in Code Section
1504) of which Transitional Health Services Inc. was the common parent (as
defined in Code Section 1504) immediately prior to the December 31, 1995 merger
with the acquisition subsidiary of the Company, and any corporation owned by any
member of such affiliated group.
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<PAGE>
"THS Nursing Home Subsidiaries" shall mean all direct and indirect
Subsidiaries of Transitional Health Services, Inc. other than Paragon
Rehabilitation, Inc.
"Transitional Subordinated Notes" shall mean the 10.8% Senior
Subordinated Notes due October 30, 2002 of Transitional Financial Services, Inc.
("TFS") in the aggregate principal amount of $17,650,000 and the 11.79% Senior
Subordinated Notes due October 30, 2002 of TFS in the aggregate principal amount
of $7,650,000, each as guaranteed by the Company pursuant to the Guaranty
Agreement dated as of December 31, 1995.
"WelCare Group" means the Company and all of the corporations which
were part of the affiliated group (as defined in Code Section 1504) of which the
Company was the common parent (as defined in Code Section 1504) immediately
prior to the December 31, 1995 merger with THS and any corporation owned by any
member of such affiliated group.
"Welsh Carson Preferred Stock" shall mean the shares of Series C
Preferred Stock issued and outstanding as of the date hereof and having terms
and conditions as set forth in the Articles of Incorporation of the Company in
effect as of the date hereof.
1.2. Rule of Construction. Except as otherwise provided herein,
financial and accounting terms used in the foregoing definitions or elsewhere in
this Agreement shall be defined in accordance with GAAP. SECTION 2 FACILITY
SECTION 2
FACILITY
2.1. Commitment.
(a) Commitment. From time to time prior to the Termination
Date, subject to the provisions below, each Lender severally agrees to make
Advances to Borrowers up to such Lender's Maximum Principal Amount as set forth
on Schedule 2 attached hereto, and Borrowers may repay at the offices of Agent
and reborrow under the Commitment, up to an aggregate principal amount not to
exceed at any time outstanding (together with the amount available to be drawn
under Letters of Credit and any unreimbursed draws under Letters of Credit) the
lesser of (i) the Borrowing Base or (ii) the Commitment as from time to time in
effect; provided, however, that in no event shall funds be advanced or Letters
of Credit issued for use in the business or operations of the THS Nursing Home
Subsidiaries in an aggregate principal amount in excess of Twenty Million
Dollars ($20,000,000) outstanding at any time.
(b) Joint and Several Obligation. The obligations of Borrowers
hereunder are and shall be joint and several.
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(c) Authority of the Company. Each of the Borrowers hereby
irrevocably authorizes and requests that the Company execute all Advance Request
Forms, make all elections as to interest rates and take any other actions
required or permitted of Borrowers hereunder, on its respective behalf, in each
case with the same force and effect as if such Borrower had executed such
Advance Request Form, made such election or taken such other action itself.
2.2. Promissory Notes. The indebtedness of Borrowers to each Lender
under the Loan will be evidenced by a Note executed by Borrowers, jointly and
severally, in favor of such Lender. The original principal amount of each
Lender's Note will be the amount identified in Schedule 2 attached hereto as its
Maximum Principal Amount; provided, however, that notwithstanding the face
amount of each such Note, the Borrowers' liability under each such Note shall be
limited at all times to the actual indebtedness, principal, interest, fees, and
expenses, then outstanding to such Lender under the Loan.
The Notes shall collectively replace and supersede the Working
Capital Note dated August 15, 1995 and the Amended and Restated Permitted
Acquisitions Note dated November 26, 1996 by certain of the Borrowers in favor
of CoreStates as Lender under the Existing Credit Agreement (the "Existing
Notes"), provided, that the execution and delivery of such Notes shall not in
any circumstance be deemed to have terminated, extinguished or discharged the
Indebtedness under the Existing Notes, all of which Indebtedness and the
Collateral therefor shall continue under and be governed by the Notes, this
Agreement and the other Loan Documents. The Notes collectively are a
replacement, consolidation, amendment and restatement of the Existing Notes and
are NOT A NOVATION. Nothing herein is intended to modify or in any way affect
the priority of the Collateral which secures the Loan.
2.3. Lenders' Participation. Lenders shall participate in the Loan
in the Maximum Principal Amounts and Pro Rata Shares set forth in Schedule 2
attached hereto.
2.4. Use of Proceeds. Advances under the Commitment may be used
solely (i) for Borrowers' working capital needs, (ii) for capital expenditures
and general corporate purposes of Borrowers, (iii) for reimbursement of draws
under Letters of Credit in accordance with Paragraph 2A.4(b) hereof, (iv) to
finance the purchase price and related expenses in connection with Permitted
Acquisitions, (v) to advance working capital financing to other parties in
connection with entering into Long-Term Management Contracts, as permitted
pursuant to Paragraph 6.3(iv) hereof, (vi) to refinance indebtedness to Heller
Financial Corporation and (vii) to refinance indebtedness outstanding under the
Existing Credit Agreement; provided, however, that (x) in no event shall funds
be Advanced or Letters of Credit issued for use in the business or operations of
the THS Nursing Home Subsidiaries in an aggregate principal amount in excess of
Twenty Million Dollars ($20,000,000),
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and (y) in no event shall the proceeds of any Advance be advanced to or used by
any Subsidiary that is not a Borrower.
2.5. Repayment.
(a) Scheduled Repayment. The aggregate outstanding principal
balance of the Loan on the Termination Date shall be payable in fifteen (15)
equal quarterly payments, each in the amount of one fifteenth (1/15th) of the
outstanding principal balance on the Termination Date, payable on the last
Business Day of each March, June, September and December, commencing with March
31, 1999 and continuing thereafter until the Loan is paid in full; provided,
however, that notwithstanding the foregoing, the entire outstanding balance of
the Loan shall be payable in full on the earlier to occur of September 30, 2002
or the date of acceleration of the Loan pursuant to Paragraph 8.2 hereof.
(b) Mandatory Payments. In addition to the scheduled payments
of principal pursuant to Paragraph 2.5(a) above, Borrowers shall make principal
payments in the circumstances and in the amounts set forth below:
(i) Asset Dispositions. In connection with each Sale of
Material Assets approved by Lenders pursuant to Paragraph 6.7 hereof, the Net
Cash Proceeds to the seller of such transaction shall be paid directly to Agent
for the account of Lenders and applied to the Loan as set forth in subparagraph
(v) below.
(ii) New Debt. In the event a Borrower incurs
Indebtedness consented to by Required Lenders which is not otherwise permitted
pursuant to Paragraph 6.1 hereof, the net cash proceeds of such Indebtedness
shall be paid directly to Agent for the account of the Lenders and applied to
the Loan as set forth in subparagraph (v) below.
(iii) Equity Issuance. In connection with any issuance
of equity by the Company, fifty percent (50%) of the net cash proceeds to the
Company of such issuance, after retirement of the Transitional Subordinated
Notes and Preferred Stock, shall be paid directly to Agent for the account of
the Lenders and applied to the Loan as set forth in subparagraph (v) below;
provided, however, that no such payment shall be required in connection with (A)
up to Ten Million Dollars ($10,000,000) in proceeds received upon the issuance
of Preferred Stock to any Welsh Carson Anderson & Stowe partnership or affiliate
having terms and conditions in form and substance acceptable to Required
Lenders, or (B) proceeds received upon the issuance of shares of Common Stock in
connection with the exercise of options outstanding on the date hereof as set
forth on Exhibit E.
(iv) Borrowing Base. Immediately upon delivery of a
Compliance Certificate showing a Borrowing Base that is less than the
outstanding principal balance of the Loan, including the
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amount available to be drawn under Letters of Credit and the amount of any
unreimbursed draws under Letter of Credit, Borrowers shall pay to Agent, for
application to the Loan as provided in subparagraph (v) below, an amount
necessary to reduce the outstanding balance of the Loan to an amount that is
less than or equal to the Borrowing Base.
(v) Application of Payments. Payments made pursuant to
subparagraph 2.5(b)(i) through (iv) above shall be applied to the outstanding
principal balance of the Loan and shall be accompanied by all accrued and unpaid
interest and fees in connection with the amount prepaid (including any amount
payable under Paragraph 2.10 hereof). Any such payments prior to the Termination
Date shall not reduce the Commitment and may be reborrowed in accordance
herewith. Any such payment after the Termination Date shall be applied to
payments of the Loan in the inverse order of the maturity thereof.
2.6. Interest. Portions of the Loan shall bear interest on the
outstanding principal amount thereof in accordance with the following
provisions:
(a) Definitions. As used in this Paragraph 2.6, the following
words and terms shall have the meanings specified below:
"Adjusted Libor Rate" shall mean, for any Interest Period, as
applied to a Portion, the rate per annum (rounded upwards, if necessary to the
next 1/16 of 1%) determined pursuant to the following formula:
Adjusted Libor Rate = Libor Rate
------------------------
[1 - Reserve Percentage]
For purposes hereof, "Libor Rate" shall mean, as applied to a Portion, the rate
which appears on the Telerate page 3750 at approximately 9:00 a.m. Philadelphia
time two London Business Days prior to the commencement of such Interest Period
for the offering to leading banks in the London Interbank Market of deposits in
United States dollars ("Eurodollars") or, if such rate does not appear on the
Telerate page 3750, the rate which appears (or, if two or more such rates
appear, the average rounded up to the nearest 1/16 of 1% of the rates which
appear) on the Reuters Screen LIBO Page as of 9:00 a.m. Philadelphia time two
London Business Days prior to the commencement of the Interest Period, in either
case for an amount substantially equal to such Portion as to which Borrower may
elect the Adjusted Libor Rate to be applicable with a maturity of comparable
duration to the Interest Period selected by Borrower for such Portion, as may be
adjusted from time to time in accordance with Paragraph 2.6(f) hereof.
"Applicable Margin" means the percentage per annum set forth in the
appropriate column below that corresponds to the ratio of Adjusted Total Debt to
Adjusted EBITDAR (the Applicable Margin
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being the lowest applicable percentage per annum as to which the ratio
requirement has been attained):
Applicable Margin
-----------------
Ratio of Adjusted Total Base Rate Libor
Debt to Adjusted EBITDAR Portions Portions
------------------------ -------- --------
less than 3.50 to 1 0.00% 1.25%
less than 4.00 to 1 0.00% 1.50%
but greater than or
equal to 3.50 to 1
less than 4.50 to 1 0.25% 1.75%
but greater than or
equal to 4.00 to 1
less than 5.00 to 1 0.50% 2.00%
but greater than or
equal to 4.50 to 1
greater than or equal 1.00% 2.50%
to 5.00 to 1
The initial Applicable Margin, which shall be applicable commencing on the
Effective Date, shall be based on the Company's financial statements for the
fiscal period ended June 30, 1996 and the Compliance Certificate delivered
pursuant to Paragraph 4.1 hereof; thereafter the Applicable Margin shall adjust
automatically, as appropriate, on the day following delivery of each Compliance
Certificate, provided, that in the event that a Compliance Certificate has not
been delivered as required by Paragraph 5.4 then the Applicable Margin shall
adjust to the highest margin provided above as of the date of required delivery;
provided further, however, that the Applicable Margin shall adjust on the day
after delivery of such delinquent Compliance Certificate based on the ratio set
forth in such Compliance Certificate. Notwithstanding the foregoing, at any time
that the default rate of interest shall apply in accordance with Paragraph
2.6(b)(ii) hereof, the Applicable Margin shall be the highest margin provided
above with respect to Base Rate Portions and Libor Portions, respectively.
"Base Rate" shall mean the higher of (a) the Federal Funds Rate plus
one half of one percent (1/2%) per annum or (b) the Prime Rate.
"Federal Funds Rate" shall mean the daily rate of interest announced
from time to time by the Board of Governors of the Federal Reserve System in
publication H.15 as the "Federal Funds Rate."
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<PAGE>
"Interest Period" shall mean, with respect to the Adjusted Libor
Rate, a period of one (1), two (2), three (3) or six (6) months' duration, as
Borrowers may elect, during which the Adjusted Libor Rate is applicable;
provided, however, that (a) if any Interest Period would otherwise end on a day
which shall not be a London Business Day, such Interest Period shall be extended
to the next succeeding London Business Day, unless such London Business Day
falls in another calendar month, in which case such Interest Period shall end on
the next preceding London Business Day, subject to clause (c) below; (b)
interest shall accrue from and including the first day of each Interest Period
to, but excluding, the day on which any Interest Period expires; and (c) with
respect to an Interest Period which begins on the last London Business Day of a
calendar month (or on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period), the Interest Period
shall end on the last London Business Day of a calendar month.
"London Business Day" shall mean any Business Day on which banks in
London, England are open for business.
"Portion" shall mean a portion of the Loan as to which a specific
interest rate and, in the case of a Portion bearing interest based upon the
Adjusted Libor Rate, an Interest Period, has been elected by Borrowers.
"Prime Rate" shall mean the rate of interest announced by Agent from
time to time as its prime rate.
"Regulation D" shall mean Regulation D of the Board of Governors of
the Federal Reserve System, comprising Part 204 of Title 12, Code of Federal
Regulations, as amended, and any successor thereto.
"Reserve" shall mean, for any day, that reserve (expressed as a
decimal) which is in effect (whether or not actually incurred) with respect to a
Lender (or any bank Affiliate of such Lender) on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor or any other
banking authority to which a Lender (or any bank Affiliate of such Lender) is
subject including any board or governmental or administrative agency of the
United States or any other jurisdiction to which a Lender (or any bank Affiliate
of such Lender) is subject), for determining the maximum reserve requirement
(including without limitation any basic, supplemental, marginal or emergency
reserves) for Eurocurrency liabilities as defined in Regulation D.
"Reserve Percentage" shall mean, for a Lender (or any bank Affiliate
of such Lender) on any day, that percentage (expressed as a decimal) prescribed
by the Board of Governors of the Federal Reserve System (or any successor or any
other banking authority to which a Lender (or any bank Affiliate of such Lender)
is subject, including any board or governmental or administrative
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<PAGE>
agency of the United States or any other jurisdiction to which a Lender is
subject), for determining the reserve requirement (including without limitation
any basic, supplemental, marginal or emergency reserves) for (i) deposits of
United States Dollars or (ii) Eurocurrency liabilities as defined in Regulation
D, in each case used to fund a Portion subject to an Adjusted Libor Rate or any
Loan made with the proceeds of such deposit. The Adjusted Libor Rate shall be
adjusted on and as of the effective day of any change in the Reserve Percentage.
(b) Interest on Loan.
(i) At the Borrowers' election in accordance with the
provisions of Paragraph 2.6(c) below, in the absence of an Event of Default
hereunder and prior to maturity or judgment, and subject to clause (ii) below,
any Portion of the Loan shall bear interest at either of the following rates:
(A) Base Rate. The Base Rate plus the Applicable
Margin, such rate to change when and as the Base Rate
changes and when and as the Applicable Margin changes.
(B) Adjusted Libor Rate. The Adjusted Libor Rate
plus the Applicable Margin, such rate to change when and
as the Applicable Margin changes.
(ii) Notwithstanding the foregoing, upon the occurrence
and during the continuance of an Event of Default hereunder, including after
maturity and upon judgment, Borrowers hereby agree to pay to Lenders interest
(A) on any outstanding Portion of the Loan or bearing interest based on the
Adjusted Libor Rate, at the rate which is two percent (2%) per annum in excess
of the Adjusted Libor Rate plus the highest margin provided in the definition of
Applicable Margin with respect to Libor Portions through the end of the
applicable Interest Period, and thereafter, at the rate of two percent (2%) per
annum in excess of the Base Rate plus the highest margin provided in the
definition of Applicable Margin with respect to Base Rate Portions, and (B) on
any Portion bearing interest based on the Base Rate, at the rate of two percent
(2%) per annum in excess of the Base Rate plus the highest margin provided in
the definition of Applicable Margin with respect to Base Rate Portions.
(iii) Borrowers shall pay to CoreStates on the Effective
Date all accrued and unpaid interest to and including the Effective Date in
accordance with the Existing Credit Agreement together with all funding costs
and loss of earnings associated with the termination of outstanding Libor
Portions as of the
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Effective Date, calculated in accordance with Exhibit D attached hereto.
(c) Procedure for Determining Interest Periods and Rates of
Interest.
(i) If Borrowers elect the rate based on the Base Rate
to be applicable to a Portion, Borrowers must notify Agent of such election in
writing prior to eleven o'clock (11:00) a.m. Philadelphia time one (1) Business
Day prior to the proposed application of such rate. If Borrowers elect the rate
based on the Adjusted Libor Rate to be applicable to a Portion, Borrowers must
notify Agent of such election and the Interest Period selected prior to eleven
o'clock (11:00) a.m. Philadelphia time at least three (3) London Business Days
prior to the commencement of the proposed Interest Period. If Borrowers do not
provide notice for the rate based on the Adjusted Libor Rate, then Borrowers
shall be deemed to have requested that the rate based on the Base Rate shall
apply to any Portion as to which the Interest Period is expiring and to any new
Advance of the Loan until Borrowers shall have given proper notice of a change
in or determination of the rate of interest in accordance with this Paragraph
2.6(c).
(ii) Borrowers shall not elect more than four (4)
different Portions bearing interest at the rate based on the Adjusted Libor Rate
to be applicable to the Loan at one time.
(d) Payment and Calculation of Interest. With respect to
Portions which bear interest at the rate based on the Adjusted Libor Rate,
interest shall be due and payable on the last day of each Interest Period for
each such Portion and, in the case of a Portion with an Interest Period of six
(6) months, on the ninetieth (90th) day after the Portion is advanced and on the
last day of the Interest Period, and with respect to Portions which bear
interest at the rate based on the Base Rate, interest shall be due and payable
on the last Business Day of the month commencing on the first such date after
the first Advance which bears interest at the rate based on the Base Rate.
Interest shall be calculated in accordance with the provisions of Paragraph
2.6(b) hereof; all interest shall be calculated on the basis of the actual
number of days elapsed over a year of three hundred sixty (360) days for
Portions bearing interest at the rate based on the Adjusted Libor Rate, and over
a year of three hundred sixty-five (365) or three hundred sixty-six (366) days,
as the case may be, for Portions bearing interest at the rate based on the Base
Rate.
(e) Reserves. If at any time when a Portion is subject to the
rate based on the Adjusted Libor Rate, a Lender (or a bank Affiliate of such a
Lender) is subject to and incurs a Reserve, other than a Reserve Percentage
provided in the calculation of the applicable Adjusted Libor Rate, Borrowers
hereby agree to pay within five (5) Business Days of demand thereof from time to
time, as billed by Agent on behalf of itself or a Lender, such additional amount
as is necessary to reimburse such Lender (or
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such Lender's bank Affiliate) for its costs in maintaining such Reserve. Such
amount shall be computed by taking into account the cost incurred by the Lender
(or such Lender's bank Affiliate) in maintaining such Reserve in an amount equal
to such Lender's ratable share of the Portion on which such Reserve is incurred,
which computation shall be set forth in any such demand by Agent on behalf of
itself or a Lender. The Agent agrees to bill Borrowers promptly upon receipt of
any such demand from a Lender. The determination by Agent or any Lender of such
costs incurred and the allocation, if any, of such costs among Borrowers and
other customers which have similar arrangements with such Lender (or such
Lender's bank Affiliate) shall be prima facie evidence of the correctness of the
fact and the amount of such additional costs.
(f) Special Provisions Applicable to Adjusted Libor Rate. The
following special provisions shall apply to the Adjusted Libor Rate:
(i) Change of Adjusted Libor Rate. The Adjusted Libor
Rate may be automatically adjusted by Agent on a prospective basis to take into
account the additional or increased cost of maintaining any necessary reserves
for Eurodollar deposits or increased costs due to changes in applicable law or
regulation or the interpretation thereof occurring subsequent to the
commencement of the then applicable Interest Period, including but not limited
to changes in tax laws (except changes of general applicability in corporate
income tax laws) and changes in the reserve requirements imposed by the Board of
Governors of the Federal Reserve System (or any successor), excluding the
Reserve Percentage and any Reserve which has resulted in a payment pursuant to
subparagraph (e) above, that increase the cost to Lenders of funding the Loan or
a Portion thereof bearing interest based on the Adjusted Libor Rate. Agent shall
give Borrowers and each Lender notice of such a determination and adjustment,
which determination shall be prima facie evidence of the correctness of the fact
and the amount of such adjustment. Borrowers may, by notice to Agent, (A)
request Agent to furnish to Borrowers a statement setting forth the basis for
adjusting such Adjusted Libor Rate and the method for determining the amount of
such adjustment; and/or (B) repay the Portion of the Loan with respect to which
such adjustment is made, subject to the requirements of Paragraph 2.9 and 2.10
hereof.
(ii) Unavailability of Eurodollar Funds. In the event
that Borrowers shall have requested the rate based on the Adjusted Libor Rate in
accordance with Paragraph 2.6(c) and any Lender (or such Lender's bank
Affiliate) shall have reasonably determined that Eurodollar deposits equal to
the amount of the principal of the Portion and for the Interest Period specified
are unavailable, or that the rate based on the Adjusted Libor Rate will not
adequately and fairly reflect the cost of making or maintaining the principal
amount of the Portion specified by Borrowers during the Interest Period
specified, or that by reason of circumstances affecting Eurodollar markets,
adequate and reasonable means do not exist for ascertaining the rate based on
the Adjusted Libor Rate
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applicable to the specified Interest Period, such Lender shall give notice to
Agent and Agent shall promptly give notice of such determination to Borrowers
that the rate based on the Adjusted Libor Rate is not available. A determination
by such Lender (or such Lender's bank Affiliate) hereunder shall be prima facie
evidence of the correctness of the fact and amount of such additional costs or
unavailability. Upon such a determination, (i) the obligation to advance or
maintain Portions at the rate based on the Adjusted Libor Rate shall be
suspended until Agent shall have notified Borrowers and Lenders that such
conditions shall have ceased to exist, and (ii) the rate based on the Base Rate
shall be applicable to all Portions.
(iii) Illegality. In the event that it becomes unlawful
for a Lender (or such Lender's bank Affiliate) to maintain Eurodollar
liabilities sufficient to fund any Portion of the Loan subject to the rate based
on the Adjusted Libor Rate, then such Lender shall immediately notify Borrowers
thereof (with a copy to Agent) and such Lender's obligations hereunder to
advance or maintain advances at the rate based on the Adjusted Libor Rate shall
be suspended until such time as such Lender (or such Lender's bank Affiliate)
may again cause the rate based on the Adjusted Libor Rate to be applicable to
its share of any Portion of the outstanding principal balance of the Loan and
such Lender's share of any Portion shall then be subject to the rate based on
the Base Rate.
2.7. Advances.
(a) At the time Borrowers provide the requisite notice set
forth in Paragraph 2.6(c) hereof relating to the election of interest rates,
Borrowers shall give Agent written notice of each requested Advance. Such notice
of a requested Advance shall be in the form of the Advance Request Form attached
hereto as Exhibit A, shall be certified by the chief executive or chief
financial officer of the Company, on behalf of Borrowers, and shall contain the
following information and representations, which shall be deemed affirmed and
true and correct as of the date of and upon receipt of the requested Advance:
(i) the aggregate amount of the requested Advance, which
shall be equal to $1,000,000 or an even multiple of $250,000 in excess thereof;
(ii) the date of the requested Advance;
(iii) the interest rate(s) Borrowers have elected to
apply to the Advance and, if more than one interest rate has been elected, the
amount of the Portion as to which each interest rate shall apply and, in the
case of Portions bearing interest at the rate based on the Adjusted Libor Rate,
the Interest Period;
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(iv) confirmation of compliance with Paragraphs 5.15
through 5.20 hereof and with the Borrowing Base immediately prior to and
following such Advance and, if applicable, consummation of the Permitted
Acquisition;
(v) a statement that the Advance will be used for the
purposes permitted by Paragraph 2.4 hereof;
(vi) statements that the representations and warranties
set forth in Section Three hereof and in the Collateral Security Documents are
true and correct in all material respects as of the date thereof; no Default or
Event of Default has occurred and is then continuing; and there has been no
Material Adverse Effect or event or circumstance which might reasonably be
expected to have a Material Adverse Effect since the date hereof;
(vii) in the case of an Advance for purposes of making a
Permitted Acquisition:
(A) a statement that based on the pro forma
combined financial statements required pursuant to Paragraph 6.8 hereof, there
would be no Default or Event of Default for the most-recent fiscal period for
which a Compliance Certificate has been delivered and for the remaining life of
the Loan; and
(B) a covenant to deliver such additional
documents as any Lender may reasonably request in accordance with Paragraph 5.12
hereof.
(b) (i) Upon receiving a request for an Advance in accordance
with subparagraph (a) above, Agent shall request by prompt notice to Lenders
that each Lender advance funds to Agent so that each Lender participates in the
requested Advance in the same percentage as it participates in the applicable
Commitment. In the case of a request for an Advance for purposes of making a
Permitted Acquisition, the Agent shall promptly provide copies of the Advance
Request Form and all attachments and information provided to the Lenders. Each
Lender shall advance its applicable percentage of the requested Advance to Agent
by delivering federal funds immediately available at Agent's offices prior to
twelve o'clock (12:00) noon on the date of the Advance. Subject to the
satisfaction of the terms and conditions hereof, Agent shall make the requested
Advance available to Borrowers by crediting such amount to the Company's deposit
account with Agent not later than two o'clock (2:00) p.m. on the day of the
requested Advance; provided, however, that in the event Agent does not receive a
Lender's share of the requested Advance by such time as provided above, Agent
shall not be obligated to advance such Lender's share.
(ii) Unless Agent shall have been notified by a Lender
prior to the date such Lender's share of any such Advance is to be made by such
Lender that such Lender does not intend to make its share of such requested
Advance available to Agent, Agent
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may assume that such Lender has made such proceeds available to Agent on such
date, and Agent may, in reliance upon such assumption (but shall not be
obligated to), make available to Borrowers a corresponding amount. If such
corresponding amount is not in fact made available to Agent by such Lender on
the date the Advance is made, Agent shall be entitled to recover such amount on
demand from such Lender (or, if such Lender fails to pay such amount forthwith
upon such demand, from Borrowers) together with interest thereon in respect of
each day during the period commencing on the date such amount was made available
to Borrowers and ending on (but excluding) the date Agent recovers such amount,
from such Lender, at a rate per annum equal to the effective rate for overnight
federal funds in New York as reported by the Federal Reserve Bank of New York
for such day (or, if such day is not a Business Day, for the next preceding
Business Day) and from Borrowers, at a rate per annum as provided in Paragraph
2.6(b)(i)(A) hereof.
(c) Each request for an Advance pursuant to this Paragraph 2.7
shall be irrevocable and binding on Borrowers. In the case of any Advance
bearing interest at the rate based upon the Adjusted Libor Rate, Borrowers shall
indemnify each Lender against any loss, cost or expense incurred by such Lender
as a result of any failure to fulfill on or before the date specified in such
request for an Advance the applicable conditions set forth in Section Four
hereof, including, without limitation, any loss, cost or expense incurred by
reason of the liquidation or redeployment of deposits or other funds acquired by
such Lender to fund the Advance to be made by such Lender when such Advance, as
a result of such failure, is not made on such date, as calculated by Agent in
accordance with Exhibit D attached hereto.
2.8. Adjustments to Commitment.
(a) Optional Reduction by Borrowers. Borrowers shall have the
right at any time and from time to time, upon three (3) Business Days' prior
written notice to Agent, to reduce the Commitment in whole or in part pro rata
among the Lenders in increments of $1,000,000, without penalty or premium,
provided that on the effective date of such reduction Borrowers shall make a
payment to the Agent for the account of the Lenders in an amount, if any, by
which the aggregate outstanding principal balance of the Loan exceeds the amount
of the Commitment, as then so reduced, together with accrued interest on the
amount so prepaid, and, if a Portion is paid prior to the last day of an
Interest Period, any amounts which may be due pursuant to Paragraph 2.10 hereof.
(b) Termination by Lenders. Pursuant to Paragraph 8.2 hereof,
Required Lenders shall have the right to terminate the Commitment at any time,
in their discretion and upon notice to Borrowers, upon the occurrence of any
Event of Default hereunder. Any payment following the occurrence of an Event of
Default, acceleration and demand for payment shall include the payment of any
amounts due pursuant to Paragraph 2.10 hereof.
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(c) Restoration Only with Consent. Any termination or
reduction of the Commitment shall be permanent, and the Commitment cannot
thereafter be restored or increased without the written consent of all Lenders.
2.9. Prepayment; Repayment. Upon one (1) Business Day's prior
written notice by Borrowers to Agent, Borrowers may prepay, in whole or in part,
the outstanding principal balance under the Loan at any time without premium or
penalty, provided that (i) any prepayment of the Loan shall be in an amount
equal to $250,000 or a multiple of $250,000 in excess thereof; (ii) prepayments
prior to the Termination Date shall not reduce the Commitment and may be
reborrowed in accordance with this Agreement, and payments applied to amounts
outstanding under the Loan after the Termination Date shall be applied in the
inverse order of the installments due under Paragraph 2.5(a) hereof; and (iii)
such prepayment shall include all accrued interest on the amount prepaid plus
any amounts which may be due pursuant to Paragraph 2.10 hereof.
2.10. Funding Costs and Loss of Earnings. In connection with any
prepayment or repayment of a Portion bearing interest at a rate based on an
Adjusted Libor Rate made on other than the last day of the applicable Interest
Period, whether such prepayment or repayment is voluntary, mandatory, by demand,
acceleration or otherwise, Borrowers shall pay to Lenders all funding costs and
loss of earnings which may arise in connection with such prepayment or
repayment, as calculated by Agent in accordance with Exhibit D attached hereto.
2.11. Payments. All payments of principal, interest, fees and other
amounts due hereunder, including any prepayments thereof, shall be made by
Borrowers to Agent for the accounts of the Lenders in immediately available
funds before twelve o'clock (12:00) noon on any Business Day at the principal
office of Agent set forth at the beginning of this Agreement. Borrowers hereby
authorize Agent to charge Borrowers' account with Agent for all payments of
principal, interest and fees due hereunder.
2.12. Commitment Fee. Borrowers shall pay to Agent, for the benefit
of the Lenders, a non-refundable commitment fee equal to three-eighths of one
percent (3/8%) per annum on the average unused portion of the Commitment as from
time to time in effect from the date hereof through the Termination Date, which
fee shall be payable at the offices of Agent for the account of the Lenders
quarterly in arrears on the first day of each June, September, December and
March, as billed by Agent, and on the Termination Date. Lenders shall share in
such commitment fee in the same percentages as they participate in the
Commitment as set forth on Schedule 2 attached hereto. The commitment fee shall
be calculated on the basis of the actual number of days elapsed over a year of
three hundred sixty (360) days.
Borrowers and Lenders hereby agree that for purposes of calculating
the commitment fee to be paid from time to time under
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this Paragraph 2.12, the unborrowed portion of the Commitment (on which such fee
is calculated) shall be reduced by the amount available to be drawn under
outstanding Letters of Credit and the amount of any unreimbursed draws on any
Letters of Credit.
The commitment fees provided in this Paragraph 2.12 shall apply from
and after the Effective Date, and Borrowers shall pay to CoreStates on the
Effective Date all accrued and unpaid commitment fees to and including the
Effective Date in accordance with the Existing Credit Agreement.
2.13. Closing Fee. Borrowers shall pay to Agent, for the benefit of
Lenders, on the Effective Date, a closing fee in the amount of three-quarters of
one percent (3/4%) of the aggregate amount of the Commitment, in which Lenders
shall share in the same percentages as they participate in the Commitment as set
forth on Schedule 2 attached hereto.
2.14. Fees to Agent. Borrowers shall pay to Agent the fees as agreed
upon between Borrowers and Agent pursuant to the Summary of Terms and Conditions
dated June 6, 1996 and accepted by Borrowers on June 7, 1996.
2.15. Regulatory Changes in Capital Requirements. If any Lender
shall have determined that the adoption or the effectiveness after the date
hereof of any law, rule, regulation or guideline regarding capital adequacy, or
any change in any of the foregoing or in the interpretation or administration of
any of the foregoing by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by such Lender (or any lending office or bank Affiliate of such Lender) or such
Lender's holding company with any request or directive regarding capital
adequacy (whether or not having the force of law) of any such authority, central
bank or comparable agency, has or would have the effect of reducing the rate of
return on such Lender's capital or on the capital of such Lender's bank
Affiliate or holding company (if any) as a consequence of this Agreement, the
Commitment or the Loan made by such Lender pursuant hereto to a level below that
which such Lender or its holding company or such bank Affiliate of such Lender
could have achieved, but for such adoption, effectiveness, change or compliance
(taking into consideration such Lender's policies and the policies of such
Lender's bank Affiliate or holding company with respect to capital adequacy) by
an amount deemed by such Lender to be material, then from time to time Borrowers
shall pay to such Lender on demand as set forth below such additional amount or
amounts as will compensate such Lender or its bank Affiliate or holding company
for any such reduction suffered together with interest on each such amount from
the date demanded until payment in full thereof at the rate provided in
Paragraph 2.6(b)(ii) hereof with respect to amounts not paid when due. Such
Lender will notify Borrowers of any event occurring that will entitle such
Lender to compensation pursuant to this Paragraph 2.15 as promptly as
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practicable within ninety (90) days after it obtains knowledge thereof.
A certificate of such Lender setting forth such amount or amounts as
shall be necessary to compensate such Lender or its holding company as specified
above shall be delivered to Borrowers and shall be conclusive absent manifest
error. Borrowers shall pay such Lender the amount shown as due on any such
certificate delivered by such Lender within ten (10) days after its receipt of
the same.
The Lenders shall determine the applicability of, and the amount due
under, this Paragraph 2.15 consistent with the manner in which they apply
similar provisions and calculate similar amounts payable to them by other
borrowers having in their credit agreements provisions comparable to this
Paragraph 2.15.
Failure on the part of any Lender to demand compensation for
increased costs or reduction in amounts received or receivable or reduction in
return on capital with respect to any period shall not constitute a waiver of
such Lender's right to demand compensation with respect to any other period.
2.16. Taxes. Any and all payments by Borrowers to the Lenders
hereunder shall be made free and clear of and without deduction for any and all
present or future taxes, levies, imposts, deductions, charges or withholdings,
and all liabilities with respect thereto, excluding in the case of each Lender,
(i) taxes assessed solely on the net income of such Lender, and (ii) taxes and
withholdings arising solely from a connection between such Lender and the
jurisdiction imposing such tax, other than a connection arising from the
activities of such Lender solely in connection with this Agreement (all such
non-excluded taxes, levies, imposts, deductions, charges, withholding and
liabilities being hereinafter referred to as "Taxes"). If any Taxes shall be
required by law to be paid or deducted from or in respect of any sum payable
hereunder or under any Note to any Lender, the sum payable by Borrowers shall be
increased as may be necessary so that after making all required payments and
deductions (including payments and deductions applicable to additional sums
payable under this Paragraph 2.16) such Lender receives an amount equal to the
sum it would have received had no such payments or deductions been made, but
shall be decreased to take into account any credit, deduction or offset
available in any other jurisdiction as a result of such payment.
SECTION 2A
LETTERS OF CREDIT
2A.1. Availability of Credits. Subject to the terms and conditions
set forth herein, Lenders shall from time to time prior to the Termination Date
participate in the issuance or renewal by
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Agent of Letters of Credit for the account of Borrowers on the following terms
and conditions:
(a) at the time of issuance or renewal of the Letter of
Credit, the unborrowed portion of the Commitment shall equal or exceed the sum
of the amount available to be drawn under such Letter of Credit and the amount
available to be drawn under and any unreimbursed draws under all other Letters
of Credit;
(b) at the time of issuance or renewal of the Letter of
Credit, the amount available to be drawn under such Letter of Credit and all
other Letters of Credit then outstanding hereunder plus any unreimbursed draws
under all other Letters of Credit shall not exceed, in the aggregate, the Letter
of Credit Sublimit;
(c) the final expiration date of each Letter of Credit shall
be on or before the earlier of (i) one year from the date of issuance thereof or
(ii) the Termination Date;
(d) there shall not exist at the time of issuance or renewal
of the Letter of Credit, and as a result thereof, any Default or Event of
Default; and
(e) each Letter of Credit issued or renewed under this Section
2A shall be required by a Borrower for purposes reasonably satisfactory to Agent
(it being agreed and understood that issuance of a one-year Letter of Credit in
the amount of $2,000,000 to secure obligations under leases of nursing home
facilities by HCPI to Subsidiaries of Transitional Financial Services, Inc. is a
purpose satisfactory to Agent).
Upon issuance of each Letter of Credit, each Lender shall have a
participating interest therein based on its percentage share of the Commitment
as set forth in Schedule 2 attached to the Credit Agreement.
On the Effective Date, all Letters of Credit outstanding under the
Existing Credit Agreement shall continue under and be governed by this
Agreement, the Letter of Credit Application delivered in connection with the
issuance thereof, and the other terms of such Letter of Credit. On the Effective
Date, Agent shall pay to each Lender their proportionate share of any LC Fees
received by Agent in accordance with the Existing Credit Agreement with respect
to Letters of Credit issued prior to the Effective Date and continuing in effect
after the Effective Date, and Borrowers shall pay any additional amount of fees
required to be paid with respect to such Letter of Credit under the terms of the
Agreement.
2A.2. Commitment Availability. The amount available under the
Commitment as from time to time in effect shall be reduced by the amount
available to be drawn under all outstanding Letters of Credit and unreimbursed
amounts of any draws under
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Letters of Credit. The amount by which the Commitment is so reduced shall not be
available for advances under Paragraph 2.7 hereof, except advances thereunder
which are made to reimburse Agent for draws under the Letters of Credit as
permitted pursuant to Paragraph 2A.4(b) hereof.
2A.3. Approval and Issuance.
(a) Borrowers shall provide Agent not less than three (3)
Business Days' prior written notice of each request for the issuance of a Letter
of Credit by delivery of a Letter of Credit Request Form in the form attached as
Exhibit B-1 hereto and Agent's Letter of Credit Application in the form attached
as Exhibit B-2 hereto. Each Letter of Credit Request Form submitted by Borrowers
to Agent requesting the issuance of a Letter of Credit shall be certified by the
chief executive or chief financial officer of the Company, on behalf of
Borrowers, and shall, in addition to the matters described in Paragraph 2.7(a)
hereof, list all Letters of Credit outstanding for the account of Borrowers at
that time and, for each Letter of Credit so listed, its face amount, outstanding
undrawn balance and expiration date. It shall be a condition to the issuance of
any Letter of Credit that Agent shall have received a Letter of Credit Request
Form and Letter of Credit Application as described above and that the conditions
set forth in Paragraph 4.3 shall be satisfied.
(b) Agent will promptly provide to Lenders written or
telephonic notification of Agent's receipt of the Letter of Credit Request Form
and the Letter of Credit Application which shall state (i) the amount of the
Letter of Credit requested and (ii) the expiration date of the requested Letter
of Credit.
2A.4. Obligations of the Borrowers.
(a) Borrowers agree to pay to Agent in connection with each
Letter of Credit issued hereunder: (i) immediately upon the demand of Agent on
behalf of all Lenders, the amount paid by each Lender with respect to such
Letter of Credit; (ii) immediately upon demand of Agent, the amount of any draft
presented purporting to be drawn under such Letter of Credit provided that the
draft and accompanying documents conform to the terms of the Letter of Credit
but subject to the terms of Paragraph 2A.7 (whether or not Agent has at such
time honored such draft) and any other amounts paid thereunder (it being
understood that Agent is not required to make demand upon or proceed against any
Lender or other party or to resort to any Collateral before obtaining payment
from Borrowers); (iii) on the date of issuance of each Letter of Credit and on
the effective date of any extension or renewal of any Letter of Credit a
non-refundable fee for the benefit of Lenders in accordance with each Lender's
percentage share of the Commitment as set forth on Schedule 2 attached hereto,
calculated on the outstanding face amount of such Letter of Credit at a rate per
annum equal to the Applicable Margin for a Libor Portion, as set forth in
Paragraph 2.6 hereof; (iv) on the date of issuance of each Letter of Credit
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and on the effective date of any renewal or extension of any Letter of Credit a
fee of one-eighth of one percent (0.00125) per annum on the outstanding face
amount of such Letter of Credit, payable to Agent for its own account; (v)
interest on any indebtedness outstanding with respect to such Letter of Credit,
whether for funds paid on drafts on such Letter of Credit, or otherwise (but
such indebtedness shall not include undrawn balances of such Letter of Credit
issued hereunder) at the rate applicable to Base Rate Portions under Paragraph
2.6(b)(i)(A) hereof from the date of payment by Agent (if not reimbursed by
Borrower on the same day) to the date one (1) Business Day after notice to
Borrowers of such payment, and thereafter at the rate applicable to Base Rate
Portions under Paragraph 2.6(b) hereof. Interest under the preceding clause (v)
shall be paid at the times and in the manner set forth in Paragraph 2.6 hereof,
and shall accrue on amounts paid on a Letter of Credit (if not reimbursed by
Borrower on the same day) from the date of payment by Agent, whether or not
demand is made, until such amounts are reimbursed by Borrowers whether before,
at or after demand.
(b) On or before the Termination Date, in the absence of a
Default or Event of Default, and subject to the provisions of Paragraph 2.7
hereof, Lenders hereby agree to advance funds to Borrowers under the Loan to
make the payments required under Paragraphs 2A.4(a)(i) and (ii) hereof. If any
payment by the Agent of a draft drawn under a Letter of Credit is for any reason
(including without limitation the occurrence or continuation of a Default or
Event of Default hereunder) not reimbursed prior to or on the date of such
payment, the amount of such payment shall thereupon be deemed for purposes
hereof an advance under Paragraph 2.7 hereof. Such reimbursement obligation
shall be repayable, prepayable, and otherwise subject to all the terms and
conditions thereof as if advanced by Lenders pursuant to Paragraph 2.7 hereof
(but without duplication).
2A.5. Payment by Lenders on Letters of Credit.
(a) With respect to each Letter of Credit, each Lender agrees
that it is irrevocably obligated to pay to Agent, for each such Letter of
Credit, such Lender's Pro Rata Share of each and every payment made or to be
made by Agent under such Letter of Credit (each such payment to be made, a "LOC
Contribution"). Each Lender's LOC Contribution shall be due from such Lender
immediately upon, and in any event no later than the same day as, receipt of
written notice (which may be sent by telex or telecopier) from Agent (except
that if such notice is received after 3:00 p.m. on any Business Day, payment may
be made on the following Business Day, together with interest equal to the
effective rate for overnight funds in New York as reported by the Federal
Reserve Bank of New York for such day (or, if such day is not a Business Day,
for the next preceding Business Day)) that (i) it has made a payment or (ii) a
draft has been presented purporting to be drawn on a Letter of Credit issued
hereunder. Such payment shall be made at Agent's offices in immediately
available federal funds.
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(b) The obligation of each Lender to make its LOC Contribution
hereunder is absolute, continuing and unconditional, and Agent shall not be
required first to make demand upon or proceed against Borrowers or any guarantor
or surety, or any others liable with respect to the applicable Letter of Credit
and shall not be required first to resort to any Collateral. LOC Contributions
shall be made without regard to termination of this Agreement or the Commitment,
the existence of an Event of Default or Default hereunder, the acceleration of
indebtedness hereunder or any other event or circumstance.
2A.6. Collateral Security.
(a) The indebtedness, liabilities and obligations of Borrowers
under this Section 2A, however created or incurred, whether now existing or
hereafter arising, due or to become due, absolute or contingent, direct or
indirect, secured or unsecured, are among the obligations secured by the
security interests, liens and encumbrances created by the Collateral Security
Documents delivered to Agent by Borrowers, and Agent and the Lenders are
entitled to the benefit of the collateral security granted thereunder with
respect to such indebtedness.
(b) Notwithstanding the payment in full of the Loan, the
termination of the Commitment or the occurrence of the Termination Date, the
Collateral shall continue to secure the indebtedness, liabilities and
obligations of Borrowers under this Section 2A until all Letters of Credit shall
have expired and all indebtedness, liabilities and obligations under this
Section 2A shall have been paid in full.
(c) On the termination of the Commitment or the occurrence of
an Event of Default, Required Lenders may require (and in the case of an Event
of Default occurring under Paragraph 8.1(k) it shall be required automatically)
that Borrowers deliver to Agent, cash or U.S. Treasury Bills with maturities of
not more than 90 days from the date of delivery (discounted in accordance with
customary banking practice to present value to determine amount) in an amount
equal at all times to one hundred ten percent (110%) of the outstanding undrawn
amount of all Letters of Credit, such cash or U.S. Treasury Bills and all
interest earned thereon to constitute cash collateral for all such Letters of
Credit. At such time as such collateral is required to be and has not been
deposited, Agent on behalf of Lenders shall be entitled to liquidate such of the
other collateral for the Loan (if any) as is necessary or appropriate in its
sole judgment so as to create such cash collateral.
(d) Any cash collateral deposited under subparagraph (c)
above, and all interest earned thereon, shall be held by Agent and invested and
reinvested at the expense and the written direction of Borrower, in U.S.
Treasury Bills with maturities of no more than ninety (90) days from the date of
investment.
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2A.7. General Terms of Credits. The following terms and conditions
apply with respect to each Letter of Credit (a "Credit") notwithstanding
anything to the contrary contained herein:
(a) Borrowers assume all risks of the acts or omissions of the
beneficiary of each Credit with respect to the use of the Credit or with respect
to the beneficiary's obligations to Borrowers. None of the Lenders nor any of
their officers or directors shall be liable or responsible for, and the Lenders
hereby agree to indemnify and hold Agent and any issuer of a Credit harmless
(except for the issuer's gross negligence or willful misconduct) with respect
to: (i) the use which may be made of the Credit or for any acts or omissions of
the beneficiary in connection therewith; (ii) the accuracy, truth, validity,
sufficiency or genuineness of documents, or of any endorsement thereon, even if
such documents should in fact prove to be in any or all respects false,
misleading, inaccurate, invalid, insufficient, fraudulent, or forged; (iii) the
payment by Agent against presentation of documents which do not comply with the
terms of the Credit, including failure of any documents to bear any reference or
adequate reference to a Credit; (iv) any other circumstances whatsoever in
making or failing to make payment under a Credit; or (v) any inaccuracy,
interruption, error or delay in transmission or delivery of correspondence or
documents by post, telegraph or otherwise. In furtherance and not in limitation
of the foregoing, Agent may accept documents that appear on their face to be in
order, without responsibility for further investigation, regardless of any
notice or information to the contrary.
(b) Notwithstanding the foregoing, with respect to any Credit,
Borrowers shall have a claim against Agent, and Agent shall be liable to
Borrowers, to the extent, but only to the extent, of any direct, as opposed to
indirect or consequential, damages suffered by Borrowers caused by the Agent's
willful misconduct or gross negligence.
(c) To the extent not inconsistent with this Agreement, the
Uniform Customs and Practices for Documentary Credits (1993 Revision),
International Chamber of Commerce Publication No. 500, are hereby made a part of
this Agreement with respect to obligations in connection with each Credit.
SECTION 3
REPRESENTATIONS AND WARRANTIES
Borrowers represent and warrant to Lenders that, except as set forth
on Exhibit E:
3.1. Organization and Good Standing. Each Borrower and each
Subsidiary is duly organized and existing and in good standing under the laws of
the state of its formation as identified on Schedule 1 attached hereto, has the
power and authority to carry on its business as now conducted, and is qualified
to do business in
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all other states in which the nature of its business or the ownership of its
properties requires such qualification except where the failure to so qualify
would not have a Material Adverse Effect.
3.2. Power and Authority; Validity of Agreement. Each Borrower has
the power and authority under the law of its state of incorporation and under
its articles or certificate of incorporation and by-laws to enter into and
perform the Loan Documents, to the extent it is a party thereto; all actions
(corporate or otherwise) necessary or appropriate for Borrowers' execution and
performance of the Loan Documents, to the extent it is a party thereto, have
been taken; and, upon their execution, the Loan Documents will constitute the
valid and binding obligations of Borrowers, to the extent each is a party
thereto, enforceable in accordance with their terms.
3.3. No Violation of Laws or Agreements. The entering into and
performance of the Loan Documents by the Borrowers will not: (a) violate any
provisions of any law or regulation, federal, state or local, applicable to a
Borrower, (b) violate any provision of the respective articles or certificates
of incorporation and by-laws of Borrowers or (c) result in any breach or
violation of, or constitute a default under, any agreement or instrument by
which any Borrower or their respective property are bound.
3.4. Health Care Facilities. Exhibit E hereto sets forth a
description of each Health Care Facility owned, leased or managed by Borrowers
or any Subsidiary, and for each Health Care Facility, sets forth the name and
location thereof, the applicable owner, lessor, lessee and manager, all Licenses
and contracts of such Health Care Facility with respect to which the default
thereunder by either party thereto or the failure to maintain in full force and
effect might reasonably be expected to have a Material Adverse Effect and the
expiration dates thereof, the number of licensed beds in each Health Care
Facility, the record owners of the real property on which such Health Care
Facility is situated, a description of all mortgages, deeds of trust or
assignments of rents and leases covering such Health Care Facility of which a
Borrower or any Subsidiary is mortgagor or grantor and a description of all real
property leases covering such Health Care Facility on which a Borrower or any
Subsidiary is either lessor or lessee. Each Health Care Facility is certified as
a provider of Medicare and Medicaid services. Each real property lease for a
Health Care Facility on which a Borrower is a lessee is assignable to and
assumable by Lenders.
3.5. Material Contracts. No Borrower or any Subsidiary is a party to
or in any manner obligated under any contracts under which a default by either
party might reasonably be expected to have a Material Adverse Effect, and, to
the Knowledge of Borrowers, there exists no default under any of such contracts.
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3.6. Compliance. Each Borrower, each Subsidiary and each Health Care
Facility is in compliance with all applicable laws and regulations, federal,
state and local (including without limitation those administered by the Local
Authorities and HCFA), material to the conduct of its business and operations
except to the extent that non-compliance would not reasonably be expected to
have a Material Adverse Effect; each Borrower, each Subsidiary and each Health
Care Facility possesses all required Licenses, except to the extent that failure
to possess any such License would not reasonably be expected to have a Material
Adverse Effect; and such Licenses are valid, binding, enforceable and subsisting
without any defaults thereunder or enforceable adverse limitations thereon and
are not subject to any proceedings or claims opposing the issuance, development
or use thereof or contesting the validity thereof except to the extent such
defaults, limitations or proceedings would not reasonably be expected to, in the
aggregate, have a Material Adverse Effect; and no approvals, waivers or
consents, governmental (federal, state or local) or non-governmental, under the
terms of contracts or otherwise, are required by reason of or in connection with
Borrowers' execution and performance of the Loan Documents.
3.7. Litigation. There are no actions, suits, proceedings or claims
which are pending or, to the Knowledge of Borrowers, threatened against any
Borrower or any Subsidiary which, if adversely resolved, might reasonably be
expected to have a Material Adverse Effect.
3.8. Title to Assets. Each Borrower and each Subsidiary has good and
marketable title to all of its assets free and clear of any liens and
encumbrances, except the security interests granted to the Lenders under the
Collateral Security Documents and except as permitted pursuant to Paragraph 6.4
hereof, and all such assets are in substantially good order and repair (normal
wear and tear excepted) and covered by the insurance required under Paragraph
5.8 hereof.
3.9. Corporate Organization; Capital Stock. The Subsidiaries of the
Company are completely and accurately set forth on Exhibit E attached hereto.
The number of shares and classes of the capital stock or partnership interests
of each Borrower and each Subsidiary and the ownership thereof as of the date of
execution of this Agreement are accurately set forth on Exhibit E attached
hereto; all such shares or interests are validly existing, fully paid and
non-assessable, and the issuance and sale thereof are in compliance with all
applicable federal and state securities and other applicable laws; and the
ownership thereof is free and clear of any contractual restrictions, liens and
encumbrances, except (i) the pledge to the Lenders under the Pledge Agreements
and Security Agreements and (ii) the restrictions pursuant to the Shareholders
Agreement dated as of December 31, 1995 by and among the Company, J. Stephen
Eaton, South Atlantic Venture Fund II, Limited Partnership, South Atlantic
Venture Fund III, Limited Partnership, Welsh, Carson, Anderson & Stowe VI, L.P.,
WCAS Capital
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Partners II, L.P., WCAS Health Care Partners, L.P., CID Equity Capital III, L.P.
and Randall Bufford.
3.10. Accuracy of Information; Full Disclosure.
(a) All information furnished to Lenders concerning the
financial condition of Borrowers, and the Health Care Facilities, including the
audited annual financial statements of the Company and its Consolidated
Subsidiaries dated December 31, 1995, copies of which have been furnished to
Lenders, has been prepared in accordance with GAAP as applicable and fairly
presents the financial condition of Borrowers as of the dates and for the
periods covered and discloses all liabilities of Borrowers required to be
disclosed in accordance with GAAP and there has been no change in the financial
condition, business, assets or prospects of Borrowers from the date of such
statements to the date hereof except changes which would not, in the aggregate,
reasonably be expected to have a Material Adverse Effect; and
(b) All financial statements and other documents furnished by
Borrowers to Lenders in connection with the Loan Documents do not and will not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein not misleading.
Borrowers have disclosed to Lenders in writing any and all facts which might
reasonably be expected to have a Material Adverse Effect, or which could
materially affect Borrowers' ability to perform its obligations under the Loan
Documents.
3.11. Taxes and Assessments.
(a) Each Borrower and each Subsidiary has filed all required
tax returns or has filed for extensions of time for the filing thereof, and has
paid all applicable federal, state and local taxes, other than taxes not yet due
or which may be paid hereafter without penalty; provided that no such taxes
shall be required to be paid if they are being contested in good faith by
appropriate proceedings and are covered by appropriate reserves maintained in
accordance with GAAP.
(b) To the Knowledge of Borrowers there is no material tax
deficiency or additional assessment in connection therewith not provided for in
the financial statements required hereunder.
(c) The net operating losses of the WelCare Group and the THS
Group have been calculated using a reasonable method and they have been reported
on all federal, state or local tax returns. Exhibit E attached hereto sets forth
the amount as of October 30, 1996 of (i) the consolidated net operating loss of
each of WelCare Group and THS Group and the date of expiration thereof, and (ii)
any limitations on the use of such losses in the future including the
limitations imposed, if any, by the operation of Sections 269, 382, 383, 384 and
1502 of the Code and any regulation
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promulgated thereunder. The projections delivered to Lenders pursuant to
Paragraph 4.1(k) hereof have taken into account and reflect all such limitations
on the use of such losses in the periods covered by such projections.
3.12. Indebtedness. Borrowers and the Subsidiaries have no presently
outstanding Indebtedness or obligations including contingent obligations and
obligations under leases of property from others, except Indebtedness and
obligations permitted by Paragraph 6.1 hereof.
3.13. Management Agreements. No Borrower is a party to any
management agreement for the provision of services to such Borrower, except that
a Borrower provides management services to certain of the Borrowers as set forth
on Exhibit E attached hereto.
3.14. Investments. The Company has no Subsidiaries other than those
identified on Exhibit E attached hereto; and no Borrower has any investments in
or loans to any other individuals or business entities, other than Permitted
Investments, except as described in Exhibit E hereto.
3.15. ERISA. Each Plan is in compliance in all material respects
with all applicable provisions of ERISA, the Code and the regulations
promulgated thereunder; and
(a) No Borrower or any ERISA Affiliate maintains or
contributes to or has maintained or contributed to any multiemployer plan (as
defined in section 4001 of ERISA) under which any Borrower or any ERISA
Affiliate could have any withdrawal liability which might reasonably be expected
to have a Material Adverse Effect;
(b) No Borrower or any ERISA Affiliate, sponsors or maintains
any Plan under which there is an accumulated funding deficiency within the
meaning of ss.412 of the Code, whether or not waived which might reasonably be
expected to have a Material Adverse Effect;
(c) The aggregate liability for accrued benefits and all
ancillary benefits (in each case determined as of the date hereof) under each
Plan that is a defined benefit pension plan (determined on the basis of the
actuarial assumptions prescribed for valuing benefits under terminating defined
benefit plan under Title IV of ERISA) does not exceed the aggregate fair market
value of the assets (determined as of the date of the latest annual report on
Form 5500) under each such defined benefit pension Plan by an amount which might
reasonably be expected to have a Material Adverse Effect;
(d) The aggregate liability of each Borrower and each ERISA
Affiliate arising out of or relating to a failure of any Plan to comply with the
provisions of ERISA or the Code, would not reasonably be expected to have a
Material Adverse Effect; and
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(e) There does not exist any unfunded liability (determined on
the basis of actuarial assumptions utilized by the actuary for the Plan in
preparing the most recent Annual Report) of any Borrower or ERISA Affiliate
under any Plan providing post-retirement life or health benefits.
3.16. No Extension of Credit for Securities. No Borrower is now, or
at any time has it been engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of purchasing or
carrying any securities. The proceeds of the Loan shall be used by Borrowers as
set forth in Paragraph 2.4 hereof and none of the proceeds of the Loan will be
used, directly or indirectly, to purchase or carry margin stock within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System.
3.17. Perfection of Security Interests. Upon the filing of financing
statements in the jurisdictions identified in Exhibit I attached hereto, and
upon delivery of possession to Agent of stock certificates representing all the
outstanding shares of capital stock pledged pursuant to the Pledge Agreements,
no further action, including any filing or recording of any document, is
necessary in order to establish, perfect and maintain Lenders' first priority
security interests (except to the extent the same are subject to such liens and
security interests as are permitted by Paragraph 6.4) in the Collateral as
described in the Security Agreements, and the shares of stock described in the
Pledge Agreements, respectively, except for the periodic filing of continuation
statements with respect to financing statements filed under the Uniform
Commercial Code of the applicable jurisdiction. In addition, Agent may be
required to comply with the Social Security Act (42 U.S.C. 1395g(c)) in order to
enforce its security interest in Collateral governed thereby.
3.18. Perfection of Liens. When filed in the counties and states
where the related real property is located, the Mortgages, the Leasehold
Assignments and the Assignments of Rents will create liens on the real property
interests described in the Mortgages and Leasehold Assignments and on the rights
to receive payments for the use of the real property described in the
Assignments of Rents, subject to no prior liens other than those disclosed in
the title reports delivered pursuant thereto, and no further action, including
the filing or recording of any document, is necessary to maintain such lien.
3.19. Hazardous Substances.
To the Knowledge of Borrowers:
(a) Each Borrower and each Subsidiary has received all permits
and filed all notifications necessary to carry on its respective business(es)
under, and is in compliance in all respects with, all Environmental Control
Statutes.
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(b) No Borrower nor any Subsidiary has given any written or
oral notice to the EPA or any state or local governmental agency with
jurisdiction under any Environmental Control Statute with regard to any actual
or imminently threatened "removal," "spill," "release" or "discharge" of
Hazardous Substances on properties owned or leased by any Borrower or in
connection with the conduct of its business and operations. The terms "removal,"
"spill," "release" and "discharge," as used in this Paragraph 3.19, have the
meanings given to them in the Environmental Control Statutes.
(c) No Borrower nor any Subsidiary has received written or
oral notice that it is potentially responsible for clean-up, remediation, costs
of clean-up or remediation, fines or penalties with respect to any actual,
alleged or imminently threatened "spill," "release" or "discharge" of Hazardous
Substances pursuant to any Environmental Control Statute.
3.20. Solvency. To the Knowledge of Borrowers, the Borrowers are, on
a consolidated basis, and after receipt and application of the proceeds of each
Advance under the Commitment will be, solvent such that (i) the fair value of
their assets on a consolidated basis (including, without limitation, the fair
salable value of goodwill and other intangible property) is greater than the
total amount of their liabilities on a consolidated basis including without
limitation, contingent liabilities, (ii) the present fair salable value of their
assets on a consolidated basis (including without limitation the fair salable
value of the goodwill and other intangible property) is not less than the amount
that will be required to pay the probable liability on their debts on a
consolidated basis as they become absolute and matured, and (iii) they are able
to realize upon their assets and pay their debts and other liabilities,
contingent obligations and other commitments as they mature in the normal course
of business. The Borrowers (i) do not intend to, and do not believe that they
will, incur debts or liabilities on a consolidated basis beyond their ability to
pay as such debts and liabilities mature, and (ii) are not engaged in a business
or transaction, or about to engage in a business or transaction, for which their
property on a consolidated basis would constitute unreasonably small capital
after giving due consideration to the prevailing practice and industry in which
they are engaged. For purposes of this Paragraph 3.20, in computing the amount
of contingent liabilities at any time, it is intended that Borrowers shall
compute such liabilities at the amount which, in light of all the facts and
circumstances existing at such time, represents the amount that reasonably can
be expected to become an actual matured liability. For the purposes of the
calculations in this Paragraph 3.20, Borrowers shall not include in their
liabilities any contingent liabilities that arise from the Funds or the
Preferred Stock.
3.21. Employee Controversies. There are no material controversies
pending or, to the Knowledge of Borrowers, threatened or anticipated between any
Borrower or any Subsidiary and any of
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its respective employees, and there are no labor disputes, grievances,
arbitration proceedings or any strikes, work stoppages or slowdowns pending, or
to the Knowledge of Borrowers, threatened between any Borrower or any Subsidiary
and its respective employees and representatives which could impair the ability
of Borrowers to perform their obligations under the Loan Documents, or which
might reasonably be expected to have a Material Adverse Effect.
3.22. SouthTrust Financings.
(a) Set forth on Exhibit E is a complete and correct listing
of the Health Care Facilities financed by the SouthTrust Financing, the original
principal amount of indebtedness under the SouthTrust Financing with respect to
such Health Care Facility, and the outstanding principal amount of the
SouthTrust Financing with respect to such Health Care Facility as of the date of
this Agreement.
(b) The documents executed by or otherwise binding upon any
Borrower or any Subsidiary in connection with each SouthTrust Financing with EBT
are: (i) an Indemnity Agreement by the Company and CHPC in favor of EBT; (ii) an
Assignment and Security Agreement by CHPC in favor of EBT as collateral security
for CHPC's obligations under the lease with respect to such Health Care
Facility; (iii) a Lease Guaranty Agreement by the Company in favor of EBT; (iv)
an Amended and Restated Lease Agreement between CHPC and EBT with respect to the
applicable Health Care Facility; (v) a Subordination, Attornment and
Non-Disturbance Agreement among EBT, CHPC and SouthTrust; and (vi) a
Subordination Agreement among CHPC, CHMC and SouthTrust, subordinating CHMC's
rights to payment from CHPC under the management agreement to CHPC's obligations
to SouthTrust.
(c) Set forth on Exhibit E is a complete and correct listing
of the documents entered into in connection with the SouthTrust Financings with
House Investment I and House Investments II, respectively. The documents
executed by or otherwise binding upon any Borrower or any Subsidiary in
connection with the SouthTrust Financing with House Investments I and House
Investments II, respectively, are: (A) a Guaranty Agreement by Transitional
Health Services, Inc. in favor of SouthTrust, guaranteeing payment of the
obligations of House Investments I and House Investments II, respectively, to
SouthTrust, (B) an Indemnity Agreement among Transitional Health Services, Inc.,
House Investments I or House Investments II (as applicable) and SouthTrust, (C)
an Assignment and Security Agreement and Agreement Regarding Financial Covenants
between Transitional Health Partners and SouthTrust, and (D) a Subordination,
Attornment and Non- Disturbance Agreement among House Investments I or House
Investments II (as applicable), Transitional Health Partners and SouthTrust.
(d) Set forth on Exhibit E is a complete and correct listing
of the documents entered into in connection with
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the SouthTrust Financing with Transitional Health Partners relating to the Cary
Health and Rehabilitation Center.
(e) Each document enumerated in subparagraph (b)(i) through
(vi) is consistent in all material respects with respect to each SouthTrust
Financing with EBT, except for such changes as reflect the name, address and
legal description of the particular Health Care Facility to which such document
relates, the interest rate and maturity of the related Indebtedness, and the
identification of the applicable lease and management agreement with respect to
such Health Care Facility, and, in the case of each lease, the term of such
lease.
3.23. Other Financings.
(a) Set forth on Exhibit E is a complete and correct listing
of the documents entered into in connection with each of the following
financings:
(i) financing with Oak Grove of Rutherford Limited
Partners with respect to Oak Grove Healthcare Center;
(ii) financing with Transitional Health Partners with
respect to Riverview of Ann Arbor;
(iii) financing with Parkview Partnership with respect
to Parkview Manor Nursing Facility;
(iv) financing with Montclair Medical Investors, L.P.
with respect to Montclair Nursing Center; and
(v) financing with Odell Investors I, L.P. with respect
to THS of Kannapolis.
(b) Except for the SouthTrust Financings described in
Paragraph 3.22(b) and (c) hereof, and the financing with respect to THS of
Kannapolis referred to in clause (v) of 3.23(a), no Borrower has any liability
or obligation with respect to any indebtedness of a lessor of a Health Care
Facility (other than a lessor that is a Borrower), and no creditor of any such
lessor has any security interest in or other right or claim to any assets of any
Borrower.
3.24. CGC. CGC holds no assets except for certain claims and
receivables and is not engaged in any business activity; and there does not
exist, by virtue of statute, common law, contract or otherwise, any liability
of, or any activity or condition relating to, CGC, including, without
limitation, with respect to any environmental condition, taxes, employee benefit
plan, program or statutory obligation, tort claim or contract dispute, which may
survive the liquidation of CGC (whether by operation of law, express assumption
or otherwise), except for those liabilities which do not in the aggregate exceed
Ten Thousand Dollars ($10,000).
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SECTION 4
CONDITIONS
4.1. Effectiveness of Agreement; First Advance. The effectiveness of
this Agreement and the obligation of Lenders to make the first Advance hereunder
shall be subject to satisfaction of each of the following conditions, in each
case in form and substance satisfactory to Lenders:
(a) Promissory Notes. The Notes duly executed by Borrowers and
delivered to Lenders.
(b) Security Agreement. An amended and restated Security
Agreement executed by Borrowers in favor of Agent on behalf of the Lenders
granting a first priority security interest, subject only to security interests
permitted pursuant to Paragraph 6.4 hereof, in all of Borrowers' assets (now
owned or hereafter acquired) as security for the Loan; together with financing
statements and amendments to financing statements, landlord consents and
waivers, mortgagee consents and waivers, consents to the assignment of
management contracts of Borrowers and evidence of any other recordations
required by applicable law or by Lenders to perfect or to continue the perfected
status of such security interests.
(c) Pledge Agreements. Pledge Agreements (or amendments and
confirmations of previously delivered Pledge Agreements, as appropriate) in
favor of Agent on behalf of the Lenders granting a pledge of all of the
outstanding Shares of each Borrower other than the Company as security for the
Loan, together with the stock certificates therefor, stock powers executed in
blank, and copies of all shareholder agreements relating thereto.
(d) Assignments of Partnership Interests. Assignments (or
amendments and confirmations of previously delivered assignments, as
appropriate) of all interests of Borrowers as general partner or as a limited
partner in any partnership other than the Funds, together with any certificates
representing such partnership interests.
(e) Note Pledges. Confirmation of the Note Pledges executed by
the Company in favor of Agent for the benefit of Lenders pursuant to the
Existing Credit Agreement.
(f) Mortgage. Confirmations of each Mortgage executed in favor
of Agent for the benefit of Lenders pursuant to the Existing Credit Agreement in
recordable form, together with an updated title policy and opinion of counsel.
(g) Insurance. Certificates of insurance naming Agent on
behalf of Lenders as an additional insured on all liability policies; and
evidence of loss payee and mortgagee endorsements (to the extent Agent is a
mortgagee) in favor of
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Lenders for policies covering Collateral, with respect to all of the Borrowers'
fire, casualty, and other insurance covering its respective property and
business.
(h) Licenses, Etc. If requested by Agent, copies of all
Licenses and contracts which are material in accordance with Paragraphs 3.4 and
3.5 hereof, respectively, including without limitation, those issued by the
Local Authorities, all of which shall be owned by a Borrower and be otherwise
reasonably satisfactory to Lenders.
(i) Leasehold Assignments. Confirmations of the Leasehold
Assignments executed in favor of Agent on behalf of Lenders pursuant to the
Existing Agreement, assigning all rights of Borrowers under certain leases, duly
executed by the applicable Borrowers.
(j) Searches. Uniform Commercial Code, tax and judgment lien
searches dated as of a recent date against each Borrower in those offices and
jurisdictions as the Lenders shall reasonably request.
(k) Financial Information. (i) Audited financial statements
for the Company and its Consolidated Subsidiaries as of and for the periods
ended December 31, 1995; and (ii) cash flow projections for the Company and its
Consolidated Subsidiaries on consolidated and consolidating bases, for the five
(5) fiscal years ending December 31, 2002, including quarterly information for
the first two (2) such years, satisfactory to Agent and Lenders and certified as
reasonable by the Company (such cash flow projections shall take into account
the transactions contemplated by this Agreement and shall identify the sources
of cash that the Company intends to use to meet its cash needs during such five
year period).
(l) Opinions of Borrowers' Counsel. An opinion letter from
counsel for Borrowers covering such matters as reasonably requested by Lenders.
(m) Fees. Payment of fees required pursuant to Paragraph 2.13
hereof, and of the Agent's reasonable expenses, costs and fees in connection
with the preparation and entering into of this Agreement and the other Loan
Documents.
(n) Corporate Documents. A certificate of the secretary or
assistant secretary of each Borrower attaching: (i) articles or certificate of
incorporation; (ii) by-laws; (iii) resolutions of the Board of Directors
authorizing the execution and full performance of the Loan Documents; (iv) an
incumbency certificate setting forth the officers thereof and their specimen
signatures; and (v) Certificates of Good Standing dated as of a recent date as
to such Borrower in its state of incorporation and in all states in which it is
qualified to do business.
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(o) SouthTrust Intercreditor Agreements.
(i) An intercreditor agreement among the Agent on behalf
of the Lenders, SouthTrust, EBT and CHPC;
(ii) An intercreditor agreement among the Agent on
behalf of the Lenders, LaSalle National Bank, as Trustee under that certain
Pooling and Servicing Agreement dated as of December 1, 1995 for RMF Commercial
Mortgage Pass-Through Certificates (Series 1995-1), EBT and CHPC;
(iii) An intercreditor agreement among the Agent on
behalf of Lenders, SouthTrust, Centennial/Ashton Properties Corporation, and
Ashton Woods Limited Partnership;
(iv) An intercreditor agreement among Agent on behalf of
Lenders, SouthTrust and Transitional Health Partners with respect to the Cary
Health and Rehabilitation Center;
in each case in form and substance satisfactory to Lenders and together with
such other documentation as Lenders shall reasonably require.
(p) NationsBanc Intercreditor Agreement. An intercreditor
agreement among Agent on behalf of Lenders, NationsBanc Mortgage Capital Corp.
or its successor, and Parkview Partnership with respect to Parkview Manor
Nursing Facility.
(q) HCPI Intercreditor Agreement. Confirmation of the
intercreditor arrangements with HCPI in connection with the NC Health Care Loan
and the NCHC Loan.
(r) Agreement of Preferred Stockholders. Confirmation of the
acknowledgment and agreement of all holders of the South Atlantic Preferred
Stock and the Welsh Carson Preferred Stock to the limitations on dividends and
redemptions with respect to such Preferred Stock.
(s) Subordination of Transitional Subordinated Notes.
(i) A Subordination Agreement subordinating the
Transitional Subordinated Notes and the guaranty of the Transitional
Subordinated Notes by the Company to the Loan, executed by each holder of the
Transitional Subordinated Notes; and
(ii) Amendment of the Transitional Subordinated Notes to
reflect the subordination of such Notes as provided herein.
(t) Agreement of Lessors. Confirmation of the agreements of
each lessor under any lease assigned under the Leasehold Assignments, pursuant
to which each such lessor: (i) consents to such Leasehold Assignment; (ii)
waives any
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landlord's liens with respect to assets of Borrowers; (iii) agrees to provide
notice of any default under such lease, and provide a grace period during which
such default may be cured prior to eviction; (iv) agrees to the transfer of all
rights under the assigned lease upon the exercise of remedies under the
Leasehold Assignment, provided all defaults are cured under such lease, and (v)
acknowledges that there are no defaults under such leases as of the date
thereof.
(u) Agreement of Owners. Confirmation of the agreements by
each owner of a Health Care Facility operated by Borrower under a management
agreement, pursuant to which each such owner: (i) consents to the assignment of
such management agreement pursuant to the Security Agreement; and (ii)
acknowledges that there are no defaults under such management agreements as of
the date thereof; provided, however, that Borrowers shall not be required to
obtain the consent referred to in clause (i) with respect to those Health Care
Facilities which are owned by partnerships in which Jere M. Ervin is the general
partner or a principal of the corporate general partner.
(v) Heller Pay-Off. A pay-off letter from Heller Financial,
duly executed UCC termination statements with respect to all financing
statements filed in favor of such lender, and terminations of all other
collateral documents in favor of such lender.
(w) Closing Compliance Certificates. A Compliance Certificate
as of the most recent fiscal quarter end for which a Compliance Certificate
would be required under the terms hereof and a pro forma compliance certificate
reflecting the effects of any acquisitions since such date.
(x) Initial Advance Request. A completed Advance Request Form
with respect to the initial Advance to be made hereunder as of the Effective
Date.
(y) Other Documents. Such additional documents as Lenders
reasonably may request.
4.2. Subsequent Advances. The obligation of Agent or Lenders to make
additional Advances under the Commitment or issue Letters of Credit shall be
subject to their receipt of a completed Advance Request Form or Letter of Credit
Request Form and Letter of Credit Application, as applicable, and in the case of
an Advance for purposes of making a Permitted Acquisition, receipt of the
required information, confirmations and documents.
4.3. Additional Condition to Lenders' Obligations. It shall be a
condition to Agent's or Lenders' obligation hereunder to make any Advance or
issue any Letter of Credit that the representations and warranties set forth
herein and in the Collateral Security Documents shall be true and correct in all
material respects as if made on the date of such Advance, that no
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Event of Default or Default shall have occurred and be continuing on the date of
such Advance or be caused by such Advance, that all fees required pursuant to
Paragraphs 2.12, 2.13 and 2.14 hereof have been paid, and there shall have been
no Material Adverse Effect or event or circumstance which might reasonably be
expected to cause a Material Adverse Effect.
SECTION 5
AFFIRMATIVE COVENANTS
Borrowers covenant and agree that so long as the Commitment of
Lenders to Borrowers or any indebtedness of Borrowers to Lenders is outstanding
each Borrower will and will cause each of its Subsidiaries to:
5.1. Existence and Good Standing. Preserve and maintain its
existence as a corporation and its good standing in all states in which it
conducts business and the validity of all its licenses, permits, certificates of
need or other grants of authority required in the conduct of its business.
5.2. Interim Financial Information. Furnish Lenders within
forty-five (45) days of the end of each fiscal quarter hereafter with unaudited
quarterly consolidated and consolidating financial statements of the Company and
its Consolidated Subsidiaries, in form and substance as reasonably required by
Lenders, including a balance sheet, a consolidated statement of income and a
statement of cash flows, and a certificate signed by the chief financial or
chief executive officer of Borrowers stating that the financial statements
fairly present the financial condition of the Company and its Consolidated
Subsidiaries as of the date and for the periods covered and were prepared in
accordance with GAAP consistently applied.
5.3. Annual Financial Statements. Furnish to Lenders within ninety
(90) days after the close of each fiscal year audited consolidated and
consolidating annual financial statements of the Company and its Consolidated
Subsidiaries, including the financial statements and information required under
Paragraph 5.2 hereof, which consolidated financial statements shall be prepared
in accordance with GAAP and shall be certified without qualification by Coopers
& Lybrand L.L.P. or another independent certified public accounting firm
satisfactory to Lenders, and cause Lenders to be furnished, within ninety (90)
days after the close of each fiscal year, with a report prepared in accordance
with Statement on Auditing Standards No. 62 "Special Reports," or superseding
pronouncements, issued by the Auditing Standards Board of the American Institute
of Certified Public Accountants, providing that nothing has come to the
attention of such accountants which would lead them to believe that there is a
Default or Event of Default under this Agreement.
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5.4. Quarterly Compliance Certification. Furnish to Lenders at the
time of delivery of the quarterly and annual financial statements pursuant to
Paragraphs 5.2 and 5.3 hereof a certificate of the chief financial officer of
the Company in the form of Exhibit F attached hereto showing the calculation of
the covenants set forth in Paragraphs 5.15 through 5.20 hereof, calculation of
the Applicable Margin as of the date of such financial statements and
calculation of the Borrowing Base as of the date of such financial statements,
together with (a) a schedule of operating leases, indicating the imputed
outstanding principal balance thereunder as of the end of the fiscal period to
which such Compliance Certificate relates, (b) financial statements for the
Existing Operations and the Acquired Operations, respectively, including pro
forma historical financial statements for any Acquired Operations, as
applicable, and (c) pro forma historical combined financial statements including
any Permitted Acquisitions, as applicable.
5.5. Receivables Aging Report. Furnish to Lenders no later than
forty-five (45) days after the end of each fiscal quarter an accounts receivable
aging report as of the last day of such quarter.
5.6. Additional Information. Deliver to Lenders, (i) promptly upon
transmission thereof, copies of all such financial statements, proxy statements,
notices and reports as it shall send to its stockholders, copies of all
registration statements (without exhibits), and all annual, quarterly or other
reports which it files with the Securities and Exchange Commission (or any
governmental body or agency succeeding to the functions of the Securities and
Exchange Commission) including, without limitation, Form 10-Q and Form 10-K; and
(ii) within ten (10) Business Days of receipt copies of all auditors' annual
management letters delivered to any Borrower.
5.7. Books and Records. Keep and maintain satisfactory and adequate
books and records of account in accordance with GAAP and make or cause the same
to be made available to Lenders, or their respective agents, during normal
business hours at any reasonable time upon reasonable notice for inspection and
to make extracts thereof and permit any Lender to discuss the contents of same
with senior officers of Borrowers and also with outside auditors and accountants
of Borrowers. With the consent of Borrowers, which consent will not be
unreasonably withheld, any Lender may also meet with other officers and
employees of Borrowers.
5.8. Maintenance of Assets; Insurance. Keep and maintain all of its
property and assets in good order and repair, normal wear and tear excepted, and
adequately covered by insurance with reputable and financially sound insurance
companies against such hazards and in such amounts and with such deductibles and
retentions as are customary in the industry, under policies requiring the
insurer to furnish reasonable notice to Agent and
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opportunity to cure any non-payment of premiums prior to termination of
coverage; and, upon request of Agent no more than twice a year, furnish Agent
with certificates of such insurance and cause Agent, as agent for Lenders, to be
named as additional insured and, in the case of policies covering Collateral,
the loss payee and mortgagee thereof, as their interests may appear under a
standard mortgagee clause.
5.9. Notifications.
(a) Promptly notify Agent in writing of (i) the institution of
any litigation, the commencement of any administrative proceedings, the
happening of any event or the assertion or threat of any claim which, if
resolved in favor of a party adverse to a Borrower, might reasonably be expected
to have a Material Adverse Effect, or would result in the occurrence of any
Event of Default or Default hereunder; (ii) the occurrence of a Default or an
Event of Default; and (iii) the opening of any new place of business, the
entering into of any new contract for the operation or management of any
additional Health Care Facility, or the relocation of any Collateral to a
location at which Lenders do not have a perfected security interest; and
(b) With respect to all matters previously disclosed to
Lenders pursuant to Paragraphs 3.19 or 5.13 hereof, no later than forty-five
(45) days after the last day of each fiscal quarter, deliver to Agent a report
describing any material information or change in circumstances regarding actual
or alleged liability of Borrowers and the quantification thereof.
5.10. Taxes. Pay and discharge all taxes, assessments or other
governmental charges or levies imposed on it or any of its property or assets
prior to the date on which any penalty for non-payment or late payment is
incurred, unless the same are (i) currently being contested in good faith by
appropriate proceedings and (ii) are covered by appropriate reserves maintained
in accordance with GAAP.
5.11. Costs and Expenses. Pay or reimburse Agent for all reasonable
out-of-pocket costs and expenses (including but not limited to reasonable
attorneys' fees and disbursements and costs of Agent's periodic audits) Agent
may pay or incur in connection with the preparation, review, execution, filing
and recording of this Agreement and the other Loan Documents and all waivers,
consents and amendments in connection therewith and all other documentation
related thereto, the making of the Loan hereunder, and the collection and
enforcement of the Loan, including without limitation, any reasonable fees and
disbursements incurred in defense of or to retain amounts of principal, interest
or fees paid; and pay or reimburse each Lender for all reasonable out-of-pocket
costs and expenses (including, but not limited to, reasonable attorneys' fees
and expenses) in connection with the collection or enforcement of the Loan
following a Default or an Event of Default or maturity, including without
limitation any
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reasonable fees and disbursements incurred in defense of or to retain amounts of
principal, interest or fees paid. All obligations provided for in this Paragraph
5.11 shall survive any termination of this Agreement or the Commitment and the
repayment of the Loan.
5.12. Additional Collateral Documentation.
(a) Execute, deliver and record, at any time upon Agent's
request and in form and substance satisfactory to Lenders, any of the following
instruments in favor of Agent on behalf of Lenders as additional Collateral for
the Loan: (i) mortgages, leasehold mortgages and/or assignments of rents and
leases on any real property of Borrowers, (ii) assignments of leases of real or
personal property leased by Borrowers from or to others, (iii) to the extent
permitted by applicable law, specific assignments by Borrowers of easements,
Licenses or like grants of authority or service agreements, (iv) assignments of
partnership interests, including without limitation general partnership
interests in the Funds in the event that the owner of any such general
partnership interests shall continue to be a Subsidiary of the Company after
December 31, 1996, and (vi) any other like assignments or agreements
specifically covering any of Borrowers' properties or assets.
(b) If required or applicable to any collateral, give,
execute, deliver and file in the appropriate governmental offices any instrument
necessary to perfect a security interest in accounts and the proceeds thereof
under the provisions of the Federal Assignment of Claims Act.
(c) In connection with (1) any Permitted Acquisition, whether
or not financed with an Advance hereunder, at the time of consummation of the
Permitted Acquisition or (2) the creation of any Subsidiary, deliver to Agent,
for the benefit of Lenders: (i) joinders to this Agreement and the Notes by any
new Subsidiary formed or acquired in connection therewith, other than the Funds;
(ii) a pledge of all Shares of stock or partnership interests of any such new
Borrower; (iii) such Collateral Security Documents as shall be necessary to
grant to Agent, on behalf of Lenders, a first priority lien on substantially all
of the assets acquired in such acquisition (subject to such exceptions as are
permitted pursuant to Paragraph 6.4 hereof); (iv) certificates, opinions of
counsel, and other documents and information, including without limitation lien
searches, title insurance, environmental reports, and appraisals, as reasonably
required by Lenders; and (v) if such Permitted Acquisition is made without using
the proceeds of an Advance hereunder, the items and information required to be
delivered pursuant to subparagraph 2.7(a) hereof in connection with Advances for
purposes of making a Permitted Acquisition.
5.13. Compliance.
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(a) Comply in all respects with all local, state and federal
laws and regulations applicable to its business, including without limitation
the Environmental Control Statutes, and all laws and regulations of HCFA and the
Local Authorities, and the provisions and requirements of all Licenses and other
like grants of authority held by Borrowers, except where the failure to so
comply could not reasonably be expected to have a Material Adverse Effect; and
notify Agent immediately in detail of any actual or alleged failure to comply
with or perform, breach, violation or default under any such laws or regulations
or under the terms of any of such Licenses, or grants of authority, or of the
occurrence or existence of any facts or circumstances which with the passage of
time, the giving of notice or otherwise could create such a breach, violation or
default or could occasion the termination of any of such License, or grant of
authority, except where the failure to comply with or perform, breach, violation
or default could not reasonably be expected to have a Material Adverse Effect.
(b) With respect to the Environmental Control Statutes, notify
the Agent when any Person (including, without limitation, EPA or any state or
local agency) provides oral or written notification to any Borrower with regard
to an actual or imminently threatened "removal," "spill," or "release" (as
defined in the Environmental Control Statutes) of any Hazardous Substance if the
obligation or liability with respect thereto is reasonably foreseeable to exceed
at any time or from time to time One Hundred Thousand Dollars ($100,000); and
notify the Agent in detail promptly upon the receipt by any Borrower of an
assertion of liability under the Environmental Control Statutes, of any actual
or alleged failure to comply with or perform, breach, violation or default under
any such statute or regulation or of the occurrence or existence of any facts,
events or circumstances which with the passage of time, the giving of notice, or
both, could create such a breach, violation or default if the obligation or
liability with respect thereto is reasonably foreseeable to exceed at any time
or from time to time One Hundred Thousand Dollars ($100,000).
5.14. ERISA.
(a) Comply in all material respects with the provisions of
ERISA and the Code to the extent applicable to any Plan; not incur any
accumulated funding deficiency (within the meaning of ERISA and the regulations
promulgated thereunder), or any liability to the PBGC (as established by ERISA)
in excess of Two Hundred Fifty Thousand Dollars ($250,000); and not take any
action (or omit to take any action) which may result in the institution of
termination proceedings by the PBGC under Section 4042 of ERISA or may result in
the imposition of a lien on its properties or assets; and
(b) Notify Agent in writing promptly after it has come to the
attention of senior management of any Borrower that any event has occurred or
will occur with respect to a defined benefit
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pension plan which must be reported to the PBGC or which is described in Section
4042(a) of ERISA (relating to the soundness of a Plan) or which would result in
the PBGC's ability to assert a material liability against it or impose a lien in
an amount in excess of One Hundred Thousand Dollars ($100,000) on any Borrower's
properties or assets.
5.15. Funded Debt to Capital Ratio. Maintain as of the last day of
each fiscal quarter during the periods set forth in the left hand column below a
ratio of Funded Debt to Capital of not more than the ratio set forth in the
right hand column below:
Period Required Ratio
------ --------------
Effective Date through
December 31, 1996 0.80:1
January 1, 1997 through
December 31, 1997 0.75:1
January 1, 1998 through
December 31, 1998 0.70:1
January 1, 1999 through
December 31, 1999 0.65:1
January 1, 2000 and thereafter 0.60:1
5.16. Consolidated Senior Debt to Adjusted EBITDA. Maintain as of
the last day of each fiscal quarter during the periods set forth in the left
hand column below a ratio of Consolidated Senior Debt to Adjusted EBITDA for the
Company and its Consolidated Subsidiaries of not more than the ratio set forth
in the right hand column below:
Period Required Ratio
------ --------------
Effective Date through
September 30, 1996 4.50:1
October 1, 1996 through
December 31, 1996 4.25:1
January 1, 1997 through
March 31, 1997 4.00:1
April 1, 1997 through
June 30, 1997 3.75:1
July 1, 1997 through
December 31, 1997 3.50:1
January 1, 1998 through
December 31, 1998 3.25:1
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January 1, 1999 and thereafter 3.00:1
5.17. Adjusted Total Debt to Adjusted EBITDAR. Maintain as of the
last day of each fiscal quarter ending during the periods set forth in the left
hand column below a ratio of Adjusted Total Debt to Adjusted EBITDAR for the
Company and its Consolidated Subsidiaries of not more than the ratio set forth
in the right hand column below:
Period Required Ratio
------ --------------
Effective Date through
September 30, 1996 6.00:1
October 1, 1996 through
December 31, 1996 5.75:1
January 1, 1997 through
December 31, 1997 5.50:1
January 1, 1998 through
December 31, 1998 5.25:1
January 1, 1999 and thereafter 4.50:1
5.18. Consolidated Net Worth. Maintain as of the last day of each
fiscal quarter Consolidated Net Worth in an amount not less than the Net Worth
Requirement.
5.19. Fixed Charge Coverage Ratio. Maintain as of the last day of
each fiscal quarter through December 31, 1999 a Consolidated Fixed Charge
Coverage Ratio of not less than 1.15 to 1, and maintain as of the last day of
each fiscal quarter thereafter a Consolidated Fixed Charge Coverage Ratio of not
less than 1.25 to 1.
5.20. Borrowing Base. Maintain at all times the outstanding balance
of the Loan in an amount not to exceed the Borrowing Base.
5.21. Management Changes. Notify Agent in writing promptly of any
change of Borrowers' senior officers.
5.22. Successor Agent. In the event of the appointment of any
successor Agent pursuant to Paragraph 9.16 hereof, execute and deliver any
documents reasonably requested by Lenders to effectuate and confirm the transfer
to such successor Agent of all rights, powers, duties, obligations and property
vested in its predecessor Agent hereunder.
5.23. Transactions Among Affiliates. Cause all transactions between
and among Affiliates to be on an arms-length basis in the ordinary course and on
such terms and conditions as
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are customary in the applicable industry between and among unrelated entities.
5.24. Inspections. Permit Lenders from time to time to conduct
inspections of the Health Care Facilities during normal business hours at
reasonable times and without undue disruption of operations at any such Health
Care Facility.
5.25. The Funds. If the Funds have not ceased to be Subsidiaries
prior to January 31, 1997, deliver to Agent on behalf of Lenders a pledge of the
stock of the general partners thereof.
5.26. Other Information. Provide Lenders with any other documents
and information, financial or otherwise, reasonably requested by Lenders from
time to time.
SECTION 6
NEGATIVE COVENANTS
So long as the Commitment or any Indebtedness of Borrowers to
Lenders remains outstanding hereunder, each Borrower covenants and agrees that
it will not and will not permit any Subsidiary to:
6.1. Indebtedness. Borrow any monies or create any Indebtedness
except: (i) borrowings from Lenders hereunder; (ii) trade indebtedness in the
normal and ordinary course of business for value received; (iii) Indebtedness
incurred to purchase or lease fixed or capital assets (other than acquisitions
pursuant to Paragraph 6.8 hereof), provided, however, that the aggregate
principal amount of such Indebtedness shall not exceed Three Million Dollars
($3,000,000); (iv) intercompany loans among the Borrowers or from Borrowers to
OGRLP, provided, that (A) the aggregate amount of all such advances to THS
Nursing Home Subsidiaries shall not at any time exceed Twenty Million Dollars
($20,000,000) and (B) the aggregate amount of all advances to OGRLP shall not at
any time exceed Two Hundred Thousand Dollars ($200,000); (v) Indebtedness
outstanding on the date hereof, as described on Exhibit E attached hereto, as
reduced by payments required thereunder; and (vi) additional Indebtedness which,
together with the amount of any guaranties permitted pursuant to Paragraph
6.2(iii) hereof, shall not exceed Five Hundred Thousand Dollars ($500,000) at
any time outstanding.
6.2. Guaranties. Guarantee or assume or agree to become liable in
any way, either directly or indirectly, for any additional indebtedness or
liability of others except: (i) endorsement of checks or drafts in the ordinary
course of business; (ii) guarantees in existence on the date hereof as described
on Exhibit E attached hereto, but without increase in the principal amount
thereof; and (iii) guaranties the liability under which, together with the
amount of Indebtedness permitted pursuant
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to Paragraph 6.1(vii) hereof, shall not exceed Five Hundred Thousand Dollars
($500,000) at any time outstanding.
6.3. Loans. Make any loans or advances to others other than: (i)
intercompany loans among the Borrowers or to OGRLP, provided that (A) the
aggregate amount of all such advances to THS Nursing Home Subsidiaries, together
with amounts borrowed by THS Nursing Home Subsidiaries hereunder, shall not at
any time exceed Twenty Million Dollars ($20,000,000) and (B) the aggregate
amount of all such advances to OGRLP shall not at any time exceed Two Hundred
Thousand Dollars ($200,000), (ii) loans by the Company to certain officers and
employees of the Company in an aggregate principal amount not to exceed Two
Hundred Fifty Thousand Dollars ($250,000) outstanding at any time, (iii) the
NCHC Loan and the NC Health Care Loan outstanding on the date hereof, as reduced
by payments thereunder, (iv) advances to third parties that own or Nursing Homes
for working capital purposes, in connection with the entering into of a
Long-Term Management Contract with respect to such Nursing Home(s), provided
that (A) such advances are evidenced by a promissory note in the form of Exhibit
G-1 attached hereto and secured by a first priority security interest in all
accounts receivable with respect to such Nursing Home pursuant to a security
agreement in the form of Exhibit G-2 attached hereto; (B) such promissory note
and all collateral security therefor are pledged to Agent, for the benefit of
Lenders, pursuant to a Pledge Agreement (Collateral Assignment) in the form of
Exhibit G-3 attached hereto, and (C) the aggregate principal amount of all such
advances shall not exceed at any time Five Million Dollars ($5,000,000), and (v)
Permitted Investments.
6.4. Liens and Encumbrances. Create, permit or suffer the creation
or existence of any liens, security interests, or any other encumbrances on any
of its property, real or personal, except in favor of Lenders as security for
the Loan, and except (i) liens arising in favor of sellers or lessors for
indebtedness and obligations permitted under Paragraph 6.1(iii) hereof incurred
to purchase or lease fixed or capital assets; provided, however, that such liens
secure only the indebtedness and obligations created thereunder and are limited
to the assets purchased or leased pursuant thereto; (ii) liens for taxes,
assessments or other governmental charges, federal, state or local, which are
then being currently contested in good faith by appropriate proceedings and are
covered by appropriate reserves maintained in accordance with GAAP; (iii)
pledges or deposits to secure obligations under workmen's compensation,
unemployment insurance or social security laws or similar legislation; (iv)
deposits to secure performance or payment bonds, bids, tenders, contracts,
leases, franchises or public and statutory obligations required in the ordinary
course of business; (v) deposits to secure surety, appeal or custom bonds
required in the ordinary course of business; (vi) liens in effect as of the date
hereof as described on Exhibit E, and, (vii) liens for taxes which are not yet
due and payable.
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6.5. Additional Negative Pledge. Enter into an agreement with or
covenant or promise to any Person other than Lenders that in any manner
restricts its ability to pledge its assets or properties or otherwise grant
liens, security interests or encumbrances on its property.
6.6. Restricted Payments. Make any Restricted Payments; provided,
however, that so long as there exists no Event of Default or Default under this
Agreement and the payment would not give rise to an Event of Default or Default:
(a) the Company may pay dividends on the South Atlantic Preferred Stock in
accordance with the terms thereof as in effect on the date hereof; (b) the
Company may redeem or repurchase South Atlantic Preferred Stock if required by
the terms thereof on the date of such redemption or repurchase pursuant to the
terms of the South Atlantic Preferred Stock as in effect on the date of this
Agreement; (c) the Company may redeem or repurchase Preferred Stock or the
Transitional Subordinated Notes out of proceeds of the issuance of equity by the
Company; and (d) TFS or the Company may pay regularly scheduled payments of
interest on the Transitional Subordinated Notes in accordance with the terms
thereof as in effect on the date of this Agreement.
6.7. Transfer of Assets; Liquidation.
(a) Sell, lease, transfer or otherwise dispose of any assets;
provided, however, Borrowers may (i) dispose of assets in the ordinary course of
business provided that the disposition does not constitute a Sale of Material
Assets, (ii) convert Permitted Investments into cash and cash into Permitted
Investments, and (iii) sell or otherwise dispose of the capital stock of WelCare
Consolidated Resources of America and the Fund Service Corporations, subject to
the requirements of Paragraph 2.5(b)(i) if applicable. Borrowers may request
from time to time the right to consummate a sale or other disposition of assets
and Lenders shall have the absolute discretion to withhold consent to any
proposed disposition of assets.
(b) Discontinue, liquidate, or change in any material respect
any substantial part of its operations or business.
6.8. Acquisitions and Investments.
(a) Purchase or otherwise acquire (including without
limitation by way of share exchange) any part or amount of the capital stock or
assets of, or make any investments in, any other firm or corporation, or enter
into any joint venture or partnership except: (i) Borrowers may own the
Subsidiaries owned by them on the date hereof as set forth on Exhibit E attached
hereto and Borrowers may be general partners in partnerships in which they are
general partners as of the date hereof as set forth on Exhibit E; (ii) Borrowers
may make Permitted Investments, subject to the conditions and limitations set
forth in the definition thereof; (iii) in the absence of an Event of Default or
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a Default, and if such contemplated action would not cause an Event of Default
or a Default, Borrowers may make Permitted Acquisitions, subject to the
conditions and limitations set forth in the definition thereof, provided,
however, that (A) no Permitted Acquisition may be made pursuant to this clause
(iii) without the prior written consent of Required Lenders if the Acquisition
Price in such acquisition is in excess of Ten Million Dollars ($10,000,000), (B)
no Permitted Acquisition may be made pursuant to this clause (iii) without the
prior written consent of Required Lenders if the Acquisition Price in such
acquisition, together with the Acquisition Price in connection with all other
Permitted Acquisitions consummated without the consent of Required Lenders
within the prior twelve months is in excess of Twenty-Five Million Dollars
($25,000,000), (C) each Permitted Acquisition of a Nursing Home shall be only by
the acquisition of ownership thereof, free and clear of any liens, claims or
encumbrances except as permitted pursuant to Paragraph 6.4 hereof, (D) no
Permitted Acquisition may be consummated unless Borrowers shall have complied
with Paragraph 5.12(c) hereof, and (E) without regard to whether such Permitted
Acquisition is being funded by an Advance hereunder, Borrowers shall provide to
Lenders no later than fifteen (15) Business Days prior to a Permitted
Acquisition, a notice of Permitted Acquisition in the form of Exhibit H attached
hereto together with:
(I) a narrative description of the proposed acquisition
which describes the terms of the proposed acquisition and demonstrates it to be
a Permitted Acquisition, and describes the business to be acquired, the legal
structure for the acquisition, the acquisition price to be paid, and other
material features of the proposed acquisition;
(II) copies of financial statements of the business to
be acquired for the three most-recently ended fiscal years of such business and
for the most recently-ended interim fiscal period of such business for which
financial statements are available;
(III) a proposed amendment or supplement to Exhibit E
hereto, to include the information required to be disclosed pursuant to the
representations and warranties set forth in Section Three thereof, as applied to
such business, which amendment or supplement shall be subject to approval of
Required Lenders as provided herein;
(IV) pro forma combined financial statements of the
business to be acquired and the Company and its Consolidated Subsidiaries giving
effect to the proposed acquisition on an historical basis for the most recent
period for which a Compliance Certificate has been delivered and on a projected
basis for the remaining life of the Loan, including calculations demonstrating
pro forma covenant compliance for the most recent period for which a Compliance
Certificate has been delivered and prospective covenant compliance for the
remaining life of the Loan; and
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(V) pro forma historical financial information for the
proposed Acquired Operations on a stand alone basis, and on a combined basis
with all other Acquired Operations, including calculation of the Borrowing Base
and demonstrating compliance therewith.
In addition, Borrowers shall deliver in connection with any
Permitted Acquisition, prior to consummation thereof, (x) an appraisal of the
Health Care Facility to be acquired, if an appraisal is reasonably requested in
writing by Required Lenders, dated as of a recent date, and (y) such additional
information regarding the acquisition as any Lender may reasonably request.
With respect to any Permitted Acquisition requiring approval of
Required Lenders hereunder, Borrowers shall request such approval by delivering
such request in writing to Lenders together with the Notice of Acquisition and
information required by clause (a)(iii)(E) above. Not later than fifteen (15)
Business Days after receipt of a completed Notice of Acquisition, including all
of the information specified above, each Lender shall either indicate to Agent
and Borrowers that its approval will not be given, or shall execute and return
to Agent and Borrowers the Notice of Acquisition, indicating such Lender's
approval as to (x) the amendment or supplement to Exhibit E hereto as required
pursuant to clause (a)(iii)(E)(III) above; (y) the pro forma financial
information, as required pursuant to the definitions of Adjusted EBITDA and
Adjusted EBITDAR; and (z) if applicable, the Permitted Acquisition, as required
pursuant to this Paragraph 6.8.
(b) Enter into any new business activities or ventures not
within the Permitted Lines of Business; or merge or consolidate with or into any
other Person (other than (i) any merger or consolidation among Borrowers; and
(ii) any other merger having as its effect a Permitted Acquisition, subject to
the provision of subparagraph (a) above); or, except in connection with an
acquisition permitted by subparagraph (a) above or the creation of a Subsidiary
in which the requirements of paragraph 5.12(c) have been met, create any
Subsidiary, become a general partner in any partnership, or acquire in excess of
fifty percent (50%) of the outstanding partnership interests of any partnership.
6.9. New Leases. Enter into or assume, or otherwise become obligated
under, any lease of a Health Care Facility.
6.10. Use of Proceeds. Use any of the proceeds of the Loan, directly
or indirectly, to purchase or carry margin securities within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System; or engage
as its principal
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business in the extension of credit for purchasing or carrying such securities.
SECTION 7
COLLATERAL AND RIGHT OF SET-OFF
As additional collateral for the payment of any and all of
Borrowers' indebtedness and obligations to Lenders, whether matured or
unmatured, now existing or hereafter incurred or created hereunder or otherwise,
each Borrower hereby grants to Lenders a security interest in and lien upon all
funds, balances or other property of any kind of such Borrower, or in which such
Borrower has an interest, limited to the interest of Borrowers therein, whether
now or hereafter in the possession, custody or control of any Lender.
Each Lender (and any Lender's bank Affiliate) is hereby authorized
from time to time, to the fullest extent permitted by law, to set-off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by such Lender (or
such Lender's bank Affiliate) to or for the credit or the account of any
Borrower against any and all of the obligations of Borrowers now or hereafter
existing under any of the Loan Documents, irrespective of whether such Lender
shall have made any demand thereunder. Each Lender agrees promptly to notify
Borrowers after any such set-off and application made by such Lender (or such
Lender's bank Affiliate); provided, however, that the failure to give such
notice shall not affect the validity of such set-off and application. The rights
of each Lender under this Section Seven are in addition to other rights and
remedies (including, without limitation, other rights of set-off) which such
Lender (or such Lender's bank Affiliate) may have.
SECTION 8
DEFAULT
8.1. Events of Default. Each of the following events shall be an
Event of Default hereunder:
(a) If Borrowers shall fail to pay (i) any installment of
principal when due; or (ii) any payment of interest or any other sum payable to
Lenders hereunder or otherwise within three (3) days of when due;
(b) If any representation or warranty made herein or in
connection herewith or in any statement, certificate or other document furnished
hereunder shall be false or misleading in any material respect when made;
(c) If Borrowers shall default in the payment or performance
of any terms of (i) any lease of a Health Care Facility
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or Indebtedness secured by real property, whether now or hereafter entered into,
or (ii) any other obligation or indebtedness to another of Two Hundred Fifty
Thousand Dollars ($250,000) or more, whether now or hereafter incurred;
(d) If any Borrower shall default in or fail to observe at any
test date the covenants set forth in Paragraphs 5.15 through 5.20 hereof or
Section Six hereof;
(e) If any Borrower shall default in the performance of any
other agreement or covenant contained herein (other than as provided in
subparagraphs (a), (b) or (d) above) or in any document executed or delivered in
connection herewith, including without limitation any Collateral Security
Document and such default shall continue uncured for twenty (20) days after
notice thereof to any Borrower given by Agent pursuant to the direction of
Required Lenders;
(f) If the Company shall cease to own directly or indirectly
one hundred percent (100%) of each other Borrower;
(g) If any Person which is controlled by J. Stephen Eaton as
of the date of this Agreement and is a general partner of any partnership from
which any Borrower leases any Health Care Facility or with which any Borrower
has contracted for the management of any Health Care Facility shall cease to be
a Person in which J. Stephen Eaton maintains control. For purposes of this
provision, "control" means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of an entity,
whether through the ownership of voting securities, by contract or otherwise;
(h) If: (i) J. Stephen Eaton and members of his immediate
family or trusts for the benefit of such family members shall cease to own at
least ten percent (10%) of the voting securities of the Company; or (ii) any
person or group within the meaning of Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended (the "1934 Act") and the rules and regulations
promulgated thereunder (other than (x) J. Stephen Eaton and members of his
immediate family or trust for the benefit of such family members, (y) South
Atlantic Venture Fund II, Limited Partnership and South Atlantic Venture Fund
III, Limited Partnership, and (z) Welsh, Carson, Anderson & Stowe VI, L.P., WCAS
Capital Partners II, L.P., WCAS Health Care Partners, L.P. and CID Equity
Capital III, L.P.) shall have beneficial ownership (within the meaning of Rule
13d-3 of the 1934 Act), directly or indirectly, of securities of the Company (or
other securities convertible into such securities within the time specified in
Rule 13d-3 of the 1934 Act) representing ten percent (10%) or more of the
combined voting power of all securities of the Company entitled to vote in the
election of directors (hereinafter called a "Controlling Person"); or (iii) a
majority of the board of directors of the Company shall cease for any reason to
consist of (A) individuals who on the date hereof were serving as directors of
Borrowers and (B) individuals who
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subsequently become members of the Board if such individuals' nominations for
election or elections to the Board are recommended or approved by a majority of
the Board of Directors of the Company. For purposes of clause (ii) above, a
person or group shall not be a Controlling Person if such person or group holds
voting power in good faith, and not for the purpose of circumventing this
Paragraph 8.1(h) as an agent, bank, broker, nominee, trustee, or holder of
revocable proxies given in response to a solicitation pursuant to the 1934 Act,
for one or more beneficial owners who do not individually, or, if they are a
group acting in concert, as a group, have the voting power specified in clause
(i) above;
(i) If J. Stephen Eaton shall cease to be Chief Executive
Officer of the Company, provided that if such cessation of service is as a
result of death or permanent disability then there shall be no Event of Default
under this Paragraph 8.1(i) if a replacement is named within thirty (30) days of
such death or permanent disability and Required Lenders have not given written
notice to the Company of their objection to such replacement within fifteen (15)
days after such naming;
(j) If custody or control of any substantial part of the
property of any Borrower shall be assumed by any governmental agency or any
court of competent jurisdiction at the instance of any governmental agency; if
any License to operate a Health Care Facility or any other material License
shall be suspended, revoked, not renewed at expiration or otherwise terminated;
or if any governmental regulatory authority or judicial body shall make any
other final non-appealable determination which, in any of the foregoing
instances, might reasonably be expected to have a Material Adverse Effect;
(k) If any Borrower becomes insolvent, bankrupt or generally
fails to pay its debts as such debts become due; or is adjudicated insolvent or
bankrupt; or admits in writing its inability to pay its debts; or shall suffer a
custodian, receiver or trustee for it or substantially all of its property to be
appointed and if appointed without its consent, not be discharged within thirty
(30) days; or makes an assignment for the benefit of creditors; or suffers
proceedings under any law related to bankruptcy, insolvency, liquidation or the
reorganization, readjustment or the relief of debtors to be instituted against
it and if contested by it not dismissed or stayed within thirty (30) days; or if
proceedings under any law related to bankruptcy, insolvency, liquidation, or the
reorganization, readjustment or the relief of debtors is instituted or commenced
by any Borrower; or if any order for relief is entered relating to any of the
foregoing proceedings; or if any Borrower shall call a meeting of its creditors
with a view to arranging a composition or adjustment of its debts; or if any
Borrower shall by any act or failure to act indicate its consent to, approval of
or acquiescence in any of the foregoing;
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(l) If any judgment, writ, warrant or attachment or execution
or similar process which calls for payment or presents liability in excess of
Two Hundred Fifty Thousand Dollars ($250,000) shall be rendered, issued or
levied against any Borrower or its respective property and such process shall
not be paid, waived, stayed, vacated, discharged, settled, satisfied or fully
bonded within sixty (60) days after its issuance or levy.
(m) If any event or condition shall occur or exist with
respect to any activity or substance regulated under the Environmental Control
Statutes and as a result of such event or condition, Borrowers have incurred or
in the opinion of Lenders are reasonably likely to incur a liability or
liabilities in excess of Two Hundred Fifty Thousand Dollars ($250,000) during
any consecutive twelve (12) month period.
8.2. Remedies. Upon the happening of any Event of Default and at any
time thereafter, at the election of Required Lenders, and by notice by Agent to
Borrowers (except if an Event of Default described in Paragraph 8.1(k) shall
occur in which case acceleration shall occur automatically without notice),
Required Lenders may declare the entire unpaid balance, principal, interest and
fees, of all Indebtedness of Borrowers to Lenders, hereunder or otherwise, to be
immediately due and payable. Upon such declaration, the Commitment shall
immediately and automatically terminate and Lenders shall have no further
obligation to make any Advance and they shall have the immediate right to
enforce or realize on any Collateral in a commercially reasonable manner in any
manner or order they deem expedient without regard to any equitable principles
of marshalling or otherwise. Whether such a declaration has been made by
Required Lenders that the Indebtedness is due and payable following an Event of
Default, Required Lenders may terminate the Commitment at any time following an
Event of Default by notice thereof by Agent to Borrowers. In addition to any
rights granted hereunder or in any documents delivered in connection herewith,
including without limitation, the Collateral Security Documents, Lenders shall
have all the rights and remedies granted by any applicable law, all of which
shall be cumulative in nature.
SECTION 9
THE LENDERS
This Section sets forth the relative rights and duties of Agent and
Lenders respecting the Loan and, with the exception of Paragraphs 9.3 and 9.15
hereof, does not confer any enforceable rights on Borrowers against Lenders or
create on the part of Lenders any duties or obligations to Borrowers.
9.1. Application of Payments. Agent shall apply all payments of
principal, interest, commitment fee or other amounts hereunder made to Agent by
or on behalf of Borrowers, to Lenders on the basis of their Pro Rata Shares of
the outstanding principal
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balance of the Loan, except for interest and fees outstanding under the Existing
Agreement and required to be paid to CoreStates on the Effective Date and the
fees payable under Paragraph 2.13 and Paragraph 2A.4(iv) hereof, which shall be
paid solely to Agent. Such distribution of payments shall be made promptly in
federal funds immediately available at the office of each Lender set forth
above.
9.2. Set-Off. In the event a Lender, by exercise of its right of
set-off, or otherwise, receives any payment of Indebtedness owing to it,
hereunder or otherwise, in an amount greater than its Pro Rata Share of such
payment based upon the Lenders' respective shares of principal Indebtedness
outstanding hereunder immediately before such payment, such Lender shall
purchase a portion of the Indebtedness hereunder owing to each other Lender so
that after such purchase each Lender shall hold its Pro Rata Share of all the
Indebtedness then outstanding hereunder, provided that if all or any portion of
such excess payment is thereafter recovered from such Lender, such purchase
shall be rescinded and the purchase price restored to the extent of any such
recovery, but without interest.
9.3. Modifications and Waivers. No modification or amendment hereof,
consent hereunder or waiver of any Event of Default shall be effective except by
written consent of the Required Lenders; provided, however, that the written
consent of all Lenders shall be required to (i) modify, amend, waive, discharge,
terminate or suspend compliance with (A) any rate of interest applicable to the
Loan to the extent it is proposed to be decreased, (B) the amount of the
Commitment, to the extent it is proposed to be increased, and the Lenders'
respective shares thereof; (C) the dates or amounts of payment of the Loan or
the circumstances requiring payment under Paragraph 2.5(b) hereof, (D) the
commitment fee set forth in Paragraph 2.12 hereof or other amounts payable by
Borrowers hereunder except if payable solely to the Agent, to the extent any
such amount is proposed to be decreased, (E) the definition of Required Lenders,
or (F) this Paragraph 9.3; or (ii) to release of any Collateral valued in excess
of $250,000 in the aggregate in any calendar year other than in the ordinary
course of business.
9.4. Obligations Several. The obligations of the Lenders hereunder
are several, and each Lender hereunder shall not be responsible for the
obligations of the other Lenders hereunder, nor will the failure of one Lender
to perform any of its obligations hereunder relieve the other Lenders from the
performance of their respective obligations hereunder.
9.5. Lenders' Representations. Each Lender represents and warrants
to the other Lenders that (i) it has been furnished all information it has
requested for the purpose of evaluating its proposed participation under this
Agreement; and (ii) it has decided to enter into this Agreement on the basis of
its independent review and credit analysis of Borrowers, this Agreement
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and the documentation in connection therewith and has not relied for such
analysis on any information or analysis provided by any other Lender.
9.6. Investigation. No Lender shall have any obligation to the
others to investigate the condition of Borrowers or any of the Collateral or any
other matter concerning the Loan.
9.7. Powers of Agent. Agent shall have and may exercise those powers
specifically delegated to Agent herein, together with such powers as are
reasonably incidental thereto.
9.8. General Duties of Agent, Immunity and Indemnity. Upon receipt
of notices and reports delivered by Borrowers to the Agent under this Agreement,
the Agent shall promptly deliver the same in the form received to the Lenders.
In performing its duties as Agent hereunder, Agent will take the same care as it
takes in connection with loans in which it alone is interested, subject to the
limitations on liabilities contained herein; provided that Agent shall not be
obligated to ascertain or inquire as to the performance of any of the terms,
covenants or conditions hereof by Borrowers. Neither Agent nor any of its
directors, officers, agents or employees shall be liable for any action or
omission by any of them hereunder or in connection herewith except for gross
negligence or willful misconduct. Subject to such exception, each of the Lenders
hereby indemnifies Agent (in its capacity as Agent) on the basis of such
Lender's Pro Rata Share, against any liability, claim, loss or expense arising
from or relating to any action taken or omitted to be taken with respect to this
Agreement, a Collateral Security Document or the transactions contemplated
thereby or Borrowers, to the extent that the Agent has not been reimbursed
therefor by Borrowers.
9.9. No Responsibility for Representations or Validity, etc. Each
Lender agrees that Agent shall not be responsible to any Lender for any
representations, statements, or warranties of Borrowers herein. Neither Agent
nor any of its directors, officers, employees or agents shall be responsible for
the validity, effectiveness, sufficiency, perfection or enforceability of this
Agreement and any Collateral, or any documents relating thereto or for the
priority of any of Lenders' security interests in any such Collateral.
9.10. Action on Instruction of Lenders; Right to Indemnity. Agent
shall act upon written instruction of the Required Lenders or Lenders, as
appropriate, and in all cases Agent shall be fully protected in acting or
refraining from acting hereunder in accordance with such written instructions to
it signed by Required Lenders unless the consent of all the Lenders is expressly
required hereunder in which case Agent shall be so protected when acting in
accordance with such instructions from all the Lenders. Such instructions and
any action taken or failure to act pursuant thereto shall be binding on all the
Lenders, provided
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that except as otherwise provided herein, Agent may act hereunder in its own
discretion without requesting such instructions.
9.11. Employment of Agents. In connection with its activities
hereunder, Agent may employ agents and attorneys-in-fact and shall not be
answerable, except as to money or securities received by it or its authorized
agents, for the default or misconduct of agents or attorneys-in-fact selected
with reasonable care.
9.12. Reliance on Documents. Agent shall be entitled to rely upon
(a) any paper or document believed by it to be genuine and correct and to have
been signed or sent by the proper person or persons and (b) upon the opinion of
its counsel with respect to legal matters.
9.13. Agent's Rights as a Lender. With respect to its share of the
indebtedness hereunder, Agent shall have the same rights and powers hereunder as
any other Lender and may exercise the same as though it were not Agent. Each of
the Lenders may accept deposits from and generally engage in other banking or
trust business with Borrowers as if it were not Agent or a Lender hereunder.
9.14. Expenses. Each of the Lenders shall reimburse Agent, from time
to time at the request of Agent, for its Pro Rata Share of any expenses incurred
by Agent in connection with the performance of its functions hereunder, provided
however that in the event Lenders shall reimburse Agent for expenses for which
Borrowers subsequently reimburses Agent, Agent shall remit to each Lender the
respective amount received from such Lender against such expenses.
9.15. Resignation of Agent. Agent may at any time resign its
position as Agent, without affecting its position as a Lender, by giving written
notice to Lenders and Company. Such resignation shall take effect upon the
appointment of a successor agent in accordance with this Paragraph 9.15. In the
event Agent shall resign, Lenders with the consent of the Company shall appoint
a Lender with banking powers as successor agent. If within thirty (30) days of
the Agent's notice of resignation no successor agent shall have been appointed
by Lenders and accepted such appointment, then Agent, in its discretion may
appoint any other Lender with banking powers as a successor agent.
9.16. Successor Agent. The successor Agent appointed pursuant to
Paragraph 9.15 shall execute and deliver to its predecessor and Lenders an
instrument in writing accepting such appointment, and thereupon such successor,
without any further act, deed or conveyance, shall become fully vested with all
the properties, rights, duties and obligations of its predecessor Agent. The
predecessor Agent shall deliver to its successor Agent forthwith all Collateral,
documents and moneys held by it as Agent,
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if any, whereupon such predecessor Agent shall be discharged from its duties and
obligations as Agent under this Agreement.
9.17. Collateral Security. Agent will hold, administer and manage
any Collateral pledged from time to time hereunder either in its own name or as
Agent, but each Lender shall hold a direct, undivided pro-rata beneficial
interest therein, on the basis of its Pro Rata Share, by reason of and as
evidenced by this Agreement.
9.18. Enforcement by Agent. All rights of action under this
Agreement and under the Notes and all rights to the Collateral hereunder may be
enforced by Agent and any suit or proceeding instituted by Agent in furtherance
of such enforcement shall be brought in its name as Agent without the necessity
of joining as plaintiffs or defendants any other Lenders, and the recovery of
any judgment shall be for the benefit of Lenders subject to the expenses of
Agent.
SECTION 10
MISCELLANEOUS
10.1. Indemnification and Release Provisions. Borrowers hereby agree
to defend Agent and each Lender and its respective directors, officers, agents
and employees from, and hold each of them harmless against, any and all losses,
liabilities (including, without limitation, settlement costs and amounts,
transfer taxes, documentary taxes, or assessments or charges made by any
governmental authority), claims, damages, interests, judgments, costs, or
expenses, including without limitation reasonable fees and disbursements of
counsel incurred by any of them arising out of or in connection with or by
reason of this Agreement, the Commitment, the making of the Loan or any
Collateral Security Document, including without limitation, any and all losses,
liabilities, claims, damages, interests, judgments, costs or expenses relating
to or arising under any Environmental Control Statute or License or the
application of any such Statute to any of Borrowers' properties or assets,
excluding, however, those caused by such party's respective gross negligence or
willful misconduct. Borrowers hereby release Agent and each Lender and its
respective directors, officers, agents and employees from any and all claims for
loss, damages, costs or expenses caused or alleged to be caused by any act or
omission on the part of any of them except for those caused by such party's
respective gross negligence or willful misconduct. All obligations provided for
in this Paragraph 10.1 shall survive any termination of this Agreement or the
Commitment and the repayment of the Loan.
10.2. Participations and Assignments. Borrowers hereby acknowledge
and agree that a Lender may at any time: (a) grant participations in its Loan or
any Note or of its right, title and interest therein or in or to this Agreement
(collectively, "Participations") to any other lending office or to any other
bank,
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lending institution or other Person which (x) in the absence of an Event of
Default hereunder, is not a Person in a Permitted Line of Business and (y) has
the requisite sophistication to evaluate the merits and risks of investments in
Participations ("Participants"); provided, however, that: (i) all amounts
payable by Borrowers hereunder shall be determined as if such Lender had not
granted such Participation; and (ii) any agreement pursuant to which any Lender
may grant a Participation: (A) shall provide that such Lender shall retain the
sole right and responsibility to enforce the obligations of Borrowers hereunder
including, without limitation, the right to approve any amendment, modification
or waiver of any provisions of this Agreement; (B) may provide that such Lender
will not agree to any modification, amendment or waiver of this Agreement
requiring approval of all Lenders pursuant to Paragraph 9.3 hereof without the
consent of the Participant and (C) shall not relieve such Lender from its
obligations, which shall remain absolute, to make Advances hereunder; and (b)
assign (i) all or any percent of its Loan or any Note or right, title and
interest therein or in and to this Agreement, to (x) a Lender; (y) any Affiliate
of a Lender; or (z) any Federal Reserve Bank; or (ii) all or any part of its
Loan or any Note or right, title and interest therein or in and to this
Agreement to a third party; provided, however, that in the absence of an Event
of Default or Default hereunder, (x) any participations granted pursuant to (a)
above and assignments pursuant to (b)(ii) above shall not exceed forty-nine
percent (49%) of such Lender's initial interest in the Loan and its Note
hereunder and (y) no assignment pursuant to (b)(ii) above shall be made without
the prior written consent of the Agent and Borrowers, which consent shall not be
unreasonably withheld. Any participations pursuant to subparagraph (a) and any
assignments pursuant to subparagraph (b) shall be in an amount not less than
Five Million Dollars ($5,000,000). Any assignment pursuant to subparagraph (b)
shall require payment by the applicable Lender to Agent of a $2,500 transfer
fee.
10.3. Binding and Governing Law. This Agreement and all documents
executed hereunder shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns and shall be governed
as to their validity, interpretation and effect by the laws of the Commonwealth
of Pennsylvania.
10.4. Survival. All agreements, representations, warranties and
covenants of Borrowers contained herein or in any documentation required
hereunder shall survive the execution of this Agreement and the making of the
Loan hereunder and except for Paragraphs 5.11 and 10.1 which provide otherwise,
will continue in full force and effect as long as any Indebtedness or other
obligation of Borrowers to any Lender under this Agreement or any Collateral
Security Document, or any Commitment, remains outstanding.
10.5. No Waiver; Delay. If Lenders or any of them shall waive any
power, right or remedy arising hereunder or under any
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applicable law, such waiver shall not be deemed to be a waiver upon any other
Lender or the later occurrence or recurrence of any of said events with respect
to any Lender. No delay by Lenders in the exercise of any power, right or remedy
shall, under any circumstances, constitute or be deemed to be a waiver, express
or implied, of the same and no course of dealing between the parties hereto
shall constitute a waiver of Lenders' powers, rights or remedies. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.
10.6. Modification. Except as otherwise provided in this Agreement,
no modification or amendment hereof shall be effective unless made in a writing
signed by appropriate officers of all of the parties hereto.
10.7. Headings. The various headings in this Agreement are inserted
for convenience only and shall not affect the meaning or interpretation of this
Agreement or any provision hereof.
10.8. Notices. Any notice, request or consent required hereunder or
in connection herewith shall be deemed satisfactorily given if in writing and
delivered by hand, telecopied or mailed (registered or certified mail) to the
parties at their respective addresses and telecopy numbers set forth in this
Agreement or such other addresses as may be given by any party to the others in
writing, if to any Borrower at the address and telecopy numbers of such Borrower
set forth in Schedule 1 attached hereto, with a copy to Paul A. Quiros, Esq.,
Nelson, Mullins, Riley & Scarborough, L.L.P., 400 Colony Square, Suite 2200,
1201 Peachtree Street, N.E., Atlanta, GA 30361; and if to the Agent and the
Lenders to the individuals at the addresses and telecopy numbers set forth in
Schedule 2 attached hereto. Any communication from or to the Company, and any
agreement to an amendment, modification or waiver with respect hereto by the
Company, shall be effective as to and binding upon all of the Borrowers.
10.9. Payment on Non-Business Days. Whenever any payment to be made
hereunder shall be stated to be due on a day other than a Business Day, such
payment may be made on the next succeeding Business Day, provided however that
such extension of time shall be included in the computation of interest due in
conjunction with such payment or other fees due hereunder, as the case may be.
10.10. Time of Day. All time of day restrictions imposed herein
shall be calculated using Agent's local time.
10.11. Severability. If any provision of this Agreement or the
application thereof to any Person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of such provisions to other Persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
69
<PAGE>
10.12. Counterparts. This Agreement may be executed in any number of
counterparts with the same effect as if all the signatures on such counterparts
appeared on one document, and each such counterpart shall be deemed to be an
original.
10.13. Consent to Jurisdiction and Service of Process. Borrowers
each hereby consent that any action or proceeding against it be commenced and
maintained in any court within the Commonwealth of Pennsylvania or in the United
States District Court for the Eastern District of Pennsylvania by service of
process on Borrowers at the offices of the Registered Agent for service of
process of the Company set forth on Schedule 1 attached hereto with a copy to
Paul A. Quiros, Esq., Nelson, Mullins, Riley & Scarborough, L.L.P., 400 Colony
Square, Suite 2200, 1201 Peach Street, N.E. Atlanta, GA 30361 and Borrowers
agree that the courts of the Commonwealth of Pennsylvania and the United States
District Court for the Eastern District of Pennsylvania shall have jurisdiction
with respect to the subject matter hereof and the person of each Borrower and
waive any defense that such a court is an inconvenient forum. Notwithstanding
the foregoing, the Agent, in its absolute discretion may also initiate
proceedings in the courts of any other jurisdiction in which Borrowers may be
found or in which any of their properties or Collateral may be located.
10.14. Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY
KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS AGREEMENT OR THE NOTES OR COLLATERAL SECURITY
DOCUMENTS OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN) OR ACTIONS OF ANY LENDER OR AGENT. THIS PROVISION IS A
MATERIAL INDUCEMENT FOR LENDERS' ENTERING INTO THIS AGREEMENT.
10.15. Acknowledgements. BORROWERS ACKNOWLEDGE THAT THEY HAVE HAD
THE ASSISTANCE OF COUNSEL IN THE REVIEW AND EXECUTION OF THIS AGREEMENT AND,
SPECIFICALLY, PARAGRAPH 10.14 HEREOF, AND FURTHER ACKNOWLEDGE THAT THE MEANING
AND EFFECT OF THE FOREGOING WAIVER OF JURY TRIAL HAS BEEN FULLY EXPLAINED TO
BORROWERS BY SUCH COUNSEL.
IN WITNESS WHEREOF, the undersigned, by their duly authorized
officers, have executed this Agreement the day and year first above written.
ATTEST: CENTENNIAL HEALTHCARE CORPORATION
By: /s/ Paul A. Quiros By: /s/ Alan C. Dahl
--------------------------- ---------------------------------
Name: Paul A Quiros Name: Alan C. Dahl
Title: Secretary Title: Executive Vice President
[EXECUTIONS CONTINUED]
70
<PAGE>
ATTEST: CENTENNIAL/ASHTON PROPERTIES
CORPORATION
By: /s/ Paul A. Quiros By: /s/ Alan C. Dahl
--------------------------- ---------------------------------
Name: Paul A. Quiros Name: Alan C. Dahl
Title: Secretary Title: Vice President
ATTEST: CENTENNIAL HEALTHCARE PROPERTIES
CORPORATION
By: /s/ Paul A. Quiros By: /s/ Alan C. Dahl
--------------------------- ---------------------------------
Name: Paul A. Quiros Name: Alan C. Dahl
Title: Secretary Title: Vice President
ATTEST: CENTENNIAL HEALTHCARE MANAGEMENT
CORPORATION
By: /s/ Paul A. Quiros By: /s/ Alan C. Dahl
--------------------------- ---------------------------------
Name: Paul A. Quiros Name: Alan C. Dahl
Title: Secretary Title: Executive Vice President
ATTEST: CENTENNIAL ACQUISITION CORP.
By: /s/ Paul A. Quiros By: /s/ Alan C. Dahl
--------------------------- ---------------------------------
Name: Paul A. Quiros Name: Alan C. Dahl
Title: Secretary Title: Vice President
ATTEST: CENTENNIAL PROFESSIONAL THERAPY
SERVICES CORPORATION
By: /s/ Paul A. Quiros By: /s/ Alan C. Dahl
--------------------------- ---------------------------------
Name: Paul A. Quiros Name: Alan C. Dahl
Title: Secretary Title: Vice President
[EXECUTIONS CONTINUED]
71
<PAGE>
ATTEST: CENTENNIAL HEALTHCARE INVESTMENT
CORPORATION
By: /s/ Paul A. Quiros By: /s/ Alan C. Dahl
--------------------------- ---------------------------------
Name: Paul A. Quiros Name: Alan C. Dahl
Title: Secretary Title: Vice President
ATTEST: TRANSITIONAL HEALTH SERVICES, INC.
By: /s/ Paul A. Quiros By: /s/ Alan C. Dahl
--------------------------- ---------------------------------
Name: Paul A. Quiros Name: Alan C. Dahl
Title: Secretary Title: Vice President
ATTEST: TRANSITIONAL FINANCIAL SERVICES, INC.
By: /s/ Paul A. Quiros By: /s/ Alan C. Dahl
--------------------------- ---------------------------------
Name: Paul A. Quiros Name: Alan C. Dahl
Title: Asst. Secretary Title: Vice President
ATTEST: PARAGON REHABILITATION, INC.
By: /s/ Paul A. Quiros By: /s/ Alan C. Dahl
--------------------------- ---------------------------------
Name: Paul A. Quiros Name: Alan C. Dahl
Title: Secretary Title: Exec. Vice President
ATTEST: THS PARTNERS I, INC.
By: /s/ Paul A. Quiros By: /s/ Alan C. Dahl
--------------------------- ---------------------------------
Name: Paul A. Quiros Name: Alan C. Dahl
Title: Secretary Title: Vice President
[EXECUTIONS CONTINUED]
72
<PAGE>
ATTEST: THS PARTNERS II, INC.
By: /s/ Paul A. Quiros By: /s/ Alan C. Dahl
--------------------------- ---------------------------------
Name: Paul A. Quiros Name: Alan C. Dahl
Title: Secretary Title: Vice President
TRANSITIONAL HEALTH PARTNERS
ATTEST: BY: THS PARTNERS I, INC., its
general partner
By: /s/ Paul A. Quiros By: /s/ Alan C. Dahl
--------------------------- -----------------------------
Name: Paul A. Quiros Name: Alan C. Dahl
Title: Secretary Title: Vice President
ATTEST: BY: THS PARTNERS II, INC., its
general partner
By: /s/ Paul A. Quiros By: /s/ Alan C. Dahl
--------------------------- ----------------------------
Name: Paul A. Quiros Name: Alan C. Dahl
Title: Secretary Title: Vice President
PARKVIEW PARTNERSHIP
ATTEST: BY: THS PARTNERS I, INC., its
general partner
By: /s/ Paul A. Quiros By: /s/ Alan C. Dahl
---------------------- ------------------------------
Name: Paul A. Quiros Name: Alan C. Dahl
Title: Secretary Title: Vice President
[EXECUTIONS CONTINUED]
73
<PAGE>
ATTEST: BY: THS PARTNERS II, INC., its
general partner
By: /s/ Paul A. Quiros By: /s/ Alan C. Dahl
--------------------------- -----------------------------
Name: Paul A. Quiros Name: Alan C. Dahl
Title: Secretary Title: Vice President
CORESTATES BANK, N.A., for itself
and as Agent
By: /s/ Jennifer W. Leibowitz
---------------------------------
Name: Jennifer W. Leibowitz
Title: Vice President
NATIONSBANK, N.A. (SOUTH)
---------------------------------
By: /s/ Laura Gray
Name: Laura Gray
Title: Vice President
AMSOUTH BANK OF ALABAMA
By: /s/ William P. Barnes
---------------------------------
Name: W. Page Barnes
Title: Senior Vice President
74
<PAGE>
Schedule 1
Borrowers
Centennial HealthCare Corporation
Georgia corporation
400 Perimeter Center Terrace, Suite 650
Atlanta, GA 30346
Telephone: (770) 698-9040
Telecopier: (770) 395-9776
Attention: Alan C. Dahl
Centennial/Ashton Properties Corporation (100%)
Georgia corporation
400 Perimeter Center Terrace, Suite 650
Atlanta, GA 30346
Telephone: (770) 698-9040
Telecopier: (770) 395-9776
Attention: Alan C. Dahl
Centennial HealthCare Properties Corporation (100%)
Georgia corporation
400 Perimeter Center Terrace, Suite 650
Atlanta, GA 30346
Telephone: (770) 698-9040
Telecopier: (770) 395-9776
Attention: Alan C. Dahl
Centennial HealthCare Investment Corporation (100%)
Georgia corporation
400 Perimeter Center Terrace, Suite 650
Atlanta, GA 30346
Telephone: (770) 698-9040
Telecopier: (770) 395-9776
Attention: Alan C. Dahl
Centennial HealthCare Management Corporation (100%)
Georgia corporation
400 Perimeter Center Terrace, Suite 650
Atlanta, GA 30346
Telephone: (770) 698-9040
Telecopier: (770) 395-9776
Attention: Alan C. Dahl
Centennial Professional Therapy Services Corporation (100%)
Georgia corporation
400 Perimeter Center Terrace, Suite 650
Atlanta, GA 30346
Telephone: (770) 698-9040
Telecopier: (770) 395-9776
Attention: Alan C. Dahl
75
<PAGE>
Centennial Acquisition Corp. (100%)
Georgia corporation
400 Perimeter Center Terrace, Suite 650
Atlanta, GA 30346
Telephone: (770) 698-9040
Telecopier: (770) 395-9776
Attention: Alan C. Dahl
Transitional Health Services, Inc. (100%)
Delaware corporation
400 Perimeter Center Terrace, Suite 650
Atlanta, GA 30346
Telephone: (770) 698-9040
Telecopier: (770) 395-9776
Attention: Alan C. Dahl
Transitional Financial Services, Inc. (100%)
Delaware corporation
200 West Ninth Street Plaza
Box 2105
Wilmington, Delaware 19899
Telephone: (302) 655-8894
Telecopier: (302) 658-0468
Attention: Norman Shuman
Paragon Rehabilitation, Inc. (100%)
Delaware corporation
400 Perimeter Center Terrace, Suite 650
Atlanta, Georgia 30346
Telephone: (770) 698-9040
Telecopier: (770) 395-9776
Attention: Alan C. Dahl
THS Partners I, Inc. (100%)
Delaware corporation
400 Perimeter Center Terrace, Suite 650
Atlanta, GA 30346
Telephone: (770) 698-9040
Telecopier: (770) 395-9776
Attention: Alan C. Dahl
THS Partners II, Inc. (100%)
Delaware corporation
400 Perimeter Center Terrace, Suite 650
Atlanta, GA 30346
Telephone: (770) 698-9040
Telecopier: (770) 395-9776
Attention: Alan C. Dahl
76
<PAGE>
Transitional Health Partners (* %)
Delaware general partnership
400 Perimeter Center Terrace, Suite 650
Atlanta, GA 30346
Telephone: (770) 698-9040
Telecopier: (770) 395-9776
Attention: Alan C. Dahl
Parkview Partnership (* %)
Delaware general partnership
400 Perimeter Center Terrace
Atlanta, GA 30346
Telephone: (770) 698-9040
Telecopier: (770) 395-9776
Attention: Alan C. Dahl
- ----------
* Transitional Health Partners and Parkview Partnership are each owned 50% by
THS Partners I, Inc. and 50% by THS Partners II, Inc.
77
<PAGE>
Schedule 2
Lenders
Maximum Principal Amount
Maximum
Principal Amount Percent
--------------------------------
CoreStates Bank, N.A. $ 35,000,000 53.80%
1339 Chestnut Street
Philadelphia, PA 19101
Attention: Jennifer W. Leibowitz
Vice President
Tel: (215) 786-3972
Fax: (215) 786-8448
NationsBank, N.A. (South) 20,000,000 30.80%
600 Peachtree Northeast
18th Floor, GA 1-006-18-29
Atlanta, GA 30308
Attention: Laura B. Gray
Tel: (404) 607-5861
Fax: (404) 607-6338
AmSouth Bank of Alabama 10,000,000 15.40%
1900 5th Avenue North
AmSouth-Sonat Tower - 7th Floor
Birmingham, AL 35203
Attention: W. Page Barnes
Tel: (205) 326-4081
Fax: (205) 326-4790
------------ ------
$ 65,000,000 100.00%
78
<PAGE>
EXHIBIT 10.6
<PAGE>
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement") dated
as of December 31, 1995, is made by and between WELCARE INTERNATIONAL, INC.,
a Georgia corporation ("Employer"), and J. STEPHEN EATON, an individual
resident of Georgia ("Executive").
Employer recognizes that Executive's contribution to the growth and
success of Employer in future years will be a significant factor in the success
of Employer. Employer desires to provide for the employment of Executive in a
manner which will reinforce and encourage the dedication of Executive to
Employer and promote the best interests of Employer and its shareholders.
Executive is willing to serve Employer on the terms and conditions herein
provided. Certain terms used in this Agreement are defined in Section 18
hereof.
In consideration of the foregoing, the mutual covenants contained herein,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. EMPLOYMENT. Employer shall employ Executive, and Executive shall
serve Employer, as President and Chief Executive Officer of Employer upon the
terms and conditions set forth herein. In such capacity he shall have full
authority to manage the operations of Employer, including, without limitation,
the discretion over personnel, facilities, budgets, and other operational
matters, subject to the direction of the Board of Directors (the "Board").
Executive shall devote his full business time, attention, skill and efforts to
the performance of his duties hereunder, except during periods of illness or
periods of vacation and leaves of absence consistent with Employer policy.
Executive may devote reasonable periods to service as a director or advisor to
other organizations, to charitable and community activities, and to managing his
personal investments, PROVIDED that such activities do not materially
interfere with the performance of his duties hereunder and are not in conflict
or competitive with, or adverse to, the interests of Employer.
2. TERM. Unless earlier terminated as provided herein, Executive's
employment under this Agreement shall be for an initial term (the "Term") of
four (4) years which, beginning on the second anniversary of the effective
date of this Agreement, shall be extended automatically (without further
action of Employer or Executive) each day for an additional day so that the
remaining term shall continue to be (2) two years.
3. COMPENSATION AND BENEFITS.
(a) As compensation for his services hereunder, Employer shall pay
to Executive a base salary of $300,000 per year, payable in bi-weekly or
semi-monthly installments. Such base salary shall be reviewed at least annually
on May 1 of each year by the Board to determine whatever increase may be
merited; PROVIDED, HOWEVER, that the minimum annual
<PAGE>
increase shall be the increase in the Consumer Price Index as published by the
U.S. Department of Labor, Bureau of Statistics, for the period since the last
annual review (or, in the case of the first such review, the date of this
Agreement).
(b) Executive shall participate in Employer's management incentive
program and shall be eligible to receive annual payments based upon achievement
of targeted levels of performance and such other criteria as the Board (or an
appropriate committee of the Board) shall establish from time to time.
(c) Executive shall participate in Employer's long-term equity
incentive program and be eligible for the grant of stock options, restricted
stock and other awards thereunder. On the effective date of this Agreement,
Employer shall grant to Executive options to purchase 166,665 shares of the
common stock, $.01 par value per share (the "Common Stock"), of Employer.
Executive shall have an option to purchase 83,333 Option Shares ("Option One"),
which option shall have a term of ten years, shall be exercisable at a per-share
price of $9.675 and shall vest at the rate of 25 percent per year, commencing on
the first anniversary of the date of this Agreement. On each of the three
succeeding anniversaries of such date, provided that Executive continues to be
employed on a full-time basis by Employer, Executive shall be entitled to
exercise Option One with respect to 25% of the Option Shares subject to Option
One (rounded to the nearest whole share) until Option One terminates. Executive
shall have an option to purchase an additional 83,332 Option Shares ("Option
Two"), which option shall have a term of ten years and shall be exercisable at a
per-share price of $9.675 and shall vest at the rate of 25 percent per year and
on such other terms as Option One but Option Two shall accelerate its vesting to
50% of the unvested shares, provided that Executive continues to be employed on
a full-time basis by Employer, and Employer consummates a firm commitment
underwritten public offering of shares of Common Stock. The remaining 50% of
the unvested shares shall vest on the one year anniversary of such public
offering. The options shall, to the extent practicable, be qualified as
incentive stock options under the Internal Revenue Code of 1986, as amended
(the "Code"), and shall be subject to the other terms and conditions of
Employer's 1996 Stock Option Plan. Nothing herein shall be deemed to
preclude the granting to Executive of warrants or options under a director
option plan in addition to the options granted hereunder.
(d) Executive shall participate in all retirement, welfare and other
benefit plans or programs of Employer (including, at Employer's sole expense,
health, dental and hospitalization insurance coverage for Executive, his spouse
and dependents) now or hereafter applicable generally to employees of Employer
or to a class of employees that includes senior executives of Employer;
PROVIDED that during any period during the Term that Executive is subject to a
Disability, and during the one-hundred-eighty (180) day period of physical or
mental infirmity leading up to Executive's Disability, the amount of Executive's
compensation provided under this Section 3 shall be reduced by the sum of the
amounts, if any, paid to Executive for the same period under any disability
benefit or pension plan of Employer or any of its subsidiaries.
(e) Employer shall reimburse Executive for reasonable travel and
other expenses related to Executive's duties which are incurred and accounted
for in accordance with the normal practices of Employer.
2
<PAGE>
(f) Executive shall be entitled to and Employer shall provide for
Executive's personal use access to up to $15,000 in the aggregate of legal,
accounting or other professional advice ordinarily available to Employer which,
subject to professional responsibility requirements, will be provided to
Executive by Employer's primary legal counsel, accountants or other appropriate
professionals.
4. TERMINATION.
(a) Executive's employment under this Agreement may be terminated
prior to the end of the Term only as follows:
(i) upon the death of Executive;
(ii) by Employer due to the Disability of Executive upon
delivery of a Notice of Termination to Executive;
(iii) by Employer for Cause upon delivery of a Notice of
Termination to Executive;
(iv) by Executive for Good Reason upon delivery of a Notice
of Termination to Employer within a ninety (90) day period beginning
on the 30th day after the occurrence of a Change in Control or
within a ninety (90) day period beginning on the one year
anniversary of the occurrence of a Change in Control;
(v) by Employer at any time upon delivery of a Notice of
Termination to Executive after a vote of a majority of the Board in
favor of the termination of Executive, other than termination
pursuant to the foregoing clause (i), (ii) or (iii); and
(vi) by Executive effective upon the 90th day after delivery
of a Notice of Termination.
(b) If Executive's employment with Employer shall be terminated
during the Term pursuant to clause (i), (ii) or (iv) of the foregoing paragraph
(a), Executive (or, in the case of his death, Executive's estate) shall be
entitled to the following:
(i) Employer shall pay Executive in cash within fifteen (15)
days of the Termination Date an amount equal to all Accrued
Compensation;
(ii) Employer shall pay to Executive in cash at the end of
each of the thirty-six (36) consecutive months following the
Termination Date the Base Amount divided by (12) twelve; PROVIDED,
HOWEVER, that beginning three (3) years after the date of this
Agreement or upon the earlier consummation of the initial public
offering of the Employer any such payments accruing due to a
termination event preceding such date shall be made for only
twenty-four (24) consecutive months; and
3
<PAGE>
(iii) the restrictions on any outstanding incentive awards
(including the stock options set forth in Section 3(c) herein)
granted to Executive under Employer's long-term equity incentive
program or under any other incentive plan or arrangement shall lapse
and such incentive awards shall become 100% vested, and all stock
options and stock appreciation rights granted to Executive shall
become immediately exercisable and shall become 100% vested.
(c) If Executive's employment with Employer shall be terminated
during the Term pursuant to clause (v) of the foregoing paragraph (a), Executive
(or, in the case of his death, Executive's estate) shall be entitled to the
following:
(i) Employer shall pay Executive in cash within fifteen (15)
days of the Termination Date an amount equal to all Accrued
Compensation; and
(ii) Employer shall pay to Executive in cash at the end of
each of the thirty-six (36), consecutive months following the
Termination Date the Base Amount, divided by (12) twelve;
PROVIDED, HOWEVER, that beginning three (3) years after the date
of this Agreement or upon the earlier consummation of the initial
public offering of the Employer any such payments accruing due to a
termination event preceding such date shall be made for only
twenty-four (24) consecutive months.
(d) If Executive's employment with Employer shall be terminated
during the Term pursuant to clause (iii) or clause (vi) of the foregoing
paragraph (a), Executive shall be entitled to be paid by Employer in cash within
fifteen (15) days of the Termination Date an amount equal to all Accrued
Compensation.
(e) Executive shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise
and no such payment shall be offset or reduced by the amount of any compensation
or benefits provided to Executive in any subsequent employment except.
(f) In the event that any payment or benefit (within the meaning
of Section 280(b)(2) of the Code) to Executive or for his benefit paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise in connection with, or arising out of, his employment with Employer
or a change in ownership or effective control of Employer or of a substantial
portion of its assets (a "Payment" or "Payments"), would be subject to the
excise tax imposed by Section 4999 of the Code or any interest or penalties are
incurred by Executive with respect to such excise tax (such excise tax, together
with any such interest and penalties, are hereinafter collectively referred to
as the "Excise Tax"), then Executive will be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by Executive
of all taxes (including any interest or penalties, other than interest and
penalties imposed by reason of Executive's failure to file timely a tax return
or pay taxes shown due on his return, imposed with respect to such taxes and the
Excise Tax), including any Excise Tax imposed upon the Gross-Up Payment,
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(g) The severance pay and benefits provided for in this Section 4
shall be in lieu of any other severance or termination pay to which Executive
may be entitled under any Employer severance or termination plan, program,
practice or arrangement. Executive's
4
<PAGE>
entitlement to any other compensation or benefits shall be determined in
accordance with Employer's employee benefit plans and other applicable programs,
policies and practices then in effect.
5. TRADE SECRETS.
(a) Executive agrees to keep confidential, and agrees that he
shall not, at any time, either during the Term of his employment or after the
Termination Date, use or disclose any Trade Secrets of the Employer, except in
fulfillment of his duties as Executive during his employment, for so long as the
pertinent information or data remain Trade Secrets, whether or not the Trade
Secrets are in written or tangible form.
(b) Executive agrees to maintain in strict confidence and, except
as necessary to perform his or her duties for Employer, not to use or disclose
and Confidential Business Information of Employer during his employment.
(c) Executive agrees that upon termination of his employment for
any reason, Executive shall forthwith return to or leave with Employer all
business records, contracts, calendars, telephone lists and other materials
relating to Employer, its business or its clientele, including all copies
thereof, whether or not Executive prepared them himself or they were provided by
Employer.
6. NON-COMPETITION AND NON-SOLICITATION COVENANTS.
(a) Executive recognizes that Executive is expected to be a key
employee whose specialized skills, abilities and contacts are considered
essential for the success of Employer. Executive further recognizes that
Employer specifically would not enter into this Agreement if it could not rely
on obtaining Executive's exclusive and undivided loyalty and attention and
Executive's compliance with the terms of this Agreement.
(b) During the Term and following any termination of his
employment, Executive shall not, directly or indirectly, (as a director,
officer, employee, manager, consultant, independent contractor, agent, advisor,
equity or debt holder or otherwise)engage in competition with, or own any
interest in, perform any services for, participate in or be connected with any
business or organization which operates a skilled nursing care facility or
facilities or any other type of residential facility in the Territory;
PROVIDED, HOWEVER, that the provisions of this paragraph (b) shall not
prohibit Executive's ownership of not more than 5% of the total shares of all
classes of stock outstanding of any publicly held company.
(c) During the Term and following any termination of his
employment, Executive shall not solicit, directly or indirectly, any Customers
(as hereinafter defined) of Employer, with whom Executive had material contact
during his employment.
(d) During the Term and following any termination of his
employment, Executive shall not, directly or indirectly, solicit for employment
or advise or recommend to any other person that he, she or it employ or solicit
for employment, any employee of Employer.
(e) The restrictions set forth in Sections 6(b), (c) and (d) shall
last for one (1) year following any termination of Executive's employment
pursuant to Section 4 hereof.
5
<PAGE>
(f) For purposes of this Agreement:
"Customers" shall mean the largest customers of Employer, and its
subsidiaries, including, but not limited to, the nursing homes that Employer and
its subsidiaries serve, which the parties agree shall mean those customers
(selected in descending order of annual income they provide to Employer) who
cumulatively represented eighty percent (80%) of the combined income of Employer
and its subsidiaries during the one (1) year period preceding the Termination
Date. To the extent applicable following termination of Executive's employment,
in no event shall any person or entity be considered "Customers" for purposes of
this Agreement if they conducted no financial business with Employer, or its
subsidiaries within the one (1) year period preceding the Termination Date of
Executive's employment.
The "Territory" shall mean the area located within the 10-mile radius of
any skilled nursing care or other residential facility operated by Employer, or
its affiliates, on the Termination Date. Set forth on the attached Schedule I,
which is incorporated herein by reference, is the name and street address of
each facility operated by Employer, or its affiliates, on the date of this
Agreement. The Employer shall, with the consent of Executive (which consent
shall not be unreasonably withheld), revise Schedule I from time to time to
reflect any additions, deletions, or changes in the facilities operated by
Employer. It is mutually acknowledged that Executive has significant management
and operations responsibility with respect to each such facility.
7. SUCCESSORS; BINDING AGREEMENT.
(a) This Agreement shall be binding upon and shall inure to the
benefit of Employer, its Successors and Assigns and Employer shall require any
Successors and Assigns to expressly assume and agree to perform this Agreement
in the same manner and to the same extent that Employer would be required to
perform it if no such succession or assignment had taken place.
(b) Neither this Agreement nor any right or interest hereunder shall
be assignable or transferable by Executive, his beneficiaries or legal
representatives, except by will or by the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by Executive's
legal personal representative.
8. FEES AND EXPENSES. Employer shall pay all legal fees and related
expenses (including the costs of experts, evidence and counsel) incurred by
Executive as they become due as a result of (a) Executive's termination of
employment (including all such fees and expenses, if any, incurred in contesting
or disputing any such termination of employment) and (b) Executive seeking to
obtain or enforce any right or benefit provided by this Agreement; PROVIDED,
HOWEVER, that Executive must repay any amounts advanced pursuant to this
Section 8 if Executive does not prevail in any action or dispute regarding
Executive's rights under this Agreement and legal fees and related expenses were
advanced.
9. PUBLICITY. Except as set forth below, after the Termination Date
(a) no disclosure, public or otherwise, shall be made by Executive or Employer,
as the case may be, with respect to the terms and conditions of this Agreement
or the severance of Executive's employment relationship with Employer, except as
may be required by law, (b) Executive further agrees that Executive will not
demean or disparage Employer, publicly or otherwise, and (c) any inquiries made
of Employer, its officers, employees or representatives concerning
6
<PAGE>
Executive shall be answered only with a "neutral reference." The phrase
"neutral reference" as used herein shall mean only the inclusive dates of
Executive's tenure with Employer, the positions Executive held with Employer
during Executive's employment, and the rate at which Executive was compensated
for Executive's positions with Employer. Employer shall not provide any
additional information about Executive whatsoever; PROVIDED, HOWEVER, that
Employer shall explain in response to such inquiries that "Company policy
requires us to refrain from making any further response."
10. NOTICE. Notices and all other communications provided for in the
Agreement (including the Notice of Termination) shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to Employer:
WelCare International, Inc.
7000 Central Parkway, Suite 970
Atlanta, Georgia 30328
Attention: Board of Directors
with a copy to:
Nelson Mullins Riley & Scarborough, L.L.P.
400 Colony Square, Suite 2200
1201 Peachtree Street
Atlanta, Georgia 30361
Attention: Paul A. Quiros, Esq.
If to Executive:
Mr. J. Stephen Eaton
130 Knightsridge Court
Dunwoody, Georgia 30350
Either party may by written notice change the address to which notices to such
party are to be delivered or mailed, and notwithstanding the other provisions of
this section, such notice shall not be deemed given until it is actually
received.
11. SETTLEMENT OF CLAIMS. Employer's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
Employer may have against Executive or others. Employer may, however, withhold
from any benefits payable under this Agreement all federal, state, city, or
other taxes as shall be required pursuant to any law or governmental regulation
or ruling.
12. MODIFICATION AND WAIVER. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by Executive and Employer. No waiver by any
party hereto at any time of any breach
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by the other party hereto of, or compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
13. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Georgia without giving
effect to the conflict of laws principles thereof. Employer and Executive agree
that venue for any dispute that may arise concerning this agreement shall be in
DeKalb County, Georgia, or Fulton County, Georgia.
14. SEVERABILITY. The parties agree that the provisions of this
Agreement are severable and the invalidity or unenforceability of any provision
in whole or part shall not affect the validity or enforceability of any
enforceable part of such provision or any other provisions hereof.
15. ENTIRE AGREEMENT. This Agreement, with that certain Investment
Agreement dated as of December 29, 1992, between Employer and the other parties
thereto, as amended from time to time, and the agreements contemplated thereby,
other than that certain Employment Agreement dated December 29, 1992, by and
between Employer and Executive (the "Prior Employment Agreement"), constitute
the entire agreement between the parties hereto and supersede all prior
agreements, if any, understandings and arrangements, oral or written, between
the parties hereto with respect to the subject matter hereof, including without
limitation the Prior Employment Agreement.
16. HEADINGS. The headings of Sections herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
17. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
18. DEFINITIONS. For purposes of this Agreement, the following terms
shall have the following meanings:
(a) "Accrued Compensation" shall mean an amount which shall include
all amounts earned or accrued through the Termination Date but not paid as of
the Termination Date including (i) base salary, (ii) reimbursement for
reasonable and necessary expenses incurred by Executive on behalf of Employer
during the period ending on the Termination Date, and (iii) bonuses and
incentive compensation.
(b) "Base Amount" shall mean the greater of Executive's annual base
salary (i) at the rate in effect on the Termination Date or (ii) at the highest
rate in effect at any time during the ninety day period prior to the Change in
Control, and shall include all amounts of his base salary that are deferred
under the qualified and non-qualified employee benefit plans of Employer or any
other agreement or arrangement.
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(c) The termination of Executive's employment shall be for "Cause"
if it is a result of:
(i) any act that constitutes, on the part of Executive,
fraud, dishonesty, gross malfeasance of duty, or conduct grossly
inappropriate to Executive's office; or
(ii) the conviction (from which no appeal may be or is timely
taken) of Executive of a felony.
PROVIDED, HOWEVER, that in the case of clause (i) above, such conduct shall
not constitute Cause unless (A) there shall have been delivered to Executive a
written notice setting forth with specificity the reasons that the Board
believes Executive's conduct constitutes the criteria set forth in clause (i),
(B) Executive shall have been provided the opportunity to be heard in person by
the Board (with the assistance of Executive's counsel if Executive so desires),
and (C) after such hearing, the termination is evidenced by a resolution adopted
in good faith by three-fourths of the members of the Board (other than
Executive).
(d) A "Change in Control" shall mean the occurrence during the Term
of any of the following events:
(i) An acquisition (other than directly from Employer) of
any voting securities of Employer (the "Voting Securities") by any
"Person" (as the term person is used for purposes of Section 13(d)
or 14(d) of the Securities Exchange Act of 1934 (the "1934 Act"))
immediately after which such Person has "Beneficial Ownership"
(within the meaning of Rule 13d-3 promulgated under the 1934 Act) of
40% or more of the combined voting power of Employer's then
outstanding Voting Securities; PROVIDED, HOWEVER, that in
determining whether a Change in Control has occurred, Voting
Securities which are acquired in a "Non-Control Acquisition" (as
hereinafter defined) shall not constitute an acquisition which would
cause a Change in Control. A "Non-Control Acquisition" shall mean
an acquisition by (1) an employee benefit plan (or a trust forming a
part thereof) maintained by (x) Employer or (y) any corporation or
other Person of which a majority of its voting power or its equity
securities or equity interest is owned directly or indirectly by
Employer (a "Subsidiary"), (2) Employer or any Subsidiary, or (3)
any Person in connection with a "Non-Control Transaction" (as
hereinafter defined);
(ii) Prior to the initial public offering of securities of
Employer (the "IPO"), the Board ceases to consist solely of the
nominees selected pursuant to that certain Shareholders Agreement,
dated as of the date of that certain Plan of Merger among Employer,
WelCare Transitional Acquirors, Inc., and Transitional Health
Services, Inc., between Employer and the parties thereto, as it may
be amended from time to time, and after the IPO of Employer, the
individuals who, as of the date of the initial closing of the IPO
are members of the Board (the "Incumbent Board") cease for any
reason to constitute at least two-thirds of the Board; PROVIDED,
HOWEVER, that if the election, or nomination for election by
Employer's shareholders, of any new director was approved by a vote
of at least two-thirds of the Incumbent Board, such new director
shall, for purposes of this Agreement, be considered as a member of
the Incumbent
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Board; PROVIDED, FURTHER, HOWEVER, that no individual shall be
considered a member of the Incumbent Board if such individual
initially assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11
promulgated under the 1934 Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person
other than the Board (a "Proxy Contest") including by reason of any
agreement intended to avoid or settle any Election Contest or Proxy
Contest; or
(iii) Approval by shareholders of Employer of:
(A) A merger, consolidation or reorganization
involving Employer, unless
(1) the shareholders of Employer, immediately
before such merger, consolidation or
reorganization, own, directly or indirectly,
immediately following such merger,
consolidation or reorganization, at least
two-thirds of the combined voting power of
the outstanding voting securities of the
corporation resulting from such merger or
consolidation or reorganization (the
"Surviving Corporation") in substantially
the same proportion as their ownership of
the Voting Securities immediately before
such merger, consolidation or
reorganization, and
(2) the individuals who were members of the
Incumbent Board immediately prior to the
execution of the agreement providing for
such merger, consolidation or reorganization
constitute at least two-thirds of the
members of the board of directors of the
Surviving Corporation.
A transaction described in clauses (1) and (2)
shall herein be referred to as a "Non-Control
Transaction;"
(B) A complete liquidation or dissolution of Employer;
or
(C) An agreement for the sale or other disposition of
all or substantially all of the assets of Employer
to any Person (other than a transfer to a
Subsidiary).
(iv) Notwithstanding anything contained in this Agreement to
the contrary, if Executive's employment is terminated prior to a
Change in Control and Executive reasonably demonstrates that such
termination (A) was at the request of a third party who has
indicated an intention or taken steps reasonably calculated to
effect a Change in Control and who effectuates a Change in Control
(a "Third Party") or (B) otherwise occurred in connection with, or
in anticipation of, a Change in Control which actually occurs, then
for
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all purposes of this Agreement, the date of a Change in Control with
respect to Executive shall mean the date immediately prior to the
date of such termination of Executive's employment.
(e) "Confidential Business Information" shall mean any internal,
non-public information (other than Trade Secrets) concerning Employer's
financial position and results of operations (including revenues, margins,
assets, net income, etc.); annual and long-range business plans; service and
product plans; marketing plans and methods; account invoices; training,
educational and administrative manuals; customer information, including names,
addresses, telephones, customer requirements and purchase histories; and
employee lists.
(f) "Disability" shall mean a physical or mental infirmity which
impairs Executive's ability to substantially perform his duties with Employer
for a period of 180 consecutive days, as determined by an independent physician
selected by agreement between Employer and Executive or, failing such agreement,
selected by two physicians (one of which shall be selected by Employer and the
other by Executive).
(g) "Good Reason" shall mean the occurrence after a Change in
Control of any of the following events or conditions:
(i) a change in Executive's status, title, position or
responsibilities (including reporting responsibilities) which, in
Executive's reasonable judgment, represents an adverse change from
his status, title, position or responsibilities as in effect at any
time within ninety days preceding the date of a Change in Control or
at any time thereafter; the assignment to Executive of any duties or
responsibilities which, in Executive's reasonable judgment, are
inconsistent with his status, title, position or responsibilities as
in effect at any time within ninety days preceding the date of a
Change in Control or at any time thereafter; any removal of
Executive from or failure to reappoint or reelect him to any of such
offices or positions, except in connection with the termination of
his employment for Disability, Cause, as a result of his death or by
Executive other than for Good Reason, or any other change in
condition or circumstances that in Executive's reasonable judgment
makes it materially more difficult for Executive to carry out the
duties and responsibilities of his office than existed at any time
within ninety days preceding the date of Change in Control or at any
time thereafter;
(ii) a reduction in Executive's base salary or any failure to
pay Executive any compensation or benefits to which he is entitled
within five days of the date due;
(iii) Employer's requiring Executive to be based at any place
outside a thirty (30) mile radius from the executive offices
occupied by Executive immediately prior to the Change in Control,
except for reasonably required travel on Employer's business which
is not materially greater than such travel requirements prior to the
Change in Control;
(iv) the failure by Employer to (A) continue in effect
(without reduction in benefit level and/or reward opportunities) any
material compensation or employee benefit plan in which Executive
was participating at
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any time within ninety days preceding the date of a Change in
Control or at any time thereafter, unless such plan is replaced with
a plan that provides substantially equivalent compensation or
benefits to Executive or (B) provide Executive with compensation and
benefits, in the aggregate, at least equal (in terms of benefit
levels and/or reward opportunities) to those provided for under each
other employee benefit plan, program and practice in which Executive
was participating at any time within ninety days preceding the date
of a Change in Control or at any time thereafter;
(v) the insolvency or the filing (by any party, including
Employer) of a petition for bankruptcy of Employer, which petition
is not dismissed within sixty (60) days;
(vi) any material breach by Employer of any provision of this
Agreement;
(vii) any purported termination of Executive's employment for
Cause by Employer which does not comply with the terms of this
Agreement; or
(viii) the failure of Employer to obtain an agreement,
satisfactory to Executive, from any Successors and Assigns to assume
and agree to perform this Agreement, as contemplated in Section 7
hereof.
Any of such events or conditions which occurs prior to a Change in Control but
which Executive reasonably demonstrates (A) was at the request of a Third Party,
or (B) otherwise arose in connection with, or in anticipation of, a Change in
Control which actually occurs, shall constitute Good Reason for purposes of this
Agreement, notwithstanding that it occurred prior to the Change in Control.
Executive's right to terminate his employment for Good Reason shall not be
affected by his incapacity due to physical or mental illness.
(h) "Notice of Termination" shall mean a written notice of
termination from Employer or Executive which specifies an effective date of
termination, indicates the specific termination provision in this Agreement
relied upon, and sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment under the
provision so indicated.
(i) "Successors and Assigns" shall mean Employer or a corporation or
other entity acquiring all or substantially all the assets and business of
Employer (including this Agreement), whether by operation of law or otherwise.
(j) "Termination Date" shall mean, in the case of Executive's death,
his date of death, and in all other cases, the date specified in the Notice of
Termination.
(k) "Trade Secrets" shall mean any information, including but not
limited to technical or non-technical data, a formula, a pattern, a compilation,
a program, a device, a method, a technique, a drawing, a process, financial
data, financial plans, product plans, information on customers, or a list of
actual or potential customers or suppliers, which: (i) derives economic value,
actual or potential, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain economic value
from its disclosure or use, and (ii) is the subject of efforts that are
reasonable under the
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circumstances to maintain its secrecy. Some of the information that Employer
treats as trade secrets includes financial information (revenues, margins,
assets, net income, etc.); annual and long-range business plans; product plans;
marketing plans and methods; account invoices; training, educational, and
administrative manuals; customer information; employee lists; suppliers;
wholesalers; and future business plans of Employer.
IN WITNESS WHEREOF, Employer has caused this Agreement to be executed and
its seal to be affixed hereunto by its officers thereunto duly authorized, and
Executive has signed and sealed this Agreement, effective as of the date first
above written.
WELCARE INTERNATIONAL, INC.
ATTEST:
By: /s/ Paul A. Quiros By: /s/ J. Stephen Eaton
-------------------------- -------------------------------------------
J. Stephen Eaton
President and Chief Executive Officer
EXECUTIVE
/s/ J. Stephen Eaton (L.S.)
-----------------------------------
J. Stephen Eaton
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SCHEDULE 10.6
WelCare International, Inc. n/k/a Centennial HealthCare Corporation
("CHC") has entered into agreements substantially identical to Exhibit 10.6 as
follows:
1. Employment Agreement dated December 31, 1995 by and between CHC and
Alan C. Dahl (the "Dahl Agreement"). Material details in which the Dahl
Agreement differs from Exhibit 10.6 are as follows:
(a) Mr. Dahl is employed as Executive Vice President and Chief
Financial Officer of the Company at a base salary of $175,000 per
year.
(b) The initial term of Mr. Dahl's agreement is for three years
and automatically extends, beginning on the second anniversary
of the effective date of the Agreement, (without further action
of Company or Mr. Dahl) each day for an additional day so that
the remaining term shall continue to be (1) one years.
(c) Mr. Dahl was granted options to purchase 55,555 shares of
Common Stock. Option One (as defined in Exhibit 10.6) was for
27,778 shares of common stock and Option Two (as defined in Exhibit
10.6) was for 27,777 shares of common stock.
(d) If Mr. Dahl's employment is terminated early for reasons other
than for Cause (as defined in Exhibit 10.6) or by delivery of notice
of termination by Mr. Dahl, then he is to be paid in cash at the end
of each of twelve (12) consecutive months following the Termination
Date (as defined in Exhibit 10.6) the Base Amount (as defined in
Exhibit 10.6) divided by twelve (12).
2. Employment Agreement dated December 31, 1995 by and between CHC and
Kent C. Fosha, Sr. A material detail in which this agreement differs from the
Dahl Agreement is that Mr. Fosha is employed as Executive Vice President of
Operations.
3. Employment Agreement dated December 31, 1995 by and between CHC and
Randall J. Bufford. A material detail in which this agreement differs from the
Dahl Agreement is that Mr. Bufford is employed as Executive Vice President of
the Company at a base salary of $250,000 per year.
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EXHIBIT 10.7
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of December 1, 1994, by and among LAWRENCE
W. LEPLEY, JR. (the "Employee"), TRANSITIONAL HEALTH SERVICES, INC., a Delaware
corporation (the "Employer" or "THSI"), and TRANSITIONAL HEALTH PARTNERS, a
Delaware general partnership d/b/a TRANSITIONAL HEALTH SERVICES (the
"Partnership"), as guarantor of the obligations of THSI.
W I T N E S S E T H:
WHEREAS, THSI has entered into an agreement to acquire the stock and/or
equity interests of Paragon Incorporated ("Paragon");
WHEREAS, Lawrence W. Lepley, Jr. is the current Chairman and Chief
Executive Officer of Paragon;
WHEREAS, THSI desires to induce Lawrence W. Lepley, Jr. to enter its
employ for the period provided in this Agreement in accordance with the terms
and conditions set forth below; and
WHEREAS, the Employee is willing to accept such employment on a full-time
basis in accordance with such terms and conditions;
NOW, THEREFORE, for and in consideration of the premises hereof and the
mutual covenants contained herein, the parties hereto hereby covenant and agree
as follows:
1. Employment. (a) THSI hereby employs the Employee, and the Employee
hereby accepts such employment, for the period set forth in Section 2 hereof,
all upon the terms and conditions hereinafter set forth.
(b) The Employee affirms and represents that he is under no obligation to
any former employer or other party which is in any way inconsistent with, or
which imposes any restriction upon, the Employee's acceptance of employment
hereunder, the employment of the Employee by. THSI, or the Employee's
undertakings under this Agreement.
2. Term of Employment. Unless earlier terminated as hereinafter provided,
the term of the Employee's employment under this Agreement shall be for a period
beginning on the date hereof and ending on December 31, 1997 (such period from
the date hereof until the date the Employee's employment hereunder is terminated
is hereinafter referred to as the "Employment Term"). On January 1, 1998, and
each anniversary thereafter, the period of Employee's employment shall be
extended for additional one (1) year periods, unless either party gives notice
thirty (30) days in advance of the expiration of the then current period of
employment of such party's intent not to extend the Employment Term.
3. Duties. The Employee shall be employed as a Director, President and
Chief Executive Officer of Paragon. The Employee shall faithfully perform such
employment duties
<PAGE>
and responsibilities as the Board of Directors of THSI may from time to time
reasonably prescribe. The Employee shall be based in Nashville, Tennessee.
Except as may otherwise be approved in advance by the Board of Directors of
THSI, and except during vacation periods and reasonable periods of absence due
to sickness, personal injury or other disability, the Employee shall devote his
full time throughout the Employment Term to the services required of him
hereunder. The Employee shall render his services exclusively to THSI and its
subsidiaries during the Employment Term and shall use his best efforts, judgment
and energy to improve and advance the business and interests of THSI in a manner
consistent with the duties of his position.
4. Compensation. (a) As compensation for the performance by the Employee
of the services to be performed by the Employee hereunder during the Employment
Term, Employee shall be paid a base salary at the annual rate of not less than
One Hundred Twenty- Five Thousand Dollars ($125,000) (said amount, together with
any increments thereto as may be determined from time to time by the Board of
Directors of THSI in its sole discretion, being hereinafter referred to as the
"Salary"). Any Salary payable hereunder shall be paid in regular intervals in
accordance with THSI's ordinary payroll practices.
(b) If Paragon (the "Company") achieves earnings before interest and taxes
("EBIT") from internal growth and profitability during any full calendar year of
the Employment Term equal to 85% or more of the level of EBIT ("Targeted EBIT")
specified in the Company's annual base financial plan approved by the Board of
Directors of THSI (the "Base Financial Plan"), the Company shall pay the
Employee a cash bonus (the "Bonus") in respect of such year in an amount
determined pursuant to the provisions of this paragraph (b). If the Company
achieves 85% (such percentage is referred to herein as the "Base Percentage") or
more of Targeted EBIT specified in the Base Financial Plan for such year, but
does not achieve 100% of such Targeted EBIT, the Company shall pay the Employee
a cash Bonus equal to the Salary for such year times the percentage obtained by
subtracting the Base Percentage from the percent of Targeted EBIT so achieved.
If the Company achieves 100% (the "Targeted Percentage") of Targeted EBIT for
such year, the Company shall pay the Employee a cash Bonus equal to the Salary
for such year, times 20% (such Bonus shall be referred to herein as the
"Targeted Bonus"). If the Company achieves more than 100% of Targeted EBIT for
such year, the Company shall pay the Employee (i) the Targeted Bonus, and (ii)
an additional cash Bonus equal to (x) the Salary for such year, times (y) the
quotient of (A) the percentage obtained by subtracting the Targeted Percentage
from the percent of Targeted EBIT so achieved up to a maximum of 140% divided by
(B) 2. A Bonus payable hereunder shall be payable no later than one month after
approval by the Board of Directors of THSI of the audited annual financial
statements of the Company for the fiscal year in respect of which such Bonus is
payable (the "Financials" for such fiscal year), and the Company shall use its
best efforts to cause its auditors to deliver such Financials within 90 days
after the end of such fiscal year. For purposes of calculating the bonus, the
effect of the bonus to be paid shall not be considered.
(c) The payment of any Salary and Bonus hereunder shall be subject to
applicable withholding and payroll taxes, and such other deductions as may be
required under the Employer's employee benefit plans.
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5. Benefits. During the Employment Term, the Employee shall be afforded
benefits that are equal to, or greater than, the benefits afforded Employee by
Paragon at the time of its acquisition by THSI and shall:
(a) be eligible to participate in all employee fringe benefits and any
pension and/or profit sharing plans that may be provided by the THSI or the
Partnership for its key executive employees generally in accordance with the
provisions of any such plans, as the same may be in effect on and after the date
hereof;
(b) be eligible to participate in any medical and health plans or other
employee welfare benefit plans that may be provided by THSI or the Partnership
for its key executive employees generally in accordance with the provisions of
any such plans, as the same may be in effect on and after the date hereof;
(c) be entitled to three (3) weeks annual paid vacation (selected at his
option, but subject to the reasonable business requirements of THSI), and such
other leave as may be applicable on and after the date hereof to key executive
employees of THSI generally;
(d) be entitled to sick leave, sick pay and disability benefits in
accordance with any policy that may be applicable on and after the date hereof
to key executive employees of THSI generally;
(e) be entitled to an automobile allowance in the amount of five hundred
dollars ($500) per month, with all expenses relating to such automobile
(including without limitation repairs, maintenance, insurance and gasoline used
in connection with the business of THSI) being paid by Employer;
(f) be entitled to reimbursement for all reasonable and necessary
out-of-pocket business expenses incurred by the Employee in the performance of
his duties hereunder in accordance with all applicable THSI policies; and
(g) receive an option to purchase 35,000 shares of THSI common stock at an
exercise price of $1.50 per share under THSI's nonqualified employee stock
option plan.
6. Confidentiality. The Employee and Employer hereby agree to and
acknowledge the following:
(a) The Employee's employment hereunder creates a relationship of
confidence and trust between the Employee and THSI with respect to certain
information pertaining to the business of THSI and its Affiliates (as
hereinafter defined) or pertaining to the business of any client or customer of
THSI, or its Affiliates, which may be made known to the Employee or learned by
the Employee during the period of his employment.
(b) THSI possesses and will continue to possess information that has been
created, discovered or developed by, or otherwise become known to it (including,
without limitation, information created, discovered or developed by, or made
known to, the Employee during the
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period of his employment or arising out of his employment) or in which property
rights have been or may be assigned or otherwise conveyed to THSI, which
information has commercial value in the business in which THSI is engaged and
which is treated by THSI as confidential.
(c) The Employee agrees that he will not without the prior written consent
of THSI (i) use for his benefit or disclose at any time during his employment by
THSI, or thereafter, except to the extent required by the performance by him of
his duties as an employee, or otherwise as required by law, any information
obtained or developed by him while in the employ of THSI with respect to any
customers, clients, suppliers, products, employees, financial affairs, or
methods of marketing, service or procurement of THSI or any of its Affiliates,
or any confidential matter regarding the business of THSI or any of its
Affiliates, except information that at the time is generally known to the public
other than as a result of disclosure by him not permitted hereunder, or (ii)
take with him upon leaving the employ of THSI any document or paper relating to
any of the foregoing or any physical property of THSI or any of its Affiliates.
(d) The Employee acknowledges and agrees that a remedy at law for any
breach or threatened breach of the provisions of this Section 6 would be
inadequate and, therefore, agrees that THSI and its Affiliates shall be entitled
to injunctive relief in addition to any other available rights and remedies in
case of any such breach or threatened breach; provided, however, that nothing
contained herein shall be construed as prohibiting THSI or any of its Affiliates
from pursuing any other rights and remedies available for any such breach or
threatened breach.
(e) The Employee agrees that upon termination of his employment by THSI
for any reason, the Employee shall forthwith return to THSI all documents and
other property in his possession belonging to the THSI or any of its Affiliates.
(f) Without limiting the generality of Section 13 hereof, the Employee
hereby expressly agrees that the foregoing provisions of this Section 6 shall be
binding upon the Employee's heirs, successors and legal representatives.
(g) For the purposes of this Agreement, the term "Affiliate" or
"Affiliates" shall mean any corporation or other entity (i) which owns 10% of
THSI in whole or in part, or which controls THSI directly or indirectly, whether
through common control or otherwise, (ii) 10% of the equity interest of which is
owned by THSI or which is controlled, directly or indirectly, by THSI or (iii)
which is under the common control, directly or indirectly, of THSI and any
person or entity.
7. Termination. (a) The Employee's employment hereunder shall be
terminated upon the occurrence of any of the following:
(i) death of the Employee;
(ii) termination of the Employee's employment hereunder by the
Employee at any time for any reason whatsoever (including,
without limitation, resignation or retirement), except as
described in subjection 7(a)(v)(2) below;
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(iii) termination of the Employee's employment hereunder by THSI
because of the Employee's inability to perform his duties on
account of disability or incapacity for a period of one
hundred twenty (120) or more days, whether or not consecutive,
occurring within any period of twelve (12) consecutive months;
(iv) termination of the Employee's employment hereunder by THSI at
any time "For Cause" (as is hereinafter defined); and
(v) termination of the Employee's employment hereunder either by
(1) THSI at any time, other than termination by reason of
disability or incapacity as contemplated by clause (iii) above
or termination by THSI "for cause", as hereinafter defined and
as is contemplated by clause (iv) above, or (2) the Employee
because of the occurrence of events constituting a
constructive discharge. "Constructive discharge" shall be
defined as termination of the Employee's employment by the
Employee due to a failure of the Employer to fulfill its
obligations under this Agreement in any material respect,
including any reduction of the Employee's Salary or other
compensation (other than reductions applicable to all
employees of the Employer) or failure to appoint or reappoint
the Employee to the positions specified herein, or other
material diminution in the functions, duties or
responsibilities of the position which would reduce the
ranking or level, responsibility, importance or scope of the
position.
(b) Termination "For Cause" means termination of the Employee's employment
by THSI's Board of Directors acting in good faith by written notice to the
Employee specifying the event relied upon for such termination, due to the
Employee's (1) conviction of a felony, (2) acts of dishonesty or moral turpitude
that are materially detrimental to THSI, (3) acts or omissions which the
Employee knew or should have reasonably known were likely to materially damage
the business of THSI, (4) failure to obey the reasonable and lawful orders of
the officers or directors of THSI or (5) gross negligence in the performance of,
or willful disregard of, his obligations hereunder.
(c) In the event that the Employee's employment is terminated, at any
time, pursuant to clause (i), (iii) or (V) of subsection 7 (a) above, then THSI
and the Partnership shall pay to the Employee, as severance pay or liquidated
damages or both, an amount equal to the Employee's Salary for the most recent
nine month period (the "Severance Payment"). Said Severance Payment shall be
made in a single lump sum payment upon termination of employment. In the event
the Severance Payment is not made when due, interest shall accrue at the rate of
ten percent (10%) per annum.
(d) Notwithstanding anything to the contrary expressed or implied herein,
except as required by applicable law and except as set forth in paragraph (c)
above and Sections 8 and 12 hereof, THSI (and its Affiliates) shall not be
obligated to make any payments to the Employee, or on his behalf, of any kind or
nature by reason of the Employee's cessation of employment (including, without
limitation, by reason of termination of the Employees employment by THSI
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for "cause"), other than (i) such amounts, if any, of his Salary and Bonus as
shall have accrued and remained unpaid as of the date of said cessation, and
(ii) such other amounts which may be then otherwise payable to the Employee from
THSI's benefits plans or reimbursement policies, if any.
(e) Except as described in subsection 7(c) above, no interest shall accrue
on or be paid with respect to any portion of any payments due under this Section
7.
8. Transfer of Securities by Employee; Purchase Option.
(a) The parties acknowledge that the Employee is currently the owner of
shares of Common Stock, $.01 par value ("Common Stock"), and shares of 12%
Redeemable Preferred Stock, $1 par value ("Preferred Stock")(such shares,
together with any shares of Common Stock or Preferred Stock of THSI issued in
exchange or substitution therefor being herein called the "Shares"). The
Employee hereby covenants and agrees that, unless he shall have received the
prior written consent of THSI therefor, he shall not sell, assign, convey, give,
transfer, pledge, hypothecate or otherwise alienate, dispose of or encumber,
voluntarily or by operation of law, the Shares (or any other shares of Common
Stock or Preferred Stock) or any other securities of THSI, now owned or
hereafter acquired, including without limitation, stock options held by Employee
(collectively, the "Securities"), or any right, title or interest therein,
during the Employment Term, except as provided herein.
(b) In the event the Employment Term is terminated, Employer shall have
the right and option to repurchase all or any part of the Securities, upon the
following terms and conditions:
(i) The Employer's option may be exercised by Employer at any time
during a period commencing upon termination of employment and
ending on the sixtieth day after the receipt of an appraisal
of the Securities as provided in clause (iii) below.
(ii) The option shall be exercised by Employer giving written
notice thereof ("Option Notice") to Employee in accordance
with Section 14 hereof. The date of mailing of the Option
Notice shall be the date of exercise. The Option Notice shall
specify a date and place for closing of the purchase, which
date shall not be more than thirty (30) days after the date of
exercise ("Purchase Option Closing"), and the Securities that
Employer elects to purchase from Employee at the Purchase
Option Closing (the "Purchase Option Securities").
(iii) The purchase price to be paid by THSI to the Employee for the
Purchase Option Securities being purchased pursuant to this
paragraph (b) shall be equal to the fair market value of such
Securities as agreed upon the parties. In the event the
parties are unable to agree upon the fair market value,
Employee and Employer shall each name an appraiser who shall
then name an independent third-party to determine the fair
market value
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of the Purchase Option Securities. If the Securities are
traded on an exchange or over the counter, the fair market
value shall be equal to the trading price of such Securities
on the date of termination.
(iv) At the Purchase Option Closing, THSI shall deliver the
purchase price of the Purchase Option Securities to the
Employee in immediately available funds. At such Purchase
Option Closing, the Employee shall execute and deliver to THSI
such stock powers and such other instruments of transfer as
counsel for THSI deems reasonably necessary to validly and
effectively transfer title to the Purchase Option Securities
to THSI, free and clear of any lien, claim or encumbrance. In
connection with any such closing, the Employee shall also
execute and deliver to THSI a notarized affidavit warranting
that the Employee is the sole owner of the Purchase Option
Securities free and clear of any lien or encumbrance of any
kind or character.
(v) In the event THSI, Paragon or their affiliates accomplish an
initial public offering ("IPO") within 120 days of the
Purchase Option Closing at a price to public of the shares
sold in such offering greater than the purchase price paid by
THSI to Employee for the Purchase Option Securities, THSI
shall pay to Employee at the closing of the IPO a sum equal to
the difference between the price paid by THSI to Employee and
the price to the public in the IPO.
(vi) Each party shall bear their own costs of the Purchase Option
Closing, except that THSI shall pay for the cost of the
appraiser.
9. Non-Assignability.
(a) Neither this Agreement nor any right or interest hereunder shall be
assignable by the Employee, his beneficiaries, or legal representatives without
the prior written consent of THSI, provided, however, that nothing in this
Section 9(a) shall preclude the Employee from, designating a beneficiary to
receive any benefit payable hereunder upon his death or incapacity.
(b) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation or to exclusion,
attachment, levy or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to effect any such action shall be null, void
and of no effect.
10. Competition.
(a) During the Employment Term and for a one (1) year period following the
termination of the Employee's employment if the Employee is terminated pursuant
to section 7(a)(ii) or section 7(a)(iv) of this Agreement, the Employee will:
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(1) not directly or indirectly (as a director, officer, employee,
manager, consultant, independent contractor, advisor or
otherwise) engage in competition with, or own any interest in,
perform any services for, participate in or be connected with
any business or organization which engages in competition with
THSI or any entity which it controls in the states (or any
other geographical area within a twenty-five (25) mile radius
of any location where any business is presently carried on)
where any business shall be hereafter, during the period of
the Employee's employment, be carried on by THSI and any
entity which it controls, provided, however, that the
provisions of this Section 10(a) shall not be deemed to
prohibit the Employee's ownership of not more than 1% of the
total shares of all classes of stock outstanding of any
publicly held company;
(2) not make any statement or perform any act intended. to advance
an interest of any existing or prospective competitor of THSI
or any entity it controls in any way that will or may injure
an interest of THSI or any entity it controls in its
relationship and dealings with existing or potential customers
or clients, or solicit or encourage any other employee of THSI
or any entity it controls to do any act that is disloyal to
THSI or any entity it controls or inconsistent with the
interest of THSI or any entity it controls or in violation of
any provision of this Agreement; or
(3) not directly or indirectly solicit for employment or advise or
recommend to any other person that they employ or solicit for
employment, any employee of THSI or any entity that it
controls.
(b) For purposes of this Section 10, a person or entity (including,
without limitation, the Employee) shall be deemed to be a competitor of THSI, or
a person or entity (including, without limitation, the Employee) shall be deemed
to be engaging in competition with THSI, only if such person or entity (i) in
any way conducts, operates, carries out or engages in the business of owning,
operating or managing nursing homes or other similar facilities, (ii) is engaged
in rehabilitation services; or (iii) in any way conducts, operates, carries out
or engages in such other business or businesses as THSI or any entity it
controls may in the future conduct at the time of termination of the Employee's
employment.
(c) In connection with the foregoing provisions of this Section 10, the
Employee represents that his experience, capabilities and circumstances are such
that such provisions will not prevent him from earning a livelihood. The
Employee further agrees that the limitations set forth in this Section 10
(including, without limitation, any time or territorial limitations) are
reasonable and properly required for the adequate protection of the businesses
of the THSI. It is understood and agreed that the covenants made by the Employee
in this Section 10 (and in Section 6 hereof) shall survive the expiration or
termination of this Agreement for the period stated herein.
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(d) For purposes of this Section 10, proprietary interest in a business is
ownership, whether through direct or indirect stock holdings or otherwise, of
one percent (1%) or more of such business.
(e) The Employee acknowledges and agrees that a remedy at law for any
breach or threatened breach of the provisions of this Section 10 would be
inadequate and, therefore, agrees that the THSI shall be entitled to injunctive
relief in addition to any other available rights and remedies in cases of any
such breach or threatened breach; provided, however, that nothing contained
herein shall be construed as prohibiting THSI from pursuing any other rights and
remedies available for any such breach or threatened breach.
11. Indemnification. THSI will indemnify the Employee to the fullest
extent permitted by the laws of the state of incorporation of THSI.
12. Change of Control.
(a) In the event there is a Change in Control of the ownership Of THSI or
Paragon, Employee may at any time immediately resign upon written notice to
THSI. In this event, the Company shall pay to Employee upon such resignation an
amount equal to the Severance Payment. In addition, earned but unpaid Salary and
Bonus will be paid on a pro-rated basis for the year in which resignation
occurs. Any stock options granted to Employee, including options subject to
vesting restrictions, will be fully vested upon a Change of Control whether or
not Employee resigns, and shall be subject to Section 8. Employee must exercise
his rights hereunder within 180 days of any Change of Control.
(b) A "Change in Control" shall be deemed to have occurred if
(i) a tender offer shall be made and consummated for the ownership
of more than 50% of the outstanding voting securities of THSI,
(ii) THSI shall be merged or consolidated with another corporation
and as a result of such merger or consolidation less than 75%
of the outstanding voting securities of the surviving or
resulting corporation shall be owned by the former
shareholders of THSI, as the same shall have existed
immediately prior to such merger or consolidation, (iii) THSI
shall sell all or substantially all of its assets or Paragon
to another corporation that is not a wholly-owned subsidiary.
13. Binding Effect. Without limiting or diminishing the effect of Section
9 hereof, this Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective heirs, successors, legal representatives and
assigns.
14. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and either delivered in person or
sent by first class certified or registered mail, postage prepaid, if to THSI,
at THSI's principal place of business, and if to the
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Employee, at his home address most recently filed with THSI, or to such other
address or addresses as either party shall have designated in writing to the
other party hereto.
15. Governing Law. This Agreement has been executed and delivered in the
State of Tennessee and its validity, interpretation, performance and enforcement
shall be governed by the laws of that state.
16. Severability. The Employee agrees that in the event that any court of
competent jurisdiction shall finally hold that any provision of Section 6 or 10
hereof is void or constitutes an unreasonable restriction against the Employee,
the provisions of such Section 6 or 10 shall not be rendered void but shall
apply with respect to such extent as such court may judicially determine
constitutes a reasonable restriction under the circumstances. If any part of
this Agreement other than Section 6 or 10 is held by a court of competent
jurisdiction to be invalid, illegal or incapable of being enforced in whole or
in part by reason of any rule of law or public policy, such part shall be deemed
to be severed from the remainder of this Agreement for the purpose only of the
particular legal proceedings in question and all other covenants and provisions
of this Agreement shall in every other respect continue in full force and effect
and no covenant or provision shall be deemed dependent upon any other covenant
or provision.
17. Waiver. Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant or condition, nor shall any waiver or relinquishment of any right or
power hereunder at any one or more times be deemed a waiver or relinquishment of
such right or power at any other time or times.
18. Entire Agreement; Modifications. This Agreement constitutes the entire
and final expression of the agreement of the parties with respect to the subject
matter hereof and supersedes all prior agreements, oral and written, between the
parties hereto with respect to the subject matter hereof. This Agreement may be
modified or amended only by an instrument in writing signed by both parties
hereto.
19. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, THSI, Paragon, the Partnership and the Employee have
duly executed and delivered this Agreement as of the day and year first above
written.
PARAGON INCORPORATED TRANSITIONAL HEALTH SERVICES,
INC.
By: /s/ Randall J. Bufford By: /s/ Randall J. Bufford
--------------------------- ---------------------------------
Its: Chairman Its: General Manager
TRANSITIONAL HEALTH PARTNERS
d/b/a TRANSITIONAL HEALTH
SERVICES
By: THSI Partners I, Inc., General
Partner
By: /s/ Randall J. Bufford
---------------------------------
General Manager
EMPLOYEE
/s/ Lawrence W. Lepley, Jr.
---------------------------------
Lawrence W. Lepley, Jr.
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EXHIBIT 10.8
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") dated as of the 31st day
of December, 1995, is made by and between WelCare International, Inc., a Georgia
corporation (the "Company"), and the holders of the capital stock of the Company
listed in Schedule I, attached hereto (the "Shareholders").
W I T N E S S E T H:
WHEREAS, the Shareholders are the owners of the shares of capital stock of
the Company listed on Schedule I hereto (the "Capital Shares"); and
WHEREAS, various of those Shareholders are the beneficiaries of
registration rights under that certain Registration Rights Agreement, dated as
of December 29, 1992, as amended, by and among the Company and the other parties
thereto, and that certain Registration Rights Agreement, dated November 1, 1993,
as amended, by and among Transitional Health Services, Inc. ("THS") and the
other parties thereto;
WHEREAS, it is a condition to the consummation of the transactions
contemplated by that certain Agreement and Plan of Merger, dated December 31,
1995, by and among the Company, WelCare Transitional Acquirors, Inc., and THS
(the "Merger Agreement"), that this Agreement be executed by the parties hereto,
and the parties are willing to execute this Agreement and to be bound by the
provisions hereof.
NOW, THEREFORE, in consideration of the mutual agreements and promises
contained herein, in the Merger Agreement and in the other agreements
contemplated thereby, and other valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Shareholders and the Company,
each with the other, do hereby agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the following
respective meanings:
"Capital Shares" means the shares of capital stock of the Company listed
on Schedule I hereto.
"Common Stock" means the common stock, $0.01 par value per share, of the
Company, which is authorized by the Company's Articles of Incorporation, as
amended, on the date hereof.
"Commission" means the Securities and Exchange Commission or any other
federal agency at the time administering the securities Act.
"Person" means any natural person or any corporation, partnership, trust
or other legal entity.
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"Primary Offering" means an initial Underwritten Public Offering by the
Company pursuant to which the Company receives gross proceeds of not less than
$15,000,000.
"Registrable Securities" means the Common Stock held by the Shareholders,
including shares issued or issuable at any time or from time to time upon
conversion of the Series A Preferred Stock, $11.0011 par value per share, the
Series B Preferred Stock, $8.7377 par value per share, or the Special Voting
Common Stock, no par value per share, of the Company, but not including any
shares held in escrow pursuant to the terms of the Escrow Agreement, as defined
in the Merger Agreement. The term "Registrable Securities" does not include
shares of capital stock of the Company which have been registered, as defined
below, and sold pursuant to such registration.
The terms "register," "registered," and "registration" refer to a
registration effected by preparing the filing of a registration statement in
compliance with the Securities Act, and the declaration or order by the
Commission of the effectiveness of such registration statement.
"Secondary Offering" means an Underwritten Public Offering by the Company,
but not including a Primary Offering or an offering effected pursuant to Section
2.1 or 2.3.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" means all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities.
"Shareholders" means the owners of the Capital Shares, and each subsequent
holder of such shares who acquires the shares directly from a Shareholder or a
partner, shareholder or affiliate thereof, and who gives the Company notice of
such holder's election to enter into this Agreement as a successor and agrees to
be bound hereby.
"Underwritten Public Offering" means a public offering of Common Stock for
cash which is offered and sold in a registered transaction on a firm commitment
underwritten basis through one or more underwriters, all pursuant to an
underwriting agreement between the Company and any selling shareholders on the
one hand and such underwriters on the other hand.
ARTICLE II
REGISTRATION RIGHTS
2.1 Demand Registration Rights.
(a) Company's Obligation. Upon notice from the holders of at least a
majority of the outstanding shares of Registrable Securities requesting
registration of a portion of the Registrable Securities of such holders, the
Company agrees to effect up to two (2) demand registrations on behalf of the
Shareholders as follows, including to:
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(i) promptly give written notice of the proposed registration,
qualification or compliance to all other Shareholders; and
(ii) use its diligent good faith efforts to effect, as soon as
practicable, all such registrations, qualifications and compliances (including,
without limitation, the execution of an undertaking to file post-effective
amendments, appropriate qualifications under the applicable blue sky or other
state securities laws and appropriate compliance with exemptive regulations
issued under the Securities Act and any other governmental requirements or
regulations) as may be so requested and as would permit or facilitate the sale
and distribution of all or such portion of such requesting Shareholders'
Registrable Securities as is specified in such request, together with all or
such portion of the Registrable Securities of any other Shareholders joining in
such request as is specified in a written request received by the Company within
ten (10) business days after such written notice is given; provided, that the
Company shall not be obligated to take any action to effect any such
registration, qualification or compliance pursuant to this Section 2.1 in any
particular jurisdiction in which the Company would be required to execute a
general consent to service of process or to register as a dealer or to cause any
officer or employee of the Company to register as a salesman in effecting such
registration, qualification or compliance. Subject to the foregoing, the Company
shall use its reasonable efforts to prepare and file a registration statement
covering the Registrable Securities so requested to be registered within ninety
(90) days after such request is received.
(b) Underwriting. The requesting Shareholders shall include in their
request made pursuant to Section 2.1 the name of the managing underwriter or
underwriters, if any, that the majority in interest of such requesting
Shareholders would propose to employ in connection with the public offering
proposed to be made pursuant to the registration requested; provided that if the
Board of Directors reasonably objects to any managing underwriter or
underwriters proposed by the requesting Shareholders, the requesting
Shareholders shall propose another managing underwriter or underwriters that is
or are reasonably acceptable to the Board of Directors. The Company shall
include in the written notice to be given by the Company to the other
Shareholders pursuant to Section 2.1 the name or names of such underwriter or
underwriters to be employed. If the sale proposed by the requesting Shareholders
is to be effected pursuant to an Underwritten Public Offering, the right of any
Shareholder to registration pursuant to Section 2.1 shall be conditioned upon
such Shareholder's participation in such underwriting and the inclusion of such
Shareholder's Registrable Securities in the underwriting to the extent requested
(unless otherwise mutually agreed by a majority in interest of the requesting
Shareholders and such Shareholder) as provided herein. The Company shall
(together with all Shareholders proposing to distribute their securities through
such underwriting) use its reasonable efforts to enter into an underwriting
agreement in customary form with the underwriter or underwriters selected for
such underwriting in the manner set forth above. The Company will take such
reasonable actions as are necessary to comply with the terms and obligations of
such underwriting agreement and will furnish such underwriters and their
respective representatives full access to all information reasonably requested
in connection with their "due diligence" review of the Company and its
operations. Notwithstanding any other provisions of Section 2.1, if, in
connection with an Underwritten Public Offering, the managing underwriter
advises the Company or the requesting Shareholders in writing that marketing
factors require a limitation of the number of shares to be underwritten, then
the requesting Shareholders shall so advise the Company (or vice versa) and all
Shareholders whose shares would otherwise be registered and underwritten
pursuant hereto, and the number of shares of Registrable Securities that may
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<PAGE>
be included in the registration and underwriting shall be allocated among all
Shareholders in proportion, as nearly as practicable, to the respective amounts
of Registrable Securities that were proposed to be sold by such Shareholders. No
Registrable Securities excluded from the underwriting by reason of the
underwriter's marketing limitation shall be included in such registration. If
any Shareholder disapproves of the terms of an Underwritten Public Offering, he
may elect to withdraw therefrom by written notice to the Company, the managing
underwriter and the requesting Shareholders. The Registrable Securities so
withdrawn shall also be withdrawn from registration; provided, however, that, if
by the withdrawal of such Registrable Securities a greater number of Registrable
Securities held by other Shareholders may be included in such Underwritten
Public Offering (subject to any limitation imposed by the underwriters), then
the requesting Shareholders shall offer to all Shareholders who have included
Registrable Securities in the registration the right to include additional
shares in the same proportion used in effecting the limitation referred to above
in this Section 2.1(c).
(c) Postponement of Registration on Request. The Company shall be
entitled to postpone for a reasonable period of time but not exceeding
one-hundred-twenty (120) days the filing of any registration statement otherwise
required to be prepared and filed by it pursuant to this Section 2.1 if the
Company determines, in good faith and in the exercise of its reasonable
judgment, that such action would interfere with any material financing,
acquisition, corporate reorganization or other transaction involving the
Company. If the Company shall so postpone the filing of a registration
statement, the holders of more than 50% of the Registrable Securities that have
requested the registration of such shares under Section 2.1, shall have the
right to withdraw such request for registration by giving written notice to the
Company within thirty (30) days after receipt of notice from the Company of such
postponement. In the event of such withdrawal, such request shall not be counted
for purposes of Section 2.1 hereof.
(d) Additional Shares to be Registered. The Company shall be
entitled to include in any registration statement referred to in this Section
2.1, for sale in accordance with the method of disposition specified by the
requesting Shareholders, shares of Common Stock to be sold by the Company for
its own account, or other shareholders for their own account, except as and to
the extent that, in the opinion of the managing underwriter (if such method of
disposition shall be an Underwritten Public Offering), such inclusion would
result in more than 33% of the Registrable Securities proposed to be sold from
being excluded from the offering or would materially adversely affect the
marketing of such Registrable Securities to be sold.
(e) Exceptions to Demand Registration Rights. Anything in this
Section 2.1 to the contrary notwithstanding (i) the Company shall not be
required to register Registrable Securities pursuant to this Section 2.1 unless
the aggregate estimated public offering price of all shares of Registrable
Securities, including, without limitation, any for the account of the Company or
any existing shareholders of the Company (based upon the highest closing price
or bid price, as the case may be, during the thirty (30) day period preceding
such request for registration in the principal trading market for the
Registrable Securities, or, if there shall be no active trading market for the
Registrable Securities, based upon the proposed public offering price estimated
in good faith by the Company), shall be $15,000,000 or more; and (ii) the
Company shall not be required to file a registration statement requested
pursuant to this Section 2.1 which would be declared effective after the last
day of a fiscal year of the Company and prior to the date on which the Company's
audited financial statements for such
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<PAGE>
fiscal year are first available, or in a manner which would require the
inclusion of financial statements other than such audited financial statements.
(f) Limitations on Demand Registration Rights. No request for
registration under this Section 2.1 may be made within six (6) months after the
effective date of any other registration statement filed by the Company or
within three (3) months after the completion of the sale of all securities
included in any other registration statement filed by the Company. If a
registration statement requested pursuant to this Section shall not have become
effective within twelve (12) months after the initial filing thereof as a result
of any reason other than (i) a material adverse development in the business or
condition (financial or other) of the Company or (ii) any act or matter within
the control of the Company, or if such registration statement shall be abandoned
or withdrawn at the request of such holder or holders, then, unless the selling
holders of Registrable Securities shall, promptly upon receipt of a request
therefor, supported by an invoice setting forth the expenses in reasonable
detail, reimburse the Company for the aggregate share of the registration
expenses in respect of such registration statement attributable to the selling
holders, the Company shall be deemed to have satisfied its obligation to
register the Registrable Securities pursuant to this Section. Notwithstanding
anything to the contrary contained herein, the only securities that the Company
shall be required to register pursuant to this Agreement shall be Registrable
Securities.
2.2 Piggyback Registration.
(a) Company's Obligation. If at any time or from time to time after
the date hereof, the Company shall determine to register any of its Common Stock
in any Primary Offering or Secondary Offering for its own account, but not
including an offering that is registered on Commission Forms S-4 or S-8 or
another form not available for registering the Registrable Securities for sale
by the Company), then the Company shall:
(i) promptly give to each Shareholder written notice thereof
(which shall include, to the extent then available, a list of the jurisdictions
in which the Company intends to attempt to qualify the offer and sale of such
securities under the applicable blue sky or other state securities laws); and
(ii) use its reasonable efforts to include in such
registration (and any related qualification under blue sky laws or other
compliance), and in any Underwritten Public Offering involved therein, all the
Registrable Securities specified in any written request by any Shareholder
received by the Company within ten (10) business days after such written notice
is given.
(b) Underwriting. The right of any Shareholder to registration
pursuant to Section 2.2 shall be conditioned upon such Shareholder's
participation in the Underwritten Public Offering and the inclusion of such
Shareholder's Registrable Securities in the Underwritten Public Offering to the
extent provided herein. All Shareholders proposing to distribute their
securities through such Underwritten Public Offering (together with the Company
and any other shareholders distributing their securities through such
underwriting) shall enter into an underwriting agreement in customary form with
the underwriter or underwriters selected for such Underwritten Public Offering
by the Company.
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(c) Termination of Registration by Company. Notwithstanding any
other provision of this Section 2.2, at any time before or after the filing of a
registration statement that is subject to Section 2.2 hereof, the Company may,
in its sole discretion, abandon or terminate such registration without the
consent of any Shareholder.
(d) Registrations. The Company shall not be required to include
Registrable Securities in the securities covered by a registration statement on
any form which limits the amount of securities which may be registered by the
issuer and/or selling security holders if, and to the extent that, such
inclusion would make the use of such form unavailable, so long as no other
shares are to be included in such securities for the account of any person other
than the Company.
(e) Certain Underwriter Limitations. Notwithstanding any other
provisions of this Section 2.2, if the managing underwriter determines that
marketing factors require a limitation of the number of shares to be
underwritten, the underwriter may limit the Registrable Securities to be
included in any registration and Underwritten Public Offering. In such event,
the underwriter shall so advise all Shareholders whose shares would otherwise be
registered and underwritten pursuant thereto, and the number of shares that may
be included in the registration and Underwritten Public Offering shall be
allocated: (i) first to the Company; then (ii) to the extent that such
securities do not exhaust the number of shares determined by such underwriter,
up to the first 50% of shares to be included in such Public Offering from
selling Shareholders shall be reserved for sale by the Shareholders in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities that were proposed to be sold by such Shareholders; and then (iii) to
the extent that such securities do not exhaust the number of shares determined
by such underwriter, among all remaining shareholders of the Company (other than
the Shareholders) to whom the Company desires to extend registration rights, in
proportion, as nearly as practicable, to the respective amounts of shares of
common stock that are proposed to be sold by such shareholders.
No Registrable Securities excluded from the Underwritten Public
Offering by reason of the managing underwriter's marketing limitation shall be
included in such registration. If any Shareholder disapproves of the terms of
the Underwritten Public Offering, he may elect to withdraw therefrom by written
notice to the Company and the managing underwriter. The Registrable Securities
so withdrawn shall also be withdrawn from registration; provided, however, that
if by the withdrawal of such Registrable Securities a greater number of
Registrable Securities held by other Shareholders may, in the opinion of the
managing underwriter, be included in such registration (subject to any
limitation imposed by the underwriters), then the Company shall offer to all
Shareholders who have included Registrable Securities in the registration the
right to include additional shares in the amount derived from the formula used
in effecting the limitation referred to above in this Section 2.2.
2.3 Form S-3 Demand Registration Rights.
(a) Company's Obligations. Subject to the limitations on Form S-3
demand registration rights contained in this Section 2.3, if the Company shall
receive from any holder or holders of Registrable Securities a written request
or requests that the Company effect a registration on Form S-3 the Company
agrees to effect such registration on behalf of the Shareholders as follows,
including to:
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(i) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Shareholders; and
(ii) use its diligent good faith efforts to effect, as soon as
practicable, all such registration (including, without limitation, the execution
of an undertaking to file post-effective amendments, appropriate qualifications
under applicable blue sky or other state securities laws and appropriate
compliance with applicable regulations issued under the Securities Act and any
other government requirements or regulations) as may be so requested and as
would permit or facilitate the sale and distribution of all or such portion of
such Shareholder's or Shareholders' Registrable Securities as is specified in
such request, together with all or such portion of the Registrable Securities of
any Shareholder or Shareholders joining in such request as are specified in a
written request received by the Company within ten (10) business days after such
written notice is given; provided, that the Company shall not be obligated to
take any action to effect any such registration, qualification or compliance
pursuant to this Section 2.3 in any particular jurisdiction in which the Company
would be required to execute a general consent to service of process or to
register as a dealer or to cause any officer or employee of the Company to
register as a salesman in effecting such registration, qualification or
compliance. Subject to the foregoing, the Company shall use its reasonable
efforts to prepare and file a registration statement on Form S-3 covering the
Registrable Securities so requested to be registered within ninety (90) days
after such request is received.
(b) Not Deemed Demand Registration. Registrations effected pursuant
to this Section 2.3 shall not be counted as requests for registration effected
pursuant to Section 2.2.
(c) Postponement of Registration on Request. The Company shall be
entitled to postpone for a reasonable period of time but not exceeding
one-hundred-twenty (120) days the filing of any registration statement otherwise
required to be prepared and filed by it pursuant to this Section 2.3 if the
Company determines, in good faith and in the exercise of its reasonable
judgment, that such action would interfere with any material financing,
acquisition, corporate reorganization or other transaction involving the
Company. If the Company shall so postpone the filing of a registration
statement, the holders of more than 50% of the Registrable Securities that have
requested the registration of such shares under this Section 2.3, shall have the
right to withdraw such request for registration by giving written notice to the
Company within thirty (30) days after receipt of notice from the Company of such
postponement.
(d) Exceptions to Form S-3 Demand Registration Rights. Anything in
this Section 2.3 to the contrary notwithstanding (i) the Company shall not be
required to register Registrable Securities pursuant to this Section 2.3 unless
the aggregate estimated public offering price of all shares of Registrable
Securities, including, without limitation, any for the account of the Company or
any existing shareholders of the Company (based upon the highest closing price
or bid price, as the case may be, during the thirty (30) day period preceding
such request for registration in the principal trading market for the
Registrable Securities, or, if there shall be no active trading market for the
Registrable Securities, based upon the proposed public offering price estimated
in good faith by the Company), shall be $5,000,000 or more, (ii) the Company
shall not be required to file a registration statement requested pursuant to
this Section 2.3 which would be declared effective after the last day of a
fiscal year of the Company and prior to the date on which the Company's audited
financial statements for such fiscal year are first available, or in a manner
which would require the inclusion of financial
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statements other than such audited financial statements, and (iii) the Company
must be entitled to effect a registration statement pursuant to this Section 2.3
on Form S-3.
2.4 Expenses. All expenses of any registrations permitted pursuant to this
Agreement (including, but not limited to, any qualifications under the blue-sky
or other state securities laws, compliance with governmental requirements of
preparing and filing any post-effective amendments required for the lawful
distribution of any securities to the public in connection with registration, of
supplying prospectuses, offering circulars or other documents, and all other
registration and filing fees, printing expenses, fees and disbursements of
independent public accountants of the Company, fees of the Company's counsel,
fees of the National Association of Securities Dealers, Inc., transfer taxes,
fees of transfer agents and registrars, and the reasonable fees and
disbursements of a single special counsel retained by a majority in interest of
the Shareholders, but excluding underwriting discounts and selling commissions
applicable to the sale of the Registrable Securities, which are payable by the
Shareholders) shall be paid by the Company. All Selling Expenses in connection
with any registration statement filed pursuant to Article 2 hereof shall be
borne by participating sellers in proportion to the number of shares sold by
each.
2.5 Registration Procedures. In the case of such registration,
qualification or compliance effected by the Company pursuant to this Article II
in which any Shareholder's Registrable Securities are included, the Company
shall, at its expense:
(a) prepare, provide counsel for the selling shareholders reasonable
opportunity to comment on, and file with the Commission a registration statement
with respect to the Registrable Securities, and use its reasonable efforts to
cause such registration statement to become and remain effective for such period
as may be reasonably necessary to effect the sale of the Registrable Securities,
not to exceed nine (9) months;
(b) prepare, provide counsel for the selling shareholders reasonable
opportunity to comment on, and file with the Commission such amendments to such
registration statement and supplements to the prospectus contained therein as
may be necessary to keep such registration statement effective for such period
as may be reasonably necessary to effect the sale of such Registrable
Securities, not to exceed nine (9) months;
(c) furnish to the Shareholders participating in such registration
and to the underwriters of Registrable Securities being registered such
reasonable number of copies of the registration statement, preliminary
prospectus, final prospectus and such other documents as such underwriters may
reasonably request in order to facilitate the public offering of such
Registrable Securities;
(d) use its diligent good faith efforts to register or qualify the
Registrable Securities covered by such registration statement under such state
securities or blue sky laws of such jurisdictions as such participating
Shareholders may reasonably request in writing within twenty (20) days following
the original filing of such registration statement; provided, however, that in
the case of an Underwritten Public Offering, the managing underwriter shall (to
the exclusion of the participation of the Shareholders) advise the Company with
respect to blue sky qualification and related matters;
(e) notify counsel for the Shareholders participating in such
registration, promptly after it shall receive notice thereof, of the time when
such registration statement has
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become effective or a supplement to any prospectus forming a part of such
registration statement has been filed;
(f) notify counsel for such Shareholders promptly of any request by
the Commission for the amending or supplementing of such registration statement
or prospectus or for additional information;
(g) prepare and file with the Commission, promptly upon the request
of any Shareholders, any amendments or supplements to such registration
statement or prospectus which, in the opinion of counsel for such Shareholders
(and concurred in by counsel for the Company), is required under the Securities
Act or the rules and regulations thereunder in connection with the distribution
of the Registrable Securities other than an amendment or supplement required
solely as a result of a change by such Shareholder in the method of distribution
of the Registrable Securities;
(h) prepare and promptly file with the Commission and promptly
notify counsel for such Shareholders of the filing of such amendment or
supplement to such registration statement or prospectus as may be necessary to
correct any statements or omissions if, at the time when a prospectus relating
to such Registrable Securities is required to be delivered under the Securities
Act, any event other than a change in the method of distribution of the
Registrable Securities selected by a Shareholder shall have occurred as the
result of which any such prospectus or any other prospectus as then in effect
would include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances in which they were made, not misleading;
(i) not file any amendment or supplement to such registration
statement or prospectus if, in the opinion of counsel for such Shareholders
(concurred in by counsel for the Company), such amendment or supplement does not
comply in all material respects with the requirements of the Securities Act or
the rules and regulations thereunder, after having been furnished with a copy
substantially in the form thereof at least two (2) business days prior to the
filing thereof; provided, however, that if in the opinion of counsel for the
Company, the filing of such amendment or supplement is reasonably necessary to
protect the Company from any liabilities under any applicable federal or state
law and such filing will not violate applicable law, the Company may make such
filing.
(j) use its reasonable best efforts (if the offering is
underwritten) to furnish, at the request of any seller, on the date that
Registrable Securities are delivered to the underwriters for sale pursuant to
such registration, and subject to the receipt of appropriate representations
from such sellers: (i) an opinion dated such date of counsel representing the
Company for the purposes of such registration, addressed to the underwriters and
to such seller, stating that such registration statement has become effective
under the Securities Act and that (A) to the best knowledge of such counsel, no
stop order suspending the effectiveness thereof has been issued and no
proceedings for that purpose have been instituted or are pending or contemplated
under the Securities Act, (B) the registration statement, the related
prospectus, and each amendment or supplement thereof, comply as to form in all
material respects with the requirements of the Securities Act and the applicable
rules and regulations of the Commission thereunder (except that such counsel
need express no opinion as to financial statements, the notes thereto, and the
financial schedules and other financial and statistical data contained therein)
and (C) to such other effects as may
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<PAGE>
reasonably be requested by counsel for the underwriters or by such seller or its
counsel, and (ii) a letter dated such date from the independent public
accountants retained by the Company, addressed to the underwriters, stating that
they are independent public accountants within the meaning of the Securities Act
and that, in the opinion of such accountants, the financial statements of the
Company included in the registration statement or the prospectus, or any
amendment or supplement thereof, comply as to form in all material respects with
the applicable accounting requirements of the Securities Act, and such letter
shall additionally cover such other financial matters (including information as
to the period ending no more than five (5) business days prior to the date of
such letter) with respect to the registration in respect of which such letter is
being given as such underwriters or seller may reasonably request; and
(k) make available for inspection by each seller, any underwriter
participating in any distribution pursuant to such registration statement, and
any attorney, accountant or other agent retained by such seller or underwriter,
all financial and other records, pertinent corporate documents and properties of
the Company, and cause the Company's officers, directors and employees to supply
all information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement and permit
such seller, attorney, accountant or agent to participate in the preparation of
such registration statement.
2.6 Related Registration Matters. The Company shall use its best efforts
to enter into an underwriting agreement in connection with any registration
subject to the provisions of this Article II hereof in which any Shareholder's
Registrable Securities are included, which agreement shall contain such terms,
provisions and agreements as are customary and appropriate for such
registration. In connection with any Underwritten Public Offering in which any
Shareholder's Registrable Securities are included, to the extent not provided in
the underwriting agreement related to such offering, the Company shall use its
reasonable efforts to:
(a) List the shares of Registrable Securities included in such
offering on any national securities exchange or stock market on which the
Registrable Securities are approved for listing;
(b) engage a bank or other company to act as transfer agent and
registrar for the Registrable Securities, unless the Company has already engaged
a transfer agent or registrar);
(c) cause customary opinions of counsel, comfort letters of
accountants and other appropriate documents to be delivered by representatives
of the Company; and
(d) as soon as practicable after the effective date of the
registration statement, and, in any event, within sixteen (16) months
thereafter, make "generally available to its securities holders" (within the
meaning of Rule 158 under the Securities Act) an earnings statement (which need
not be audited) complying with Section 11(a) of the Securities Act and covering
a period of at least twelve (12) consecutive months beginning after the
effective date of the registration statement.
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2.7 Indemnification and Contribution.
(a) In the case of each registration effected by the Company
pursuant to this Agreement in which any Shareholder's Registrable Securities are
included, the Company agrees to indemnify and hold harmless such Shareholder,
including its officers and partners, each underwriter of the shares of
Registrable Securities so registered and each person who controls any such
underwriter within the meaning of Section 15 of the Securities Act, against any
and all losses, claims, damages or liabilities to which they or any of them may
become subject under the Securities Act or any other statute or common law,
including any amount paid in settlement of any litigation, commenced or
threatened, if such settlement is effected with the written consent of the
Company, and to reimburse them for any reasonable legal or other reasonable
expenses incurred by them in connection with the investigation of any claims and
defenses of any actions (subject to subsection (c) of this Section 2.7), insofar
as any such losses, claims, damages, liabilities or actions arise out of or are
based upon: any untrue statement or alleged untrue statement of a material fact
contained in the registration statement, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereto, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading;
provided, however, that, notwithstanding the foregoing, the Company may agree to
indemnify each such underwriter and person who so controls such underwriter to
such other extent as the Company and such underwriter shall agree; and provided
further, however, that the indemnification agreement contained in this
subsection (a) shall not (i) apply to such losses, claims, damages, liabilities
or actions arising out of, or based upon, any such untrue statement or alleged
untrue statement, or any such omission or alleged omission, if such statement or
omission was made in reliance upon and in conformity with information furnished
to the Company in writing by a Shareholder or such underwriter claiming rights
of indemnification pursuant to this Section 2.7 for use in connection with the
preparation of the registration statement or any preliminary prospectus or final
prospectus contained in the registration statement or any such amendment thereof
or supplement thereto or (ii) inure to the benefit of any person to the extent
such person's claim for indemnification hereunder arises out of or is based on
any violation by such person of applicable law.
(b) In the case of each registration effected by the Company
pursuant to this Agreement in which any Shareholder's Registrable Securities are
included, such Shareholder shall be obligated, and shall cause each underwriter
of the shares of Registrable Securities to be registered on behalf of such
person (each Shareholder and such underwriters being referred to severally in
this subsection (b) as the "indemnifying person") to be obligated, in the same
manner and to the same extent as set forth in subsection (a) of this Section
2.7, to indemnify and hold harmless the Company and each person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act, its
directors and officers, with respect to any statement or alleged untrue
statement in, or omission or alleged omission from, such registration statement
or any post-effective amendment thereof or any preliminary prospectus or final
prospectus (as amended or supplemented, if amended or supplemented as aforesaid)
contained in such registration statement, if such statement or omission was made
in reliance upon and in conformity with information furnished in writing to the
Company by such indemnifying person for use in connection with the preparation
of such registration statement or any preliminary prospectus or final prospectus
contained in such registration statement or any such amendment thereof or
supplement thereto; provided, however, that the liability of each Shareholder
hereunder shall be limited to the proceeds received by each Shareholder from
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the sale of Registrable Securities covered by such registration statement,
amendment, supplement or prospectus, as the case may be.
(c) Each person to be indemnified pursuant to this Section 2.7
shall, promptly after its receipt of written notice of the commencement of any
action against such indemnified person in respect of which indemnity may be
sought from an indemnifying person under this Section 2.7, notify the
indemnifying person in writing of the commencement thereof. The omission of any
indemnified person so to notify an indemnifying person of the commencement of
any such action shall relieve the indemnifying person from any liability in
respect of such action which it may have to such indemnified person on account
of the indemnity agreement contained in this Section 2.7, but shall not relieve
the indemnifying person from any other liability which it may have to such
indemnified person. If any such action shall be brought against any indemnified
person and it shall notify an indemnifying person of the commencement thereof,
the indemnifying person shall be entitled to participate therein and, to the
extent it may desire, jointly with any other indemnifying persons similarly
notified, to assume the defense thereof with counsel reasonably satisfactory to
such indemnified person, and after notice from the indemnifying person to such
indemnified person of its election so to assume the defense thereof, the
indemnifying person shall not be liable to such indemnified person under this
Section 2.7 for any legal or other expenses subsequently incurred by such
indemnified person in connection with the defense thereof other than reasonable
costs of investigation unless (i) the indemnified party shall have employed
counsel in an action in which the indemnified party and indemnifying party are
both defendants and there is a conflict of interest between such parties that
would prevent counsel from adequately representing both parties, (ii) the
indemnifying party shall not have employed counsel satisfactory within the
exercise of reasonable judgment of the indemnified party to represent the
indemnified party within a reasonable time after the notice of the commencement
of the action or (iii) the indemnifying party has authorized the employment of
counsel for the indemnified party at the expense of the indemnifying party. The
undertaking contained in this Section 2.7 shall be in addition to any
liabilities which the indemnifying person may have pursuant to law.
If the indemnification provided for in Sections 2.7(a) and (b) hereof is
unavailable or insufficient to hold harmless an indemnified party under such
paragraphs in respect of any losses, claims, damages or liabilities or actions
in respect thereof referred to therein, then each indemnifying party shall in
lieu of indemnifying such indemnified party contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages,
liabilities or actions in such proportion as appropriate to reflect the relative
fault of the Company, on the one hand, and the underwriters and the sellers of
such Registrable Securities, on the other, in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or actions
as well as any other relevant equitable considerations, including the failure to
give any notice under Section 2.7(c). The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact relates to information supplied by the Company, on the one
hand, or the underwriters and the sellers of such Registrable Securities, on the
other, and to the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
each other party hereto agrees that it would not be just and equitable if
contributions pursuant to this paragraph were determined by pro rata allocation
(even if all of the sellers of such Registrable Securities were treated as one
entity for such purpose) or by any other method of allocation which did not take
account of the equitable considerations referred to above in this paragraph. The
amount paid or payable
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by an indemnified party as a result of the losses, claims, damages, liabilities
or action in respect thereof, referred to above in this paragraph, shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this paragraph, the sellers of such
Registrable Securities shall not be required to contribute any amount in excess
of the amount, if any, by which the total price at which the Common Stock sold
by each of them was offered to the public exceeds the amount of any damages
which they would have otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission. No person guilty of fraudulent
misrepresentations (within the meaning of Section 11(f) of the Securities Act),
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation.
This indemnification of underwriters provided for in this Section 2.7
shall be on such other terms and conditions as are at the time customary and
reasonably required by such underwriters. In that event the indemnification of
the sellers of Restricted Stock in such underwriting shall at the sellers'
request be modified to conform to such terms and conditions.
2.8 Information by Shareholders. Each Shareholder requesting Registrable
Securities to be included in any registration shall furnish to the Company such
information regarding such Shareholder and the distribution proposed by such
Shareholder as the Company may request and as shall be reasonably required in
connection with any registration, qualification or compliance referred to in
this Article II.
2.9 Rule 144 Reporting. With a view to making available to the
Shareholders the benefits of certain rules and regulations of the Commission
which may permit the sale of the Registrable Securities to the public without
registration, the Company agrees to:
(a) Commission Reports. File with the Commission in a timely manner
all reports and other documents thereafter required of the Company if the
Company is or becomes subject to the reporting requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act");
and
(b) Other Information. Furnish to each Shareholder forthwith upon
its request (i) a written statement by the Company as to the Company's
compliance with the public information requirements of Commission Rule 144 (at
any time after 90 days after the Company becomes subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act), (ii) a copy of the
most recent annual or quarterly report of the Company, and (iii) such other
reports and documents as may be reasonably requested in availing any Shareholder
of any rule or regulation of the Commission permitting the sale of any such
securities without registration.
2.10 Transfer of Registration Rights. The rights to cause the Company to
register securities under this Article II may be assigned following receipt by
the Company of notice of proposed transfer by any Shareholder to any assignee or
transferee of any shares of capital stock of the Company which are Registrable
Securities or with respect to which Registrable Securities may be issued and
receipt of the agreement of such holder to be bound by the provisions of this
Agreement applicable to holders of Registrable Securities.
2.11 Notice of Sale Information. Any notice from a holder of Registrable
Securities requesting registration of some or all of such Registrable Securities
pursuant to Sections 2.1,
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2.2 or 2.3 shall (i) specify the number of shares of Registrable Securities
intended to be included in such registration; (ii) describe the nature and
method of the proposed offering and sale; and (iii) include an undertaking to
provide all information and materials concerning such holder and the method of
distribution and to take any other actions reasonably requested by the Company
to enable the Company to comply with the Securities Act, any state securities
law and/or the applicable requirements of the Commission or any state securities
commissioner or similar agency or official.
ARTICLE III
TRANSFERABILITY
3.1 Transferability. Transfer of the Capital Shares shall be made only on
the books of the Company by the holders of record thereof or by their legal
representatives who shall furnish proper evidence of authority to transfer, or
by their attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the Company, subject to the restrictions set forth
in (i) Sections 9.2, 9.3 and 11.2 of that certain Investment Agreement, dated
December 29, 1992, as amended, by and among the Company, South Atlantic Venture
Fund II, Limited Partnership ("South Atlantic II"), and South Atlantic Venture
Fund III, Limited Partnership ("South Atlantic III"), and (ii) that certain
Shareholders Agreement, entered into on even date herewith, by and among the
Company, J. Stephen Eaton, South Atlantic II, South Atlantic III, Welsh, Carson,
Anderson & Stowe VI, L.P. ("WCAS VI"), WCAS Capital Partners II, L.P., WCAS
Healthcare Partners, L.P., CID Equity Capital III, L.P., and Randall J. Bufford
(the "Shareholders Agreement"). The holder(s) in whose name the Capital Shares
stand on the books of the Company shall be deemed by the Company to be owner(s)
thereof for all purposes.
3.2 Restrictive Legends. Unless and until otherwise permitted by this
Section, each instrument evidencing Capital Shares shall contain or otherwise be
imprinted with a suitable legend in substantially the following form:
"The shares evidenced by this certificate have been issued or sold in
reliance on section 10-5-9(13) of the Georgia Securities Act of 1973, as
amended, and may not be sold or transferred except in a transaction that
is exempt under such act or pursuant to an effective registration under
such act. This security has not been registered under the 1933 Act or any
state securities act, and has been acquired for investment and not with a
view to, or for sale in connection with, any distribution thereof within
the meaning of the 1933 Act, as amended."
The Company is hereby authorized to place "stop transfer" instructions on its
records or to instruct any transfer agent to prevent the transfer of such shares
except in conformity with this Article.
3.3 Restriction on Transfer. In addition to the restrictions on transfer
set forth in the Shareholders Agreement, no holder shall transfer any of the
Capital Shares until it has first given written notice to the Company describing
briefly the manner of any such proposed transfer and until (i) the Company has
received from the holder's counsel an opinion (reasonably satisfactory in form
and substance to the Company's counsel) that such transfer can be made without
compliance with the registration provisions of the Securities Act or any
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state Securities Act and without the necessity of perfection of an exemption
pursuant to Regulation A adopted pursuant to said Securities Act, or (ii) such
transfer complies with Rule 144 (or comparable successor provisions) promulgated
under the said Securities Act and applicable state securities act requirements,
or (iii) a registration statement filed by the Company is declared effective by
the SEC and governing state Securities Act authorities or steps necessary to
perfect exemptions from such registration are completed.
Notwithstanding anything to the contrary herein, in the event that there
is an Underwritten Public Offering of securities of the Company pursuant to a
registration covering Registrable Securities and a Shareholder of Registrable
Securities does not elect to sell his Registrable Securities to the underwriters
of the Company's securities in connection with such offering, such Shareholder
shall refrain from selling such Registrable Securities during the period of
distribution of the Company's securities by such underwriters and the period in
which the underwriting syndicate participates in the after market; provided,
however, that such Shareholder shall, in any event, be entitled to sell its
Registrable Securities commencing on the ninetieth (90th) day after the
effective date of such registration statement.
ARTICLE IV
MISCELLANEOUS
4.1 Notices. Any notice, request, reply instruction or other communication
(herein severally and collectively called "notice") in this Agreement provided
or permitted to be given to the Company or to any Shareholder must be given in
writing and may be given or served by overnight delivery service, depositing the
same in the United States mail, in certified or registered form postage fully
prepaid, addressed to the party or parties to be notified, with return postage
fully requested, or by delivering the same in person to such party or parties.
Notice deposited in the United States mail, mailed in the manner hereinabove
described, shall be effective upon deposit. Notice given in any other manner
shall be effective only if and when received by the party to be notified. Unless
appropriate notice of a change of address is otherwise provided to the Company,
any notice to Shareholders shall be addressed in accordance with the address
specified in the stock records of the Company. In any event, until notice is
given of a change of address, notice to the Company, South Atlantic II, South
Atlantic III, and WCAS VI shall be addressed and provided as follows:
If to Company: WelCare International, Inc.
7000 Central Parkway
Suite 970
Atlanta, GA 30328
with a copy to: Nelson Mullins Riley & Scarborough, L.L.P
400 Colony Square, Suite 2200
1201 Peachtree Street
Atlanta, GA 30361
Attention: Paul A. Quiros, Esq.
If to South Atlantic II: South Atlantic Venture Fund II, Limited
Partnership
614 West Bay Street
Suite 200
Tampa, FL 33606-2704
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with a copy to: Testa, Hurwitz & Thibeault
Exchange Plaza
55 State Street
Boston, MA 02109
Attention: David Tegeler, Esq.
If to South Atlantic III: South Atlantic Venture Fund III, Limited
Partnership
614 West Bay Street
Suite 200
Tampa, FL 33606-2704
with a copy to: Testa, Hurwitz & Thibeault
Exchange Plaza
55 State Street
Boston, MA 02109
Attention: David Tegeler, Esq.
If to WCAS VI: Welsh, Carson, Anderson & Stowe VI, L.P.
One World Financial Center
200 Liberty Street
Suite 3601
New York, NY 10281
Attention: Andrew M. Paul
James B. Hoover
with a copy to: Reboul, MacMurray, Hewitt, Maynard & Kristol
45 Rockefeller Plaza
New York, NY 10111
Attention: John Maynard, Esq.
4.2 Remedies. Each party hereto acknowledges that a remedy at law for any
breach or attempted breach of this Agreement will be inadequate, agrees that
each other party hereto shall be entitled to specific performance and injunctive
and other equitable relief in case of any such breach or attempted breach, and
further agrees to waive any requirement for the securing or posting of any bond
in connection with the obtaining of any such injunctive or any other equitable
relief.
4.3 Effect of Sale. Any Shareholder who sells all of his Registrable
Securities pursuant to the terms of this Agreement shall cease to be a party to
this Agreement and shall have no further rights or obligations hereunder.
4.4 Amendment. This Agreement may not be modified or amended except in a
writing signed by the Company and the holders of 66-2/3% of the total
Registrable Securities outstanding at such time (with any shares of Registrable
Securities issuable upon conversion of other securities deemed to be outstanding
for these purposes).
4.5 Governing Law. This Agreement shall be subject to and governed by the
laws of the State of Georgia.
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<PAGE>
4.6 Jurisdiction. All legal actions to enforce or interpret the provisions
of this Agreement shall be filed in a court of the State of Georgia or of the
United States District Court having jurisdiction over Fulton County, Georgia.
All parties irrevocably waive any objection they may have to the laying of venue
of any suit, action or proceeding arising out of or relating hereto brought in
any such court, irrevocably waive any claim that any such suit, action or
proceeding so brought has been brought in an inconvenient forum and further
waive the right to object that such court does not have jurisdiction over such
party. No party shall bring a suit, action or proceeding in respect of this
Agreement in any other jurisdiction than as aforesaid.
4.7 Successors and Assigns. This Agreement shall be binding upon and inure
to the parties contained in this Agreement and their respective heirs,
executors, distributees, successors (including successors by merger) and
permitted assigns.
4.8 Invalid Provisions. Should any portion of this Agreement be adjudged
or held to be invalid, unenforceable or void, such holding shall not have the
effect of invalidating or voiding the remainder of this Agreement and the
parties hereby agree that the portion so held invalid, unenforceable or void
shall, if possible, be deemed amended or reduced in scope, or to otherwise be
stricken from this Agreement to the extent required for the purposes of validity
and enforcement thereof.
4.9 Section Headings. The section and paragraph headings contained herein
are for reference purposes only and shall not in any way affect the meaning and
interpretation of this Agreement.
4.10 Execution in Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original, and such counterparts together shall constitute only one
instrument.
4.11 Adjustments. In the event the Company shall declare a stock split,
stock dividend or other distribution of capital stock in respect of, or issue
capital stock in replacement of or exchange for, the Capital Shares, such shares
shall be Capital Shares subject to this Agreement.
4.12 Entire Agreement. This Agreement constitutes the sole and entire
agreement between the parties hereto with respect to the subject matter hereof
and specifically supersedes and replaces that certain Registration Rights
Agreement, dated as of December 29, 1992, as amended, by and among the Company,
South Atlantic II, and South Atlantic III, and that certain Registration Rights
Agreement, dated November 1, 1993, as amended, by and among THS and the owners
of Restricted Stock, as defined therein.
4.13 Time of the Essence. Time is of the essence with respect to every
provision of this Agreement.
17
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
on its behalf and its corporate seal to be hereunto affixed by its duly
authorized officers and the Shareholders have caused this Agreement to be
executed by the appropriate authorized person, as of the day and year first
above written.
WELCARE INTERNATIONAL, INC.
ATTEST:
/s/ Paul A. Quiros By: /s/ J. Stephen Eaton
- -------------------------- -----------------------------
Assistant Secretary J. Stephen Eaton
President and Chief Executive Officer
/s/ J. Stephen Eaton
-----------------------------
J. STEPHEN EATON
SOUTH ATLANTIC VENTURE FUND II,
LIMITED PARTNERSHIP
By: South Atlantic Venture Partners II,
Limited Partnership, General Partner
By: /s/ W. Scott Miller
-----------------------------
W. Scott Miller, General Partner
SOUTH ATLANTIC VENTURE FUND III,
LIMITED PARTNERSHIP
By: South Atlantic Venture Partners III,
Limited Partnership, General Partner
By: /s/ W. Scott Miller
-----------------------------
W. Scott Miller, General Partner
WELSH, CARSON, ANDERSON & STOWE VI,
L.P.
By: WCAS VI Partners, General Partner
By: /s/ James B. Hoover
-----------------------------
General Partner
<PAGE>
WCAS CAPITAL PARTNERS II, L.P.
By: WCAS CP II Partners, General Partner
By: /s/ James B. Hoover
-----------------------------
General Partner
WCAS HEALTHCARE PARTNERS, L.P.
By: WCAS HP Partners, General Partner
By: /s/ Patrick J. Welsh
-----------------------------
General Partner
/s/ Bruce K. Anderson
-----------------------------
BRUCE K. ANDERSON
/s/ Russell L. Carson
-----------------------------
RUSSELL L. CARSON
/s/ James B. Hoover
-----------------------------
JAMES B. HOOVER
DELAWARE CHARTER TRUST CO. AS TTEE-FBO
THE IRA ROLLOVER OF JAMES B. HOOVER
By: /s/ James B. Hoover
-----------------------------
Its:_________________________
/s/ Thomas E. McInerney
---------------------------------
THOMAS E. MCINERNEY
/s/ Andrew M. Paul
---------------------------------
ANDREW M. PAUL
<PAGE>
/s/ Robert A. Minicucci
---------------------------------
ROBERT A. MINICUCCI
/s/ Richard H. Stowe
---------------------------------
RICHARD H. STOWE
DELAWARE CHARTER TRUST CO. AS TTEE-FBO
THE IRA ROLLOVER OF RICHARD H. STOWE
By:/s/ Richard H. Stowe
---------------------------------
Its:_____________________________
/s/ Laura M. VanBuren
---------------------------------
LAURA M. VANBUREN
/s/ Patrick J. Welsh
---------------------------------
PATRICK J. WELSH
---------------------------------
JAMES W. BAKER, JR.
---------------------------------
ROBERT M. BAKER, M.D. TRUST
By:______________________________
Its:_____________________________
---------------------------------
WILEY P. BALLARD
---------------------------------
HOYT W. BOONE, JR.
---------------------------------
BEAUREGARD A. FOURNET, JR.
<PAGE>
---------------------------------
LAWRENCE W. LEPLEY, JR.
---------------------------------
J.O. PATTERSON
---------------------------------
JOHN W. ULFERS
---------------------------------
DAVID D. WATKINS
/s/ Robert R. Bates
---------------------------------
ROBERT R. BATES
/s/ Randall J. Bufford
---------------------------------
RANDALL J. BUFFORD
HORIZON INVESTMENT ASSOCIATES II
By: /s/ Robert A. Compton
-----------------------------
Its: Partner
KELLY FAMILY PARTNERSHIP, LTD.
By: /s/ James T. Kelly
-----------------------------
Its: General Partner
JAMES T. KELLY FAMILY TRUST
By: /s/ James T. Kelly
-----------------------------
Its: General Partner
<PAGE>
---------------------------------
CID EQUITY CAPITAL III, L.P.
By: /s/ Robert A. Compton
-----------------------------
Robert A. Compton, General Partner
/s/ James J. TerBeest
---------------------------------
JAMES J. TERBEEST
/s/ David M. Kitchen
---------------------------------
DAVID M. KITCHEN
/s/ John G. Hundley
---------------------------------
JOHN G. HUNDLEY
PRUDENTIAL SECURITIES, INC.
C/F JOHN G. HUNDLEY IRA ROLLOVER
By: /s/ John G. Hundley
---------------------------------
Its:_____________________________
<PAGE>
Schedule I
CLASS OF CAPITAL STOCK
Shareholder Class of Capital Stock Number of Shares
J. Stephen Eaton Common Stock 1,455,480
South Atlantic II Common Stock 38,140
Series A Preferred Stock 205,541
Series B Preferred Stock 164,446
South Atlantic III Common Stock 41,640
Series B Preferred Stock 164,446
Welsh, Carson, Anderson & Special Voting Common Stock 2,649,254
Stowe VI, L.P.
WCAS Capital Partners II, L.P. Special Voting Common Stock 374,594
WCAS Healthcare Partners, L.P. Special Voting Common Stock 62,311
CID Equity Capital III, L.P. Special Voting Common Stock 255,168
Bruce K. Anderson Special Voting Common Stock 17,803
Russell L. Carson Special Voting Common Stock 17,803
James B. Hoover Special Voting Common Stock 4,451
Delaware Charter Trust Co.
as TTEE-FBO the IRA Rollover of Special Voting Common Stock 4,451
James B. Hoover
Thomas E. McInerney Special Voting Common Stock 3,561
Andrew M. Paul Special Voting Common Stock 7,121
Robert A. Minicucci Special Voting Common Stock 2,671
Richard H. Stowe Special Voting Common Stock 4,451
Delaware Charter Trust Co.
as TTEE-FBO the IRA Rollover of Special Voting Common Stock 4,451
Richard H. Stowe
Laura M. VanBuren Special Voting Common Stock 356
Patrick J. Welsh Special Voting Common Stock 17,803
James W. Baker, Jr. Special Voting Common Stock 7,326
James W. Baker, Jr., l/O Special Voting Common Stock 1,465
IRA Gruntal as Custodian
FBO Robert M. Baker, M.D. Special Voting Common Stock 2,930
North Broward Radiologist, PA
Employee Profit Sharing Plan
M/P PURPL Trust
Wiley P. Ballard Special Voting Common Stock 2,344
Hoyt W. Boone, Jr. Special Voting Common Stock 2,930
Lawrence W. Lepley, Jr. Special Voting Common Stock 98,648
J.O. Patterson Special Voting Common Stock 2,930
<PAGE>
John W. Ulfers Special Voting Common Stock 2,930
David D. Watkins Special Voting Common Stock 12,308
Beauregard A. Fournet, Jr. Special Voting Common Stock 5,861
Robert R. Bates Special Voting Common Stock 30,618
Randall J. Bufford Special Voting Common Stock 163,758
Horizon Investment Associates, II Special Voting Common Stock 35,606
Kelly Family Partnership, Ltd. Special Voting Common Stock 5,888
James T. Kelly Family Trust Special Voting Common Stock 3,013
James J. TerBeest Special Voting Common Stock 8,403
David M. Kitchen Special Voting Common Stock 1,766
John G. Hundley Special Voting Common Stock 3,768
Prudential Securities, Inc. Special Voting Common Stock 824
C/F John G. Hundley IRA Rollover
<PAGE>
FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT, dated as of
January 31, 1997, among CENTENNIAL HEALTHCARE CORPORATION, a Georgia corporation
(the "Company") and the several other persons named at the foot hereof (such
persons being hereinafter collectively referred to as the "Shareholders").
WHEREAS, the Company and the Shareholders have heretofore entered
into a Registration Rights Agreement, dated December 31, 1995 (the "Agreement"),
which Agreement provides, among other things, for (i) certain restrictions on
the transfer of, and (ii) the registration, under certain circumstances, of
Registrable Securities (as defined in the Agreement) under the Securities Act of
1933, as amended (each capitalized term used herein but not defined herein shall
have the meaning assigned to such term in the Agreement);
WHEREAS, on the date hereof, the Company has entered into a
Securities Purchase Agreement (the "Purchase Agreement"), with certain of the
Shareholders (the "Purchasing Shareholders"), pursuant to which the Company has
issued and sold on this date (i) to the Purchasing Shareholders an aggregate
50,000 shares (the "Series D Shares") of Series D Preferred Stock, $1.00 par
value (the "Series D Preferred Stock"), and (ii) to certain of the Purchasing
Shareholders an aggregate 50,000 investment units, each investment unit being
comprised of one share of Series E Senior Preferred Stock, $1.00 par value, and
1.85102 shares (the "Common Shares") of Common Stock of the Company;
WHEREAS, on the date hereof, the Purchasing Shareholders, other than
South Atlantic Venture Fund III, Limited Partnership, have entered into a Stock
Purchase Agreement (the "Stock Purchase Agreement"), with J. Stephen Eaton and
with Kent C. Fosha, Sr., pursuant to which Messrs. Eaton and Fosha have agreed
to sell, and such Purchasing Shareholders have agreed to purchase, certain of
the shares of Common Stock of the Company held by Messrs. Eaton and Fosha
(collectively, the "Eaton/Fosha Shares"; such Shares, excluding the shares sold
by Mr. Eaton, being herein called the "Fosha Shares" and such Shares, excluding
the shares sold by Mr. Fosha, being herein called the "Eaton Shares"); and
WHEREAS, the Company and the Shareholders desire to amend the
Agreement to include the shares of Common Stock issuable upon conversion of the
Series D Shares, the Common Shares and the Eaton/Fosha Shares among the
Registrable Securities and to provide that the holders from time to time of such
Shares shall have the same rights and obligations as the other holders of
Registrable Securities under the Agreement, as amended hereby;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto agree as follows:
1. The definition of "Registrable Securities" as set forth in
Article I of the Agreement is hereby amended to read in its entirety as follows:
"Registrable Securities" means the Common Stock held by the
Shareholders, including shares issued or issuable at any time or
from time to time upon conversion of the Series A Preferred Stock,
$11.0011 par value per share, the Series B Preferred Stock, $8.7377
par value per share, the Series D Preferred Stock, $1.00 par value
per share, or the Special Voting Common Stock, no par value per
share, of the Company. The term "Registrable
<PAGE>
Securities" does not include shares of capital stock of the Company
which have been registered, as defined below, and sold pursuant to
such registration."
2. Schedule I shall be deemed amended to include the Series D
Shares, the Common Shares and the Fosha Shares and to reflect that the Eaton
shares have been sold to certain of the Shareholders, and the Series D Shares,
the Common Shares and the Fosha Shares shall be deemed to be "Capital Shares"
under the Agreement.
3. The Agreement, as amended by this First Amendment to Registration
Rights Agreement, is in all respects confirmed in its entirety.
4. This First Amendment to Registration Rights Agreement shall be
governed by and construed in accordance with the laws of the State of Georgia.
5. This First Amendment to Registration Rights Agreement may be
executed in two or more counterparts, each of which shall be deemed an original,
but all of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this First
Amendment to Registration Rights Agreement as of the date first above written.
CENTENNIAL HEALTHCARE CORPORATION
By: /s/ Alan C. Dahl
---------------------------------
Name: Alan C. Dahl
Title: Executive Vice President
2
<PAGE>
AGREED TO AND ACCEPTED
as of the date first above written:
Shareholders:
WELSH, CARSON, ANDERSON & STOWE VI, L.P.
By WCAS VI Partners, L.P., General Partner
WCAS CAPITAL PARTNERS II, L.P.
By WCAS CP II Partners, General Partner
Patrick J. Welsh
Russell L. Carson
Bruce K. Anderson
Richard H. Stowe
Thomas E. McInerney
Andrew M. Paul
James B. Hoover
MSTC, Custodian FBO the IRA/Rollover
of James B. Hoover
Robert A. Minicucci
By: /s/ Laura VanBuren
---------------------------
Laura VanBuren
Attorney in Fact or General Partner
WCAS HEALTHCARE PARTNERS, L.P.
By WCAS HC Partners, General Partner
By: /s/ Laura VanBuren
---------------------------
General Partner Attorney in Fact
/s/ Laura VanBuren
- -------------------------------
Laura VanBuren
CID EQUITY CAPITAL III, L.P.
By: /s/ Robert A. Conpton
---------------------------
Robert A. Compton
General Partner
/s/ J. Stephen Eaton
---------------------------
J. Stephen Eaton
3
<PAGE>
SOUTH ATLANTIC VENTURE FUND II,
LIMITED PARTNERSHIP
By South Atlantic Venture Partners II,
Limited Partnership, General Partner
By: /s/ Sandra P. Barber
---------------------------
W. Scott Miller, General Partner or
Sandra P. Barber, General Partner
SOUTH ATLANTIC VENTURE FUND III,
LIMITED PARTNERSHIP
By South Atlantic Venture Partners III,
Limited Partnership, General Partner
By: /s/ Sandra P. Barber
---------------------------
W. Scott Miller, General Partner or
Sandra P. Barber, General Partner
4
<PAGE>
EXHIBIT 10.9
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT (the "Agreement") is made and entered into as of the
1st day of January, 1993, by and between Grant Park Nursing Home Limited
Partnership, a District of Columbia limited partnership (hereinafter referred to
as the "Lessor") and WelCare Acquisition Corp., a Georgia corporation
(hereinafter referred to
as the "Lessee").
W I T N E S S E T H :
Lessor, for and in consideration of the covenants and agreements
hereinafter mentioned to be kept and performed by the Lessee, does hereby demise
and lease unto the Lessee the following described property and premises: That
certain real property, more particularly described on Exhibit "A" attached
hereto and incorporated herein by reference, improved with a 296-bed nursing
home facility, together with Lessor's easements and appurtenances in adjoining
and adjacent land, highways, roads, streets, lanes, whether public or private,
reasonably required for the installation, maintenance, operation and service of
sewer, water, gas, power, and other utility lines and for driveways and
approaches to and from abutting highways for the use and benefit of the
above-described parcel of real estate, together with that certain personal
property, fixtures, equipment and supplies used in connection with such real
estate and improvements (the "Property").
NOW THEREFORE, in consideration of Ten Dollars ($10.00) in hand paid by
each party to the other, the mutual promises herein contained and other good and
valuable consideration, the receipt, adequacy and sufficiency of which are
hereby acknowledged, the parties do hereby agree as follows:
1. Ownership. Lessor is the owner of the above-referenced nursing home
known as the Grant Park Care Center, located on the Property, subject to that
certain Mortgage (the "HUD Mortgage") between the Lessor and Quaker Mortgage
Corporation, insured by the U.S. Department of Housing and Urban Development
("HUD"). The HUD Mortgage is attached hereto as Exhibit "B" and incorporated
herein by reference.
2. Term. The term of this Agreement shall commence on the 1st day of
January, 1993, and shall end on the 31st day of December, 2002 unless sooner
terminated; provided, however, that this Agreement shall not be effective until
approved in writing by HUD. Lessee is hereby granted an option to extend this
Agreement for two (2) additional five (5) year periods on substantially the same
terms as provided in this Agreement. Lessee must notify the Lessor in writing of
its election to exercise any of the renewal extensions at least three (3) months
prior to the expiration of the then current lease term.
<PAGE>
3. Regulatory Agreement. The Regulatory Agreement, dated June 7, 1982, by
and between the Lessor and HUD (the "Regulatory Agreement") is attached hereto
as Exhibit "C" and incorporated herein by reference. To the extent that any
provisions of this Agreement conflict or are inconsistent with the Regulatory
Agreement and the HUD Mortgage, the Regulatory Agreement and HUD Mortgage shall
control.
4. Rental Payments. Rent shall be composed of Base Rent and Additional
Rent.
A. Base Rent. Lessee shall pay to Lessor a minimum Base Rent for the
Property in advance upon the first day of each and every month during the term
of this Agreement which Base Rent shall equal the sum of all of the following:
i. The amount required to pay the monthly debt service
under the HUD Mortgage, including the mortgage insurance
premium, if any; and
ii. One twelfth (1/12) of Ten percent (10%) of the Adjusted
Capital Investment. Adjusted Capital Investment shall
equal the Original Capital Investment (as defined in the
Lessor's Sixth Amended and Restated Limited Partnership
Agreement, as amended (the "Partnership Agreement")) of
the Limited Partners of Lessor less the Original Capital
Investment previously returned to the Limited Partners
of Lessor by way of distribution or return of reserves
or otherwise.
B. Initial Monthly Lessee Payments. If any additional monthly Gross
Revenues (as hereinafter defined) are available after payment of the Base Rent,
Lessee shall retain six percent (6%) of the monthly Gross Revenues derived from
the operation of the Property. In the event that Lessee elects to exercise its
renewal option, Lessee shall retain six percent (6%) of the monthly Gross
Revenues derived from the operation of the Property. "Gross Revenues" shall mean
all revenues derived from operations of the nursing home, determined on an
accrual basis in accordance with generally accepted accounting principles as
applied to the nursing home industry.
C. Additional Rent. If any additional monthly Gross Revenues are
available after payment of (i) the Base Rent; (ii) the Initial Monthly Lessee
Payments; and (iii) all other expenses and costs related to the operation of the
Property, including, without limitation, any amounts withheld by the Lessee as
reserves, then Lessee shall pay to Lessor as Additional Rent fifty percent (50%)
of such remaining monthly Gross Revenues each month during the term
2
<PAGE>
of this Agreement and Lessee shall pay itself the remaining fifty percent (50%).
D. Payment of Rent. All rent shall be payable at the office of
Lessor or wherever Lessor shall from time to time direct.
E. Abatement and Accrual of Rent Payments. If the Medicaid payments
paid by the District of Columbia for patients cared for on the Property are
partially or totally withheld and not paid for any reason, then the Lease
payments under this section shall abate and accrue and shall not be due and
owing until nine (9) months after full payments are reinstated by the District
of Columbia. Any accrual pursuant to this section shall not be a breach of this
Agreement by Lessee and shall not serve as a "cause" for purposes of termination
of this Agreement by Lessor. If the Medicaid payments by the District of
Columbia are partially or totally withheld then at Lessee's request, Lessor
shall draw on funds from the Operational Reserves and loan said Operational
Reserves to Lessee with repayment to come only from future Medicaid payments.
F. Rent and Lessee Payments Subordinated to HUD Mortgage. No
payments may be made to Lessor as Rent (either as Base Rent or Additional Rent)
or to Lessee if there is a monetary default under the HUD Mortgage.
5. Net Lease. This Agreement is intended to be a net lease in that it is
the intention of the parties hereto that the rent payable to Lessor shall not be
reduced by any cost or charge whatsoever and that all expenses and charges
related to the ownership and operation of the Property after the date of this
Agreement, whether for upkeep, maintenance, insurance, taxes, utilities,
federal, state and municipal requirements and other charges of a like nature or
type or otherwise shall be paid by Lessee. This provision is not in derogation
of specific provisions herein, but in expansion thereof and as an indication of
the general intentions of the parties hereto.
6. Taxes and Assessments. Lessor agrees to pay to the public authorities
charged with collection thereof, promptly as the same become due and payable,
all taxes, assessments, and other public charges levied upon or assessed against
the demised Property and/or any building, structure, fixture or improvements now
or hereafter located thereon, or arising in respect of the occupance, use or
possession of the leased Property, and which become due and payable.
7. Fuel, Utility Services. Lessee hereby agrees to pay for all fuel,
electricity, heat or power, gas and water, or any other utility charges incurred
upon the demised Property after the date of this Agreement.
3
<PAGE>
8. Compliance with Law. Lessee covenants that in the use and occupation of
the demised Property and the buildings, structures, fixtures and improvements
thereon, and the sidewalks adjacent thereto, Lessee will comply with all
authorities in any manner affecting the demised Property or any building,
structures, fixtures and improvements thereon or the use thereof. Lessee further
agrees that it will not permit any unlawful occupation, business or trade to be
conducted on said Property, or any use to be made thereof contrary to any law,
ordinance or regulation as aforesaid with respect thereto.
9. Repairs, Alterations and Additions. The Lessee shall be further obliged
to pay any expense from the Gross Revenues of the Property for repairing any
improvements upon the demised Property, including, without limitation,
extermination and landscaping, and Lessee will make all repairs and replacements
necessary to maintain the same in a good, tenantable and wholesome condition,
complying with all applicable laws, regulations, ordinances and requirements of
all authorities having jurisdiction. Lessor, however, is not hereby relieved of
responsibility of maintenance assumed by it pursuant to the HUD Mortgage and
Regulatory Agreement. Lessee shall pay any costs relative to repair or
replacement of furniture and fixtures from the date of this Agreement, and
Lessor agrees to allow Lessee use of any Replacement Reserves for same upon
proper notice. Lessee shall not remodel, reconstruct, add to, or demolish any
part of the mortgaged property, or subtract from any real estate or personal
property without the consent of HUD.
10. Right of First Refusal. If Lessor receives an offer to purchase the
Property along with the business of Grant Park Care Center (hereafter the
"Facility") which Lessor desires to accept, Lessor shall give Lessee, or its
assigns, the right of first refusal to purchase the Facility at the same price
and on the same terms and conditions as the offer. Lessee shall have sixty (60)
days after receipt of a copy of such offer to purchase the Facility within which
to exercise in writing the foregoing right of first refusal. Failure to so
exercise the right of first refusal within such sixty (60) day period shall be
deemed a waiver thereof and Lessor shall be entitled to accept the offer for the
purchase of the Facility.
11. Insurance. Lessee shall maintain on behalf of Lessor, at all times
during the term of this Agreement, the following insurance limits and coverage
unless the same are less than the limits required by the Lessor's HUD Mortgage
or HUD, in which case, the latter limits shall prevail and automatically
supersede the following:
A. Insurance naming Lessor, Lessee and Lessor's Mortgagee, as their
respective interests may appear, as insureds upon the repair or replacement
basis in an amount of not less than 100% of the then actual cost of replacement,
but without deduction
4
<PAGE>
for depreciation; co-insurance shall be permitted with deductible provisions not
to exceed $5,000 in any one casualty, against loss or damage by fire, lightning,
windstorm, hail, explosion, riot, riot attending a strike, civil commotion,
aircraft, vehicles and smoke and such other risks as are now or thereafter
included in the uniform standard extended coverage endorsement in common use for
similar structures, including, without limitation, vandalism and malicious
mischief;
B. Business interruption insurance naming Lessee and Lessor as
insureds covering loss of revenues and other income by Lessee or Lessor by
reason of total or partial suspension, or interruption in the operation, of the
Property caused by damage or destruction of the Property, in an amount not less
than the average cash flow from the Property for the six (6) months prior to the
execution of this Agreement;
C. Comprehensive general liability insurance naming Lessor, Lessor's
Mortgagee and Lessee, as their respective interests may appear, as insureds
providing insurance, with deductible provisions not to exceed $5,000, to the
extent of not less than $1,000,000 per occurrence limit of liability for
personal injury and property damage; including, without limitation, loss of use
therefrom occurring on or in any way related to the Property or any part
thereof, with excess coverage or "umbrella" insurance for claims under such
coverage stated above in the amount not less than $1,000,000;
D. Nursing Home Professional liability insurance naming Lessor and
Lessee as insureds providing insurance, with deductible provisions not to exceed
$5,000, to the extent of not less than $1,000,000 per occurrence for malpractice
claims with excess coverage or "umbrella" insurance for claims under such
coverage in the amount of not less than $1,000,000;
E. Automobile liability insurance naming Lessor and Lessee as
insureds to the extent of not less than $500,000 combined single limit for
bodily injury and property damage, including death resulting therefrom, with
excess coverage or "umbrella" insurance for claims under such coverage in the
amount of not less than $1,000,000;
F. Workers compensation insurance naming Lessor and Lessee as
insureds in the maximum amount recoverable pursuant to applicable statutes; and
G. Fidelity bonds for employees as required by law.
All insurance provided for under the foregoing provisions of this
paragraph shall be effected by policies issued by insurance companies of good
reputation and of sound and adequate financial responsibility, licensed and
qualified to do business in the
5
<PAGE>
District of Columbia. Each of the policies of insurance shall also insure the
respective offices, agents and employees of Lessor and Lessee.
The insurance required under this paragraph may be included in Lessee's
master insurance policy if such inclusion reduces the overall cost of insurance
for this Property. All insurance policies shall contain a provision that such
insurance may not be canceled by the issuer thereof without at least thirty (30)
days advance written notice to Lessor, Lessee and all Mortgagees. In the event
Lessor shall fail or refuse to cooperate with Lessee to procure such insurance,
Lessor shall hold Lessee free, harmless and indemnified with respect to any
liability resulting from such failure to insure provided said liability was not
caused by Lessee's gross negligence or willful misconduct.
12. Other Operating Expenses. Lessee agrees to pay from the Gross Revenues
of the Property all other operational expenses of the Property not heretofore
mentioned.
13. Surrender. Lessee agrees that, upon termination by lapse of time or
otherwise of the term hereby created, or any extension thereto, it will deliver
and surrender up to the Lessor said Property in good condition and repair; any
damage, deterioration or destruction resulting from ordinary wear and tear, loss
by fire, casualty and causes beyond Lessee's control are excepted.
14. Liens. Lessee will not permit any mechanic's, laborer's, or
materialmen's liens to stand against the demised Property for any labor or
material furnished to Lessee or claimed to have been furnished to Lessee in
connection with work of any character performed or claimed to have been
performed on said premises by or at the direction or sufferance of Lessee, but
nothing herein contained shall in any way prejudice the rights of Lessee to
contest to final judgment or decree any such lien. In the event of failure of
the Lessee to procure the discharge of any such lien or contest such lien as
above provided, by bond or any other method, Lessor may, without further notice,
procure the discharge thereof by bonding, payment or otherwise, and all costs
and expenses incurred by Lessor in obtaining such discharge shall become due as
additional rent upon the next rental payment.
15. No Abatement of Rent. The partial destruction of any building on the
Property by fire or natural elements shall not in any manner affect this
Agreement or the rights and obligations of Lessee hereunder and the rent shall
not abate, diminish or cease during reconstruction. However, should the Lessor
fail to undertake to repair, rebuild or replace any such damage or destruction
within forty-five (45) days after such fire or other casualty, or shall fail to
complete such work diligently, then the terms of this Agreement shall expire at
the option of Lessee, after ten (10) days written notice to Lessor. This Section
15 shall not
6
<PAGE>
in any way diminish Lessee's rights to abatement and accrual of rent under
Section 4.E. hereof.
16. Damage or Destruction. If the Property covered hereby, or any part
thereof, shall be damaged by fire or other hazard against which insurance is
held, the amounts paid by any insurance company in pursuance of the contract of
insurance to the extent of the indebtedness then remaining unpaid, shall be paid
to the Lessor, and, at its option, may be applied to the debt or released for
the repairing or rebuilding of the Property.
17. Condemnation. If the demised Property shall be condemned or taken in
its entirety for a public or quasi-public use, all compensation therefore shall
be paid to and become the property of Lessor subject to the terms of the HUD
Mortgage and the Regulatory Agreement, and this Agreement and all obligations
hereunder shall terminate as of the date of taking. If only a portion of the
demised Property shall be condemned or taken for a public or quasi-public use,
any and all awards or compensation arising from such condemnation or taking
shall be paid to the Lessor subject to the terms of the HUD Mortgage and the
Regulatory Agreement, and this Agreement shall continue without modification,
unless and except that if so much or such portion of the Property be taken that
the taking shall materially interfere with the efficient operation of its
business by Lessee on the Property, the judgment of the Lessee as to the
materiality of such interference being conclusive, then at any time within sixty
(60) days after taking of such portion of the Property, Lessee may terminate
this Agreement by serving upon the Lessor written notice of its intention to do
so. In the event this Agreement is so terminated, then any and all awards or
compensation arising from such condemnation or taking shall be paid to and
become the sole property of the Lessor subject to the terms of the HUD Mortgage
and the Regulatory Agreement, and all obligations hereunder shall cease as of
the date of such termination. Nothing contained herein shall be construed to
preclude the Lessee from prosecuting any claim directly against the condemning
authority in such condemnation proceedings for loss of business, or depreciation
to, damage to, or cost of removal of, or for the value of stock, trade fixtures,
furniture and other personal property belonging to the Lessee; provided,
however, that no such claim shall diminish or otherwise adversely affect the
Lessor's award.
18. Reduction of Bed Capacity. Lessee shall not voluntarily reduce the bed
capacity of the Property without the prior written consent of HUD.
19. Assignment and Subletting. Lessee may not assign or encumber this
Agreement or its rights hereunder without first obtaining the written consent of
Lessor and HUD. In such event, Lessee shall remain liable for the payment of all
rent required to be paid hereunder and for the performance of all terms,
covenants
7
<PAGE>
and conditions herein undertaken by Lessee. Lessee shall not have the right to
sublet the operation of the leased Property or any portion thereof, at any time
during the term of this Agreement without first obtaining the written consent of
the Lessor and HUD.
20. Holding Over. In the event Lessee continues to occupy the Property
after the last day of the term hereby created, or after the last day of any
extension of said term, and the Lessor elects to accept rent thereafter, a
tenancy from month to month only shall be created and to for any longer period
without the written concurrence of Lessee.
21. Abandonment and Reletting. If Lessee shall abandon or vacate said
Property, except as permitted hereunder, the same may be re-let by Lessor for
such rent, and upon such terms as to it may seem fit and in accordance with
Lessor's Partnership Agreement, the HUD Mortgage and the Regulatory Agreement.
If a sufficient sum shall not be thus realized monthly after paying the expense
of such re-letting and collecting, to satisfy the rent hereby reserved, Lessee
agrees to satisfy and pay all deficiencies during each month of the remaining
period of this Agreement.
22. Subrogation Waiver. Lessor hereby waives any and all claims against
Lessee, its assignees or sub-lessee for damage or destruction of any
improvements on the leased Property (whether or not resulting from the fault or
negligence of Lessee, its assignees or sub-lessee or their agents or employees)
which improvements are to be covered by said insurance by Lessee and the parties
agree that said certificate of insurance will recognize this waiver of Lessor by
a good and sufficient waiver of subrogation provision, provided, however, that
nothing herein shall be construed as waiving Lessor's right to any insurance
proceeds under policies provided by Lessee, but paid for by Lessor.
23. Default, Certain Termination and Remedies.
A. Lessee Defaults. If Lessee defaults in the payment of the above
rent, or any part thereof, or in any of the covenants herein contained to be
kept by the Lessee, and such default shall continue for a period of ninety (90)
days, it shall be lawful for Lessor at any time after said ninety (90) days, at
its election and without notice to declare said term ended and to reenter said
Property or any part thereof, with or without process of law, and to remove
Lessee or any persons occupying the same, without prejudice to any remedies
which might otherwise be used for arrears of rent, and Lessor shall have a valid
and first lien upon all personal property which Lessee owns or may hereafter
acquire or have any interest in, whether exempt by law or not, as security for
payment of the rent herein reserved. Lessor may only relet the Facility in
accordance with Section 20 hereof.
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B. Lessee's Right to Terminate. Lessee has the right to terminate
this Agreement, without further obligation to Lessor (including the payment of
rent), upon thirty (30) days written notice to Lessor, if Lessee, in its sole
judgment, concludes that the reimbursement of costs to patients at the Facility
under the Medicaid or the Medicare programs are insufficient for it to make a
reasonable profit. At the expiration of the thirty (30) day notice period,
Lessee shall abandon the Facility to the Lessor and shall only be responsible to
pay Lessor monies owed pursuant to this Agreement, if any, prior to its
abandonment and termination pursuant to this Section 22.
C. Certain Termination. Lessor may terminate this Agreement, subject
to Lessee's rights under Section 10 hereof, upon the sale of the Property after
giving Lessee ninety (90) days prior notice of the sale (the "Termination
Notice") and upon the payment of a Termination Fee on the date the Termination
Notice is given equal to the total Initial Monthly Lessee Payments and
Additional Rent payments paid to Lessee during the most recent 12 months prior
to the date the Termination Notice is delivered.
24. Remedies Cumulative. The remedies conferred by this Agreement upon
Lessor and Lessee are not intended to be exclusive, but are cumulative and in
addition to all remedies otherwise afforded by law.
25. Successors. This Agreement and all covenants and agreements herein
contained shall be binding upon, apply and inure to the respective successors
and assigns of all parties to this Agreement.
26. Lessor's Title. Lessor's title is, and always shall be, paramount to
the title and interest of Lessee, and nothing herein contained shall empower the
Lessee to do any act which can or shall encumber the title of the Lessor. Lessee
agrees to subordinate its interest in this Agreement to the HUD Mortgage that
encumbers the demised Property. If Lessee fails to execute such subordination
within a reasonable time, Lessor is hereby granted a limited Power of Attorney
to execute same in name of Lessee. This Agreement (and Lessee's interest in all
personal property) shall be subject and subordinate to the HUD Mortgage securing
the Note to Quaker Mortgage Corporation or other obligations endorsed for
insurance by HUD. Nothing contained herein shall relieve the Lessor of any
obligations under the HUD Mortgage securing any Note insured by HUD.
27. Books and Financial Statements. Lessee shall deliver to Lessor at the
end of each fiscal year, or more often as requested by Lessor, the books of its
operations. In addition, Lessee shall on or before the end of each calendar
month, provide to Lessor a balance sheet and a profit and loss statement showing
the results of operation of the Property for the past calendar month.
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28. License. Lessee at all times shall maintain in force and effect a
license from the District of Columbia to operate a nursing home, and shall at
all times employ a duly qualified administrator to operate the Home.
29. Employees. Lessor shall have direct responsibility for recruiting,
hiring, training, promoting, assigning and discharging all operating and service
personnel necessary for the proper operation and maintenance of the Property.
All employees shall be employees of the Lessor and the Property and shall not be
employees of the Lessee but Lessee shall lease the employees from Lessor and the
Property for the employees' cost to Lessor.
30. Notice of Action Against License. Notwithstanding any other provision
of this Agreement to the contrary, Lessee shall inform Lessor immediately by
hand delivery, telephone or telegraph of any action taken, commenced or
instituted by any state or federal authority having jurisdiction over the
Property as a health care facility to terminate or revoke any license
certification of Lessee. Such notice shall be given to Lessor at the address set
forth in Paragraph 33.A. below.
31. Deed in Lieu of Foreclosure. In the event of a Deed in Lieu of
Foreclosure, this Agreement may be terminated at the option of the Secretary of
HUD, with or without fault.
32. Surrender of Possession. Lessee shall, on or before the last day of
the term of this Agreement, surrender possession of the Property to Lessor, free
and clear of sub-tenancies not specifically agreed upon by Lessor, clean and in
good condition and repair, ordinary wear and tear excepted. The Property, upon
the surrender of possession, shall be in compliance with all local codes and
regulations, notwithstanding that such codes and regulations may not have
applied to Lessee during the term of this Agreement.
33. Quiet Enjoyment. If and so long as Lessee is not in default hereunder,
Lessor agrees that it will not interfere with the peaceful and quiet occupation
and enjoyment of the Property by Lessee.
34. Miscellaneous Provisions.
A. Notices. Any notice or other communication by either party to the
other shall be in writing and shall be given, and be deemed to have been duly
given, if either delivered personally or mailed, postage prepaid, by registered
or certified mail, or overnight delivery service (i.e., U.P.S. or Federal
Express) addressed as follows:
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TO LESSOR:
Grant Park Nursing Home Limited Partnership
5000 Nannie Helen Burroughs Ave., N.E.
Washington, D.C. 20019-4827
Attention: J. Stephen Eaton
TO LESSEE:
WelCare Acquisition Corp.
7000 Central Parkway
Suite 970
Atlanta, Georgia 30328
Attention: Alan C. Dahl
WITH A COPY TO:
Nelson, Mullins, Riley & Scarborough
400 Colony Square, Suite 2200
1201 Peachtree Street
Atlanta, Georgia 30361
Attention: Paul A. Quiros
or to such other address and to the attention of such other person or officer as
either party may from time to time designate.
B. Change of Address. Lessor and Lessee may change their address for
purposes of this Agreement by giving notice thereof in accordance with the
provisions set forth for notices above.
C. Understanding and Agreements. This Agreement constitutes all of
the understandings and agreements of whatever nature or kind existing between
the parties with respect to the subject matter hereof. This Agreement may be
modified upon agreement by both parties if required to do so by HUD and any
other regulatory agencies that have authority over the Property.
D. Headings. The paragraph headings contained herein are for
convenience of reference only and are not intended to define, limit or describe
the scope or intent of any provisions of this Agreement.
E. Approval or Consent. Whenever, under any provision of this
Agreement, the approval or consent of either party is required, the decision
thereon shall be promptly given, and such approval or consent shall not be
unreasonably withheld.
F. Severability. Should any part of this Agreement be declared
invalid for any reason, such decision shall not affect or impair the validity of
the remaining part or parts hereof, and this Agreement shall remain in full
force and effect as to all parts not
11
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declared invalid or unenforceable as if the same had been executed with the
invalid or unenforceable portion(s) thereof eliminated.
G. Applicable Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the District of Columbia
(without regard to its rules of conflicts of laws).
H. Further Assurances. Lessee shall, upon the request of Lessor,
execute and deliver any and all further documents which may be required,
contemplated or desired by Lessor in furtherance of the transactions
contemplated by this Agreement.
I. Amendment or Modifications. This Agreement shall not be amended
or modified without the prior written consent of the parties hereto.
J. Time. Time is of the essence of this Agreement.
K. Binding. This Agreement shall be binding upon, and inure to the
benefit of, the parties hereto, their estates, heirs, personal representatives,
successors in interest and assigns.
L. Counterparts. This Agreement may be executed in one of more
counterparts, each of which shall constitute one and the same instrument.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Agreement as of
the date first set forth above.
LESSOR:
GRANT PARK NURSING HOME, LIMITED
PARTNERSHIP, a District of Columbia limited
partnership, by its managing general
partner, WelCare Service Corporation - Grant
Park
By: /s/ J. Stephen Eaton
----------------------------------------
J. Stephen Eaton,
President
LESSEE:
WELCARE ACQUISITION CORP., a Georgia
Corporation
By: /s/ Alan C. Dahl
----------------------------------------
Alan C. Dahl,
Vice President
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EXHIBIT 10.10
<PAGE>
AMENDED AND RESTATED LEASE AGREEMENT
(Royal Terrace)
THIS AMENDED AND RESTATED LEASE AGREEMENT (the "Lease") is made and
entered into as of the 4th day of October, 1994, effective as of the
Commencement Date, by and between International Health Care Properties XXVII,
L.P., a Georgia limited partnership (hereinafter referred to as the "Lessor")
and WelCare International Properties Corporation, a Georgia corporation
(hereinafter referred to as the "Lessee").
W I T N E S S E T H :
Lessor is the owner of that certain real property, more particularly
described on Exhibit "A" attached hereto and incorporated herein by reference,
improved with a 147-bed nursing home facility known as Royal Terrace Nursing
Center (the "Facility"), together with Lessor's easements and appurtenances in
adjoining and adjacent land, highways, roads, streets, lanes, whether public or
private, reasonably required for the installation, maintenance; operation and
service of sewer, water, gas, power, and other utility lines and for driveways
and approaches to and from abutting highways for the use and benefit of the
above-described parcel of real estate, together with that certain personal
property, fixtures, equipment and supplies used in connection with such real
estate and improvements (the "Premises"); and
WHEREAS, Lessor and lessee entered into that certain Lease Agreement dated
as of July 29, 1994, whereby Lessor agreed to lease to Lessee the Premises (the
"Original and
WHEREAS, Lessor and Lessee desire to amend and restate the Original Lease
in its entirety as provided in this Lease.
NOW THEREFORE, in consideration of Ten Dollars ($10.00) in hand paid by
each party to the other, the mutual promises herein contained and other good and
valuable consideration, the receipt, adequacy and sufficiency of which are
hereby acknowledged, the parties do hereby agree as follows:
1. Ownership. Lessor is the owner of the Facility which is located on the
Premises.
2. Term. The term of this Lease shall be deemed to have commenced on the
1st day of August, 1994 (the "Commencement Date"), and shall end on the 31st day
of July, 2008 unless sooner terminated, and Lessee is hereby granted an option
to extend this Lease for two (2) additional five (5) year periods on the same
terms as provided in this Lease; provided, however, that at the time of such
election to extend, unless Lessee and Lessor shall have otherwise agreed in
writing upon the rent to be paid during the extension term(s), Lessee shall
provide Lessor with a letter
<PAGE>
from a third-party appraiser reasonably acceptable to Lessor stating that the
Rent (as hereinafter defined) and any other sums payable under this Lease
constitute a fair market rental rate for the Premises (the "Fair Rental Rate").
Lessee shall pay the reasonable fees and charges of such appraiser. If the Fair
Rental Rate is greater than or less than the Rent at the time of the extension
of this Lease, then the Lessee can either (i) elect not to extend this Lease, or
(ii) pay as Rent an amount equal to the Fair Rental Rate. Lessee must notify the
Lessor in writing of its election to exercise any of the renewal extensions at
least three (3) months prior to the expiration of the then current lease term.
Provided however, that if the Fair Rental Rate results in a reduction in the
Lessor's return on equity then, unless the parties reach an agreement as to the
Rent, Lessor can elect not to extend the Lease. Lessor and Lessee agree that
they both shall be bound by the appraiser's determination of the Fair Rental
Rate to the extent herein indicated.
3. Rental Payments.
A. Base Rent. Lessee shall pay to Lessor $58,711.71 as base rent for
the Premises in arrears upon the last day of each and every month during the
term of this Lease (the "Base Rent").
B. Additional Rent. Lessee shall pay to Lessor as additional rent
the amount per month, if any, calculated pursuant to Exhibit "B", attached
hereto and incorporated herein by this reference (the "Additional Rent").
C. Payment of Rent. Lessor and Lessee acknowledge and agree that
this and all Base Rent and Additional Rent (together, the "Rent") payable
hereunder may be assigned as additional collateral for a first priority mortgage
loan to Lessor (the "Mortgage") by Lessor to the holder of the Mortgage (the
"Mortgagee").
4. Net Lease. This Lease is intended to be a net lease in that it is the
intention of the parties hereto that the Rent payable to Lessor shall not be
reduced by any cost or charge whatsoever and that all expenses and charges
related to the ownership and operation of the Premises after the date of this
Lease, whether for upkeep, maintenance; compliance with environmental, health
and safety laws (including the Americans with Disabilities Act); insurance;
taxes; utilities; federal, state and municipal requirements; and other charges
of a like nature or type or otherwise shall be paid by Lessee, except as
specifically provided herein. This provision is not in derogation of specific
provisions herein, but in expansion thereof and as an indication of the general
intentions of the parties hereto.
5. Taxes and Assessments. Lessee hereby agrees to pay to the public
authorities charged with collection thereof, promptly as the same become due and
payable, all taxes, assessments, and other public charges levied upon or
assessed against the Premises and/or
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<PAGE>
any personal property, building, structure, fixture or improvements now or
hereafter located thereon, or arising in respect of the occupance, use or
possession of the Premises, and which become due and payable.
6. Fuel, Utility Services. Lessee hereby agrees to pay for all fuel,
electricity, heat or power, gas and water, or any other utility charges incurred
upon the Premises after the date of this Lease.
7. Compliance with Laws. Lessee covenants that in the use and occupation
of the Premises and the buildings, structures, fixtures and improvements
thereon, and the sidewalks adjacent thereto, see will comply in all material
respects with all authorities in any manner affecting the Premises or any
building, structures, fixtures and improvements thereon or the use thereof and
the terms of the Mortgage. Lessee further agrees that it will not permit any
unlawful occupation, business or trade to be conducted on the Premises, or any
use to be made thereof contrary to any law, ordinance or regulation with respect
thereto.
8. Repairs, Alterations and Additions.
A. General. Lessee shall be obliged to pay from the Gross Revenues
of the Premises any expense of repairing any improvements upon the Premises,
including, without limitation, extermination and landscaping, and Lessee shall
make all reasonable and replacements necessary to maintain the Premises and all
furniture and fixtures in a reasonably good, tenantable and wholesome condition,
complying in all material respects with all applicable laws, regulations,
ordinances, licenses and requirements of all authorities having jurisdiction
over the Premises, except as otherwise provided herein. For purposes of this
Lease, "Gross Revenues" shall mean the amount equal to the sum of all revenues
received or receivable from the operation of the Facility less contractual
allowances for billings not paid or received from applicable governmental
agencies or other third party payors as determined during each calendar year.
B. Establish Capital Improvements and Working Capital Reserve.
Lessor has established a capital improvements reserve of $300,000.00 minus
amounts necessary to establish any debt service reserve or other reserves
required by Mortgagee (the "Capital Improvements Reserve"). The Capital
Improvements Reserve may be subject, from time to time, to a lien arising under
the Mortgage. Subject to any such lien, Lessee shall use the Capital
Improvements Reserve to pay for capital improvements made to the Facility and
working capital in the operation of the Facility, in Lessee's reasonable
discretion.
9. Insurance. Lessee shall maintain insurance as required by the Mortgage
substantially as follows:
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<PAGE>
(a) Professional liability insurance in at least the amount of
$1,000,000 per occurrence, $3,000,000 aggregate with a $2,000,000 umbrella. All
such liability insurance shall name each of Lessor and Mortgagee as an
additional insured;
(b) Liability insurance in an amount equal to at least $1,000,000
per occurrence, $3,000,000 aggregate, with a $2,000,000 umbrella. All such
liability insurance shall name each of Lessor and Mortgagee as an additional
insured;
(c) "All-risk" coverage on the Facility, including all improvements,
equipment and inventory, in an amount not less than the replacement cost
thereof, insuring against such potential causes of loss as shall be required by
Lessor, including but not limited to loss or damage from wind, fire, ice and
subsidence;
(d) Business income insurance (including rental value if the
Facility is leased n whole or part) equal to not less than twelve (12) months
estimated gross revenues less expenses not ordinarily incurred during the period
of business interruption; and
(e) Workers compensation insurance as required by the laws of the
State where the Facility is located.
Each of the policies described in (c) and (d) shall name Lessor (or, if by
Lessor, Mortgagee) as mortgagee and loss payee under a standard non-contributory
mortgagee and lender loss payable clause, and shall provide that Lessor and
Mortgagee shall receive not less than (30) days written notice prior to
cancellation. The proceeds of either of the policies described in (c) and (d)
shall be payable by check jointly payable to Lessee and to Lessor (or, if
directed by Lessor, Mortgagee) and delivered to Lessor (or, if by Lessor,
Mortgagee).
Lessee appoints Lessor and Mortgagee as Lessee's attorney-in-fact to cause
the issuance of or an endorsement of any policy to bring Lessee into compliance
herewith and, at the option of Lessor and Mortgagee, to make any claim for,
receive payment for, and execute and endorse any documents, checks or other
instruments in payment for loss, theft, or damage covered under any such
insurance policy; however, in no event will Lessor or Mortgagee be liable for
failure to correct any amounts payable under any insurance policy. Lessee agrees
and acknowledges that the application of insurance proceeds shall be governed by
the Mortgage.
If Lessor shall in any manner resume possession of the Premises, Lessor
shall thereupon become, subject to the terms of the Mortgage, the sole owner of
all insurance policies held by or required hereunder to be delivered to Lessor,
with the sole right to collect and retain all unearned premiums and dividends
thereon, and Lessee shall only be entitled to a credit, in reduction of the then
outstanding indebtedness secured hereby, in the amount of the cancellation
refund.
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<PAGE>
10. Other Operating Expenses. Lessee agrees to pay all other operational
expenses of the Premises not heretofore mentioned,
11. Surrender. Lessee agrees that, upon termination by lapse of time or
otherwise of the term hereby created, or any extension thereto, it will deliver
and surrender up to the Lessor said Premises in reasonably good condition and
repair; any damage, deterioration or destruction resulting from o wear and tear,
loss by fire, casualty and causes beyond Lessee's control are excepted.
Concurrently with such delivery or surrender, Lessee shall also surrender all
permits and licenses necessary to operate the Premises as a nursing home or to
provide any other health care services and ancillary services being offered by
Lessee during the term of this Lease.
12. Liens. Lessee will not permit any mechanic's, laborer's, or
materialmen's liens to stand against the Premises for any labor or material
furnished to Lessee or claimed to have been furnished to Lessee in connection
with work of any character performed or claimed to have been performed on the
Premises by or at the direction or sufferance of Lessee, but nothing herein
contained shall in any way prejudice the rights of Lessee to contest to final
judgment or decree any such Hen. In the event of failure of Lessee to procure
the discharge of any such Hen or contest such lien as above provided, by bond or
any other method, Lessor may, without further notice, procure the discharge
thereof by bonding, payment or otherwise, and all costs and expenses incurred by
Lessor in obtaining such discharge shall become due as additional Rent upon the
next payment of Rent. Lessor shall not cause any mortgage or lien other than the
Mortgage and security interests related thereto to stand against or attach to
the Premises.
13. No Abatement of Rent. The partial destruction of any building on the
Premises by fire or natural elements shall not in any manner affect this Lease
or the rights and obligations of Lessee hereunder and the Rent shall not abate,
diminish or cease during reconstruction. The Rent shall not abate upon
foreclosure under the Mortgage. However, should the Lessor fail to undertake to
repair, rebuild or replace any such damage or destruction within thirty (30)
days after such fire or other casualty, or shall fail to complete such work
within six (6) months, then the terms of this Lease shall expire at the option
of Lessee, after ten (10) days written notice to Lessor.
14. Damage or Destruction. If the Premises covered hereby, or any part
thereof, shall be damaged by fire or other hazard against which insurance is
held, the amounts paid by any insurance company in pursuance of the contract of
insurance to the extent of the indebtedness then remaining unpaid, shall be
paid, subject to the terms of the Mortgage, to Lessor and released only for the
repairing or rebuilding of the Premises.
15. Condemnation. If the Premises shall be condemned or taken in its
entirety for a public or quasi-public use, all
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<PAGE>
compensation therefore shall be paid to Mortgagee to be used to pay the Mortgage
as provided in the Mortgage and any remaining funds will be divided between
Lessor and Lessee, and this Lease and all obligations hereunder shall terminate
as of the date of taking. If only a portion of the Premises shall be condemned
or taken for a public or quasi-public use, any and all awards or compensation
arising from such condemnation or taking shall be paid to Mortgagee subject to
the terms of the Mortgage, and this Lease shall continue without modification,
unless and except that if so much or such portion of the Premises be taken that
the taking shall materially interfere with the efficient operation of its
business by Lessee on the Premises, the judgment of Lessee as to the materiality
of such interference being conclusive, then at any time within sixty (60) days
after the talking of such portion of the Premises, Lessee may terminate this
Lease by serving upon Lessor written notice of its intention to do so. In the
event this Lease is so terminated, then any and all awards or compensation
arising from such condemnation or taking shall be paid jointly to Lessor and
Lessee subject to the terms of the Mortgage, and all obligations hereunder shall
cease as of the date of such termination and any funds remaining after the
payment of the Mortgage shall be divided between the Lessor and Lessee. Nothing
contained herein shall be construed to preclude Lessee from prosecuting any
claim directly against the condemning authority in such condemnation proceedings
for loss of business, or depreciation to, damage to, or cost of removal of, or
for the value of its leasehold interest, stock, trade fixtures, furniture and
other personal property belonging to lessee.
16. Assignment and Subletting. Lessee may not assign or encumber this
Lease or its rights hereunder except to Mortgagee without first obtaining the
written consent of Lessor which will not be unreasonably withheld; provided,
however, that Lessee's assignment of this Lease to an affiliate of Lessee shall
be valid and binding on Lessor without Lessor's prior written consent. In such
event, Lessee shall remain liable for the payment of all Rent required to be
paid hereunder and for the performance of all terms, covenants and conditions
herein undertaken by Lessee. Lessee shall have the right to enter into subleases
with respect to the operation of the Premises or any portion thereof, at any
time during the term of this Lease without the consent of Lessor, which
subleases shall not be deemed to create a tenancy in the Premises; provided,
however, that Lessee shall remain liable for the payment of all Rent required to
be paid hereunder and for the performance of all terms, covenants, and
conditions herein undertaken by Lessee. Lessor shall not assign or encumber this
Lease or its rights hereunder without first obtaining the written consent of
Lessee and providing Lessee with a written agreement from the assignee that it
will abide by all of the terms of this Lease.
17. Holding Over. In the event Lessee continues to occupy the Premises
after the last day of the term hereby created, or after the last day of any
extension of said term, and Lessor elects to accept rent thereafter, a tenancy
from month to month only shall
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<PAGE>
be created and not for any longer period without the written concurrence of
Lessor.
18. Abandonment and Reletting. If Lessee shall abandon or vacate the
Premises, except as permitted hereunder, the same may be re-let by Lessor for
such rent, and upon such terms as to it may seem fit and in accordance with
Lessor's Partnership Agreement and the Mortgage. If a sufficient sum shall not
be thus monthly after paying the expense of such re-letting and collecting, to
satisfy the Rent, Lessee agrees to satisfy and pay all deficiencies during each
month of the remaining period of this Lease.
19. Subrogation and Waiver. Lessor hereby waives any and all claims
against Lessee, its assignees or sub-lessee for damage or destruction of any
improvements on the Premises (whether or not resulting from the fault or
negligence of Lessee, its assignees or sublessee or their agents or employees)
which improvements are covered by insurance obtained by Lessee and the parties
agree that any policies of insurance obtained by Lessor will recognize this
waiver of Lessor by a good and sufficient waiver of subrogation provision;
provided, however, that nothing herein shall be construed as waiving Lessor's
right to any insurance proceeds under policies obtained by Lessee, but paid for
by Lessor.
20. Default, Termination and Damages.
A. Lessee's Default For Nonpayment of Rent. Except as otherwise
provided in this Lease, Lessee shall be in default under this Lease if it fails
to pay the Rent owed to Lessor hereunder for a period of sixty (60) days (a
"Monetary Default").
B. Lessee Default For Other Than Nonpayment of Rent. Lessee shall be
in default under this Lease if it defaults on any of the covenants herein
contained to be kept by Lessee, except the payment of Rent, and such default
shall continue after written notice for a period of ninety (90) days (a
"Non-monetary Default").
C. Right to Re-enter Facility. If a Monetary Default or Non-monetary
Default shall occur and continue, Lessor shall have the immediate right, whether
or not the term of this Lease shall have been terminated to re-enter and
repossess the Premises by summary proceedings, ejectment, any other legal action
or in any lawful manner Lessor determines to be necessary or desirable. No such
re-entry or repossession of the Premises shall be construed as an election by
Lessor to terminate the term of this Lease.
D. Duty to Mitigate. At any time or from time to time after the
re-entry or repossession of the Premises pursuant to Section 20.C. hereof,
whether or not the term of this Lease shall have been terminated, Lessor, in the
name of Lessee or Lessor or otherwise and upon notice to Lessee, shall, to the
extent required by applicable state law pe g to the duty to mitigate damages
upon breach of a lease or other contract, use such efforts to relet the Premises
as is required by such law, Lessor may collect and receive
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<PAGE>
any rents payable by reason of such reletting consistent with Section 18,
hereof.
E. Continuing Duty of Lessee. No expiration or termination of the
term of this Lease pursuant to this Section or and no expiration of the term
pursuant to Section 18 hereof, by operation of law or otherwise, and no
re-entry, repossession or reletting of the Premises pursuant to Section 18
hereof or otherwise, shall relieve Lessee of its liabilities and obligations
hereunder, all of which shall survive such expiration, termination, re-entry,
repossession or reletting.
21. Lessor Default/Remedies. If Lessor defaults in the performance of any
of its obligations under this Lease, and if such default remains uncured
following thirty (30) days' written notice from Lessee of such default, Lessee
shall have the right and option to do any one or more of the following:
(A) to perform the Lessor's obligation(s) and, if Lessor fails to
reimburse Lessee within ten (10) days following written demand for such
reimbursement, Lessee shall thereupon have the right to offset against the Base
Rent and the Additional Rent the cost of such performance.
(B) to abate the payment of Base Rent and Additional Rent, in such amount
as may be reasonably estimated by Lessee to correspond to the reduced rental
value of the Premises.
(C) to cancel the Lease and recover against Lessor, in addition to general
and special damages, all of its reasonable relocation and termination costs,
including fees of attorneys, brokers and other consultants; moving expenses;
tenant improvements costs for new premises (to the extent paid or payable by
Lessee); and similar costs and expenses.
Notwithstanding the foregoing, as a condition precedent to the exercise of
such rights and remedies of Lessee, Lessee shall provide Mortgagee with respect
to the Premises, written notice and thirty (30) days' opportunity to cure
Lessor's default(s) (which notice and cure period may run concurrently with any
notice or cure period afforded to Lessor). Lessee shall be relieved of such
duty, however, unless, with respect to any such Mortgagee, Lessee shall have
received written notice of Mortgagee's claim or interest in the Premises.
The rights and remedies set forth herein are cumulative of any afforded at
law or in equity.
22. Remedies Cumulative. The remedies conferred by this Lease upon Lessor
and Lessee are not intended to be exclusive, but are cumulative and in addition
to all remedies otherwise afforded by law.
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<PAGE>
23. Successors. This Lease and all covenants and agreements herein
contained shall be binding upon, apply and inure to the respective successors
and assigns of all parties to this Lease.
24. Lessor's Title. Subject to the terms of this Lease, Lessor's title is,
and always shall be, paramount to the title and interest of Lessee, and nothing
herein contained shall empower Lessee to do any act which can or shall encumber
the title of the Lessor. Provided the holder of any mortgage now or hereafter
encumbering the Premises shall provide Lessee with a non-disturbance agreement
reasonably satisfactory to Lessee, Lessee agrees to subordinate its interest in
this Lease to the Mortgage that encumbers the Premises. Nothing contained herein
shall relieve the Lessor of any obligations under the Mortgage.
25. Books and Financial Statements. Lessee shall deliver to Lessor at the
end of each fiscal year, or more often as reasonably requested by Lessor, the
books of its operations of the Facility. Lessee shall provide to Lessor the
financial statements required by the Mortgage.
26. License. Lessee at all times shall maintain in force and effect a
license from the state in which the Facility is located to operate a nursing
home, and shall at all times employ a duly qualified administrator to operate
the Facility.
27. Employees. Lessee shall have direct responsibility for recruiting,
hiring, training, promoting, assigning and discharging all operating and service
personnel necessary for the proper operation and maintenance of the Premises or
shall have direct responsibility for leasing employees for the Premises. All
employees shall be employees of the Lessee and the Premises or leased by the
Lessee and shall not be employees of the Lessor.
28. Notice of Action Against License. Notwithstanding any other provision
of this to the contrary, Lessee shall inform Lessor immediately by hand
delivery, telephone, telecopy (receipt confirmed) or telegraph of any action
taken, commenced or instituted by any state or federal authority having
jurisdiction over the Premises as a health care facility to terminate or revoke
any license certification of Lessee. Such notice shall be given to Lessor at the
address set forth in Paragraph 30.A. below.
29. Surrender of Possession. Lessee shall, on or before the last day of
the term of this Lease, surrender possession of the Premises to Lessor and all
personal property purchased by Lessee for use at the Facility, free and clear of
sub-tenancies or liens not specifically agreed upon by Lessor, reasonably clean
and in reasonably good condition and repair, ordinary wear and tear excepted.
30. Quiet Enjoyment. If and so long as Lessee is not in default hereunder,
Lessor agrees that it will not interfere with
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the peaceful and quiet occupation and enjoyment of the Premises by Lessee.
31. Inspection of Books and Records. Lessor and Mortgagee shall have the
right, upon reasonable notice and at reasonable times, to inspect the books and
records and accounts relating to the Facility.
32. Miscellaneous Provisions.
A. Notices. Any notice or other communication by either party to the
other shall be in writing and shall be given, and be deemed to have been duly
given, if either delivered personally or mailed, postage prepaid, by registered
or certified mail, or reputable overnight delivery service addressed as follows:
TO LESSOR:
International Health Care Properties XXVII, L.P.
404 BNA Drive
Suite 404
Nashville, Tennessee 37217-2514
Attention: Jere M. Ervin
TO LESSEE:
WelCare International Properties Corporation
7000 Central Parkway
Suite 970
Atlanta, Georgia 30328
Attention: Alan C. Dahl
or to such other address and to the attention of such other person or officer as
either party may from time to time designate.
B. Change of Address. Lessor and Lessee may change their address for
purposes of this Lease by giving notice thereof in accordance with the
provisions set forth for notices above.
C. Understanding and Agreement. This Lease constitutes all of the
understandings and agreements of whatever nature or kind existing between the
parties with respect to the subject matter hereof.
D. Headings. The paragraph headings contained herein are for
convenience of reference only and are not intended to define, limit or describe
the scope or intent of any provisions of this Lease.
E. Approval or Consent. Whenever, under any provision of this Lease,
the approval or consent of either party is required, the decision thereon shall
be promptly given, and such approval or consent shall not be unreasonably
withheld.
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<PAGE>
F. Severability. Should any part of this Lease be declared invalid
for any reason, such decision shall not affect or impair the validity of the
remaining part or parts hereof, and this Lease shall remain in full force and
effect as to all parts not declared invalid or unenforceable as if the same had
been executed with the invalid or unenforceable portion(s) thereof eliminated.
G. Applicable Law. This Lease shall be governed by, and construed
and enforced in accordance with, the laws of Kansas (without regard to its rules
of conflicts of laws).
H. Further Assurances. Lessee shall, upon the request of Lessor,
execute and deliver any and all further documents which may be required,
contemplated or desired by Lessor in furtherance of the transactions
contemplated by this Lease.
I. Amendment or Modifications. This Lease shall not be amended or
modified without the prior written consent of the parties hereto.
J. Time. Time is of the essence of this Lease.
K. Binding. This Lease shall be binding upon, and inure to the
benefit of, the parties hereto, their estates, heirs, personal representatives,
successors in interest and assigns.
L. Counterparts. This Lease may be executed in one of more
counterparts, each of which shall constitute one and the same instrument.
33. Right of First Refusal. Lessee's parent has agreed to guarantee
Lessee's obligations under this Lease and in consideration of such guarantee,
Lessor has granted Lessee a right of first refusal to purchase the Facility,
pursuant to that certain Right of First Refusal Agreement dated as of July 28,
1994, attached to the Original Agreement as Exhibit "C", and incorporated herein
by this reference.
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<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease as of the
date first set forth above.
LESSOR:
INTERNATIONAL HEALTH CARE PROPERTIES
XXVII, L.P., a Georgia limited
partnership
By: International Health Care
Associates XXVII, Inc.
Its General Partner
By: /s/ Jere M. Ervin
------------------------------------
Jere M. Ervin,
Executive Vice President
LESSEE:
WELCARE INTERNATIONAL PROPERTIES
CORPORATION, a Georgia corporation
By: /s/ Alan C. Dahl
----------------------------------------
Alan C. Dahl, Vice President
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<PAGE>
EXHIBIT B
Additional Rent to be paid 100 days following the end of the calendar year
beginning December 31, 1995. Additional Rent to be equal to the greater of:
i) five percent (5%) of the difference between (i) the gross Revenues
from Facility's operations for the calendar year immediately
preceding the payment, and (ii) the Gross Revenues of the Facility
for the calendar year ended December 31, 1993; or
ii) the increase in the Consumer Price Index;
not to exceed two-tenths of one percent of the Lessor's outstanding debt on the
first day of the year prior to the year in which the payment is made;
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<PAGE>
EXHIBIT 10.11
<PAGE>
LEASE AGREEMENT
(Ashton Woods)
THIS AMENDED AND RESTATED LEASE AGREEMENT (the "Lease") is made and
entered into as of the 20th day of December, 1994, by and between Ashton Woods
Limited Partnership, a Georgia limited partnership (hereinafter referred to as
the "Lessor") and WelCare/Ashton Properties, Inc., a Georgia corporation
(hereinafter referred to as the "Lessee").
W I T N E S S E T H :
Lessor for and in consideration of the covenants and agreements
hereinafter described to be kept and performed by Lessee, does hereby demise and
lease unto Lessee the following described property and premises: that certain
real property, more particularly described on Exhibit "A" attached hereto and
incorporated herein by reference, improved with a 157-bed nursing home facility
known as Ashton Woods Convalescent Center (the "Facility"), together with
Lessor's easements and appurtenances in adjoining and adjacent land, highways,
roads, streets, lanes, whether public or private, reasonably required for the
installation, maintenance, operation and service of sewer, water, gas, power,
and other utility lines and for driveways and approaches to and from abutting
highways for the use and benefit of the above-described parcel of real estate,
together with the personal property, fixtures, equipment and supplies used in
connection with such real estate and improvements (the "Premises");
NOW THEREFORE, in consideration of Ten Dollars ($10.00) in hand paid by
each party to the other, the mutual promises herein contained and other good and
valuable consideration, the receipt, adequacy and sufficiency of which are
hereby acknowledged, the parties do hereby agree as follows:
1. Ownership. Lessor is the owner of the Facility which is located on the
Premises.
2. Term. The term of this Lease shall be deemed to commence on January 1,
1995, and shall end on the 31st day of December, 2008 unless sooner terminated,
and Lessee is hereby granted an option to extend this Lease for two (2)
additional five (5) year periods on the same terms as provided in this Lease;
provided, however, that at the time of such election to extend, unless Lessee
and Lessor shall have otherwise agreed in writing upon the rent to be paid
during the extension term(s), Lessee shall provide Lessor with a letter from a
third-party appraiser reasonably acceptable to Lessor stating that the Base Rent
(as hereinafter defined) and any other sums payable under this Lease constitute
a fair market rental rate for the Premises (the "Fair Rental Rate"). Lessee
shall pay the reasonable fees and charges of such appraiser. If the Fair Rental
Rate is greater than or less than the Base Rent at the time of the extension of
this Lease, then the Lessee can either (i) elect not to extend this Lease, or
(ii) pay as Base Rent an amount equal to the Fair Rental Rate. Lessee must
notify the Lessor in writing of its election to exercise any of the renewal
extensions at least three (3) months prior to the expiration of the then current
lease term. Lessor and Lessee agree that they both shall be bound by the
appraiser's determination of the Fair Rental Rate to the extent herein
indicated.
<PAGE>
3. Rental Payments.
A. Rent. Lessee shall pay to Lessor the amounts set forth on Exhibit
"B" as rent for the Premises in arrears upon the last day of each and every
month during the term of this Lease (the "Rent").
B. Payment of Rent. Lessor and Lessee acknowledge and agree that
this Lease and all Rent payable hereunder may be assigned as additional
collateral for a mortgage loan or loans to Lessor. In such event, Lessor and
Lessee mutually agree that, if required by the lender (the "Mortgagee") pursuant
to such mortgage loan (the "Mortgage"), all payments of Rent shall be made to a
lockbox or another account designated by Mortgagee (a "Lockbox Account") and
Mortgagee is hereby authorized by Lessor and Lessee to debit such account each
month for the amount equal to the monthly debt service payments due pursuant to
the promissory note secured by the Mortgage. Payments so made by the Lessee
shall be credited as payments of Rent made under this Lease and shall satisfy
the obligations of Lessee hereunder, to the extent so paid. If payments of Rent
are not made a Lockbox Account for the benefit of Mortgagee, then such payments
shall be made to Lessor at Lessor's address as provided in Section 31 of this
Lease or such other address as Lessor shall specify pursuant to Section 31 at
least thirty (30) days prior to a payment date.
4. Net Lease. This Lease is intended to be a net lease in that it is the
intention of the parties hereto that the Rent payable to Lessor shall not be
reduced by any cost or charge whatsoever and that all expenses and charges
related to the ownership and operation of the Premises after the date of this
Lease, whether for upkeep, maintenance; compliance with environmental, health
and safety laws (including the Americans with Disabilities Act); insurance;
taxes; utilities; federal, state and municipal requirements; and other charges
of a like nature or type or otherwise shall be paid by Lessee, subject to the
other terms of this Lease including, but not limited to, the provisions for the
Premises Improvement Capital Account. This provision is not in derogation of
specific provisions herein, but in expansion thereof and as an indication of the
general intentions of the parties hereto.
5. Taxes and Assessments. Lessee hereby agrees to pay to the public
authorities charged with collection thereof, promptly as the same become due and
payable, all taxes, assessments, and other public charges levied upon or
assessed against the Premises and/or any building, structure, fixture or
improvements now or hereafter located thereon, or arising in respect of the
occupance, use or possession of the Premises, and which become due and payable.
6. Fuel, Utility Services. Lessee hereby agrees to pay for all fuel,
electricity, heat or power, gas and water, or any other utility charges incurred
upon the Premises after the date of this Lease.
7. Compliance with Laws. Lessee covenants that in the use and occupation
of the Premises and the buildings, structures, fixtures and improvements
thereon, and the sidewalks adjacent thereto, Lessee will comply in all material
respects with all authorities in any manner affecting the Premises or any
building, structures, fixtures and improvements thereon or the use thereof and
the terms of the Mortgage. Lessee further agrees that it will not permit any
unlawful occupation, business or trade to be conducted on the Premises, or any
use to be made thereof contrary to any law, ordinance or regulation with respect
thereto.
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<PAGE>
8. Repairs, Alterations and Additions.
A. General. Lessee shall be further obliged to pay any expense from
the Gross Revenues of the Premises for repairing any improvements upon the
Premises, including, without limitation, extermination and landscaping, and
Lessee shall make all reasonable repairs and replacements necessary to maintain
the Premises and all furniture and fixtures in a reasonably good, tenantable and
wholesome condition, complying in all material respects with all applicable
laws, regulations, ordinances, licenses and requirements of all authorities
having jurisdiction over the Premises subject to Lessor's contribution to the
Premises Improvement Capital Account as provided herein. Lessor, however, is not
hereby relieved of responsibility of maintenance assumed by it pursuant to the
Mortgage or as provided below. For purposes of this Lease, "Gross Revenues"
shall mean the amount equal to the sum of all revenues received or receivable
from the operation of the Facility less contractual allowances for billings not
paid or received from applicable governmental agencies or other third party
payors as determined during each calendar year.
B. Capital Improvements Reserve. Lessee shall be obligated to fund
up to One Million Dollars ($1,000,000.00) of capital improvements at the
Facility. Lessee shall establish on Lessor's behalf a capital improvements
reserve of One Million Dollars ($1,000,000.00) with SouthTrust Bank of Alabama,
N.A. ("SouthTrust") as Escrow Agent (the "Capital Improvements Reserve"), which
shall be administered by Lessee and used for the benefit of the Premises.
SouthTrust shall have a lien on this account as provided by the Assignment and
Pledge of Deposit Account (Capital Improvements) between Lessor and SouthTrust.
C. Premises Improvement Capital Account. Due to the age and
condition of the Facility's existing physical plants, Lessor shall fund, from
time to time, amounts as reasonably determined by Lessee to be necessary for
capital improvements and deferred maintenance at the Premises. Such amounts
funded by Lessor shall be placed in an account established by Lessee to fund
such capital improvements, deferred maintenance and other capital needs for the
upkeep, modernization, or expansion of the Premises (the "Premises Improvement
Capital Account"). Lessor's obligation to fund the Premises Improvement Capital
Account shall not exceed $78,500.00 per year ($500.00 per year per licensed bed
in the Facility located on the Premises) (the "Yearly Improvements Deposit").
The Yearly Improvements Deposit shall be payable upon the written request of
Lessee and shall be paid into the Premises Improvement Capital Account within
thirty (30) days after such prior written notice is provided by Lessee to
Lessor. The Premises Improvement Capital Account shall be solely administered
and controlled by Lessee and shall be used as set forth above or otherwise for
the benefit of the Premises as determined by the Lessee in its sole discretion.
9. Insurance. Lessee shall maintain insurance as required by the Mortgage
and substantially as follows:
(a) Professional liability insurance in at least the amount of
$1,000,000 per occurrence, $2,000,000 aggregate with a $10,000,000 umbrella. All
such liability insurance shall name each of Lessor and Mortgagee as an
additional insured;
(b) Liability insurance in an amount equal to at least $1,000,000
per occurrence, $2,000,000 aggregate, with a $10,000,000 umbrella. All such
liability insurance shall name each of Lessor and Mortgagee as an additional
insured;
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(c) "All-risk" coverage on the Facility, including all improvements,
equipment and inventory, in an amount not less than the replacement cost
thereof, insuring against such potential causes of loss as shall be required by
Lessor, including but not limited to loss or damage from wind, fire, ice,
subsidence and, if requested by Lessor, earthquake;
(d) Business income insurance (including rental value if the
Facility is leased in whole or part) equal to not less than twelve (12) months
estimated gross revenues less expenses not ordinarily incurred during the period
of business interruption; and
(e) Workers compensation insurance as required by the laws of the
State where the Facility is located.
Each of the policies described in (c) and (d) shall name Lessor (or, if
directed by Lessor, Mortgagee) as mortgagee and loss payee under a standard
non-contributory mortgagee and lender loss payable clause, and shall provide
that Lessor and Mortgagee shall receive not less than thirty (30) days written
notice prior to cancellation. The proceeds of either of the policies described
in (c) and (d) shall be payable by check jointly payable to Lessee and to Lessor
(or, if directed by Lessor, Mortgagee) and delivered to Lessor (or, if directed
by Lessor, Mortgagee).
Lessee appoints Lessor and Mortgagee as Lessee's attorney-in-fact to cause
the issuance of or an endorsement of any policy to bring Lessee into compliance
herewith and, at the sole option of Lessor and Mortgagee, to make any claim for,
receive payment for, and execute and endorse any documents, checks or other
instruments in payment for loss, theft, or damage covered under any such
insurance policy; however, in no event will Lessor or Mortgagee be liable for
failure to collect any amounts payable under any insurance policy. Lessee agrees
and acknowledges that the application of insurance proceeds shall be governed by
Section 4.4 of that certain Loan Agreement of even date herewith between
Mortgagee and Lessor.
If Lessor shall in any manner resume possession of the Premises, Lessor
shall thereupon become, subject to the terms of the Mortgage, the sole owner of
all insurance policies held by or required hereunder to be delivered to Lessor,
with the sole right to collect and retain all unearned premiums and dividends
thereon, and Lessee shall only be entitled to a credit, in reduction of the then
outstanding indebtedness secured hereby, in the amount of the cancellation
refund.
10. Other Operating Expenses. Lessee agrees to pay all other operational
expenses of the Premises not heretofore mentioned.
11. Surrender. Lessee agrees that, upon termination by lapse of time or
otherwise of the term hereby created, or any extension thereto, it will deliver
and surrender up to the Lessor said Premises in reasonably good condition and
repair; any damage, deterioration or destruction resulting from ordinary wear
and tear, loss by fire, casualty and causes beyond Lessee's control are
excepted.
12. Liens. Lessee will not permit any mechanic's, laborer's, or
materialmen's liens to stand against the Premises for any labor or material
furnished to Lessee or claimed to have been furnished to Lessee in connection
with work of any character performed or claimed to have been performed on the
Premises by or at the direction or sufferance of Lessee, but
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<PAGE>
nothing herein contained shall in any way prejudice the rights of Lessee to
contest any such lien to final judgment or decree. In the event of failure of
Lessee to procure the discharge of any such lien or contest such lien as above
provided, by bond or any other method, Lessor may, without further notice,
procure the discharge thereof by bonding, payment or otherwise, and all costs
and expenses incurred by Lessor in obtaining such discharge shall become due as
additional Rent upon the next payment of Rent. Lessor shall not cause any
mortgage or lien other than the Mortgage and security interests related thereto
to stand against or attach to the Premises.
13. No Abatement of Rent. The partial destruction of any building on the
Premises by fire or natural elements shall not in any manner affect this Lease
or the rights and obligations of Lessee hereunder and the Rent shall not abate,
diminish or cease during reconstruction. The Rent shall not abate upon
foreclosure under the Mortgage. However, should the Lessor fail to undertake to
repair, rebuild or replace any such damage or destruction within thirty (30)
days after such fire or other casualty, or shall fail to complete such work
within six (6) months, then the terms of this Lease shall expire at the option
of Lessee, after ten (10) days written notice to Lessor.
14. Damage or Destruction. If the Premises covered hereby, or any part
thereof, shall be damaged by fire or other hazard against which insurance is
held, the amounts paid by any insurance company in pursuance of the contract of
insurance to the extent of the indebtedness then remaining unpaid, shall be
paid, subject to the terms of the Mortgage, to Lessor and released only for the
repairing or rebuilding of the Premises.
15. Condemnation. If the Premises shall be condemned or taken in its
entirety for a public or quasi-public use, all compensation therefore shall be
paid to Mortgagee to be used to pay the Mortgage as provided in the Mortgage and
any remaining funds shall be divided between Lessor and Lessee, and this Lease
and all obligations hereunder shall terminate as of the date of taking. If only
a portion of the Premises shall be condemned or taken for a public or
quasi-public use, any and all awards or compensation arising from such
condemnation or taking shall be paid to Mortgagee subject to the terms of the
Mortgage, and this Lease shall continue without modification, unless and except
that if so much or such portion of the Premises be taken that the taking shall
materially interfere with the efficient operation of its business by Lessee on
the Premises, the judgment of Lessee as to the materiality of such interference
being conclusive, then at any time within sixty (60) days after the taking of
such portion of the Premises, Lessee may terminate this Lease by serving upon
Lessor written notice of its intention to do so. In the event this Lease is so
terminated, then any and all awards or compensation arising from such
condemnation or taking shall be paid jointly to Lessor and Lessee subject to the
terms of the Mortgage, and all obligations hereunder shall cease as of the date
of such termination and any funds remaining after the payment of the Mortgage
shall be divided between the Lessor and Lessee. Nothing contained herein shall
be construed to preclude Lessee from prosecuting any claim directly against the
condemning authority in such condemnation proceedings for loss of business, or
depreciation to, damage to, or cost of removal of, or for the value of its
leasehold interest, stock, trade fixtures, furniture and other personal property
belonging to Lessee.
16. Assignment and Subletting. Lessee may not assign or encumber this
Lease or its rights hereunder except to Mortgagee without first obtaining the
written consent of Lessor which will not be unreasonably withheld; provided,
however, that Lessee's assignment of this Lease to an affiliate of Lessee shall
be valid and binding on Lessor without Lessor's prior
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written consent. In such event, Lessee shall remain liable for the payment of
all Rent required to be paid hereunder and for the performance of all terms,
covenants and conditions herein undertaken by Lessee. Lessee shall have the
right to enter into subleases with respect to the operation or use of the
Premises or any portion thereof, at any time during the term of this Lease
without the consent of Lessor, which subleases shall not be deemed to create a
tenancy in the Premises; provided, however, that Lessee shall remain liable for
the payment of all Rent required to be paid hereunder and for the performance of
all terms, covenants, and conditions herein undertaken by Lessee. Lessor shall
not assign or encumber this Lease or its rights hereunder without first
obtaining the written consent of Lessee and providing Lessee with a written
agreement from the assignee that it will abide by all of the terms of this
Lease.
17. Holding Over. In the event Lessee continues to occupy the Premises
after the last day of the term hereby created, or after the last day of any
extension of said term, and Lessor elects to accept rent thereafter, a tenancy
from month to month only shall be created and not for any longer period without
the written concurrence of Lessor.
18. Abandonment and Reletting. If Lessee shall abandon or vacate the
Premises, except as permitted hereunder, the same may be re-let by Lessor for
such rent, and upon such terms as to it may seem fit and in accordance with
Lessor's Partnership Agreement and the Mortgage. If a sufficient sum shall not
be thus realized monthly after paying the expense of such re-letting and
collecting to satisfy the Rent, Lessee agrees to satisfy and pay all
deficiencies during each month of the remaining period of this Lease.
19. Subrogation and Waiver. Lessor hereby waives any and all claims
against Lessee, its assignees or sub-lessees for damage or destruction of any
improvements on the Premises (whether or not resulting from the fault or
negligence of Lessee, its assignees or sub- lessees or their agents or
employees) which improvements are covered by insurance obtained by Lessee and,
the parties agree that any policies of insurance obtained by Lessor will
recognize this waiver of Lessor by a good and sufficient waiver of subrogation
provision; provided, however, that nothing herein shall be construed as waiving
Lessor's right to any insurance proceeds under policies obtained by Lessee, but
paid for by Lessor.
20. Default, Termination and Damages.
A. Lessee's Default For Nonpayment of Rent. Except as otherwise
provided in this Lease, Lessee shall be in default under this Lease if it fails
to pay the Rent owed to Lessor hereunder for a period of sixty (60) days (a
"Monetary Default").
B. Lessee Default For Other Than Nonpayment of Rent. Lessee shall be
in default under this Lease if it defaults on any of the covenants herein
contained to be kept by Lessee, except the payment of Rent, and such default
shall continue after written notice for a period of ninety (90) days (a
"Non-monetary Default").
C. Right to Re-enter Facility. If a Monetary Default or Non-monetary
Default shall occur and continue, Lessor shall have the immediate right, whether
or not the term of this Lease shall have been terminated, to re-enter and
repossess the Premises by summary proceedings, ejectment, any other legal action
or in any lawful manner Lessor determines to be necessary or desirable. No such
re-entry or repossession of the Premises shall be construed as an election by
Lessor to terminate the term of this Lease.
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D. Right to Terminate Lease. If a Monetary Default shall occur and
continue, Lessor shall have the immediate right to terminate this Lease upon
written notice to Lessee.
E. Duty to Mitigate. At any time or from time to time after the
re-entry or repossession of the Premises pursuant to Section 20.C. hereof,
whether or not the term of this Lease shall have been terminated, Lessor, in the
name of Lessee or Lessor or otherwise and upon notice to Lessee, shall, to the
extent required by applicable state law pertaining to the duty to mitigate
damages upon breach of a lease or other contract, use such efforts to relet the
Premises as is required by such law, Lessor may collect and receive any rents
payable by reason of such reletting consistent with Section 18, hereof.
F. Continuing Duty of Lessee. No expiration or termination of the
term of this Lease pursuant to this Section or and no expiration of the term
pursuant to Section 18 hereof, by operation of law or otherwise, and no
re-entry, repossession or reletting of the Premises pursuant to Section 18
hereof or otherwise, shall relieve Lessee of its liabilities and obligations
hereunder, all of which shall survive such expiration, termination, re-entry,
repossession or reletting.
21. Remedies Cumulative. The remedies conferred by this Lease upon Lessor
and Lessee are not intended to be exclusive, but are cumulative and in addition
to all remedies otherwise afforded by law.
22. Successors. This Lease and all covenants and agreements herein
contained shall be binding upon, apply and inure to the respective successors
and assigns of all parties to this Lease.
23. Lessor's Title. Subject to the terms of this Lease, Lessor's title is,
and always shall be, paramount to the title and interest of Lessee, and nothing
herein contained shall empower Lessee to do any act which can or shall encumber
the title of the Lessor. Provided the holder of any mortgage now or hereafter
encumbering the Premises shall provide Lessee with a non-disturbance agreement
reasonably satisfactory to Lessee, Lessee agrees to subordinate its interest in
this Lease to the Mortgage that encumbers the Premises. Nothing contained herein
shall relieve the Lessor of any obligations under the Mortgage.
24. Books and Financial Statements. Lessee shall deliver to Lessor at the
end of each fiscal year, or more often as reasonably requested by Lessor, the
copies of the books of its operations of the Facility. Lessee shall provide to
Lessor the financial statements required by the Mortgage.
25. License. Lessee at all times shall maintain in force and effect a
license from the state in which the Facility is located to operate a nursing
home, and shall at all times employ or lease a duly qualified administrator to
operate the Facility.
26. Employees. Lessee shall have direct responsibility for recruiting,
hiring, training, promoting, assigning and discharging all operating and service
personnel necessary for the proper operation and maintenance of the Premises or
shall have direct responsibility for leasing such employees for the Premises.
All employees shall be employees of the Lessee and the Premises or leased by the
Lessee and shall not be employees of the Lessor.
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27. Notice of Action Against License. Notwithstanding any other provision
of this Lease to the contrary, Lessee shall inform Lessor immediately by hand
delivery, telephone, telecopy (receipt confirmed) or telegraph of any action
taken, commenced or instituted by any state or federal authority having
jurisdiction over the Premises as a health care facility to terminate or revoke
any license certification of Lessee. Such notice shall be given to Lessor at the
address set forth in Paragraph 31.A. below.
28. Surrender of Possession. Lessee shall, on or before the last day of
the term of this Lease, surrender possession of the Premises to Lessor, free and
clear of sub-tenancies not specifically agreed upon by Lessor, reasonably clean
and in reasonably good condition and repair, ordinary wear and tear excepted.
29. Quiet Enjoyment. If and so long as Lessee is not in default hereunder,
Lessor agrees that it will not interfere with the peaceful and quiet occupation
and enjoyment of the Premises by Lessee.
30. Inspection of Books and Records. Lessor and Mortgagee shall have the
right, upon reasonable notice and at reasonable times, to inspect the books and
records and accounts relating to the Facility.
31. Miscellaneous Provisions.
A. Notices. Any notice or other communication by either party to the
other shall be in writing and shall be given, and be deemed to have been duly
given, if either delivered personally or mailed, postage prepaid, by registered
or certified mail, or reputable overnight delivery service addressed as follows:
TO LESSOR:
Ashton Woods Limited Partnership
10945 Pennbrooke Crossing
Duluth, Georgia 30136
Attention: Alan C. Dahl, President
TO LESSEE:
WelCare/Ashton Properties, Inc.
7000 Central Parkway
Suite 970
Atlanta, Georgia 30328
Attention: J. Stephen Eaton, President
WITH A COPY TO:
Nelson Mullins Riley & Scarborough
1201 Peachtree Street
400 Colony Square, Suite 2200
Atlanta, Georgia 30361
Attention: Paul A. Quiros
8
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or to such other address and to the attention of such other person or officer as
either party may from time to time designate.
B. Change of Address. Lessor and Lessee may change their address for
purposes of this Lease by giving notice thereof in accordance with the
provisions set forth for notices above.
C. Understanding and Agreements. This Lease constitutes all of the
understandings and agreements of whatever nature or kind existing between the
parties with respect to the subject matter hereof.
D. Headings. The paragraph headings contained herein are for
convenience of reference only and are not intended to define, limit or describe
the scope or intent of any provisions of this Lease.
E. Approval or Consent. Whenever, under any provision of this Lease,
the approval or consent of either party is required, the decision thereon shall
be promptly given, and such approval or consent shall not be unreasonably
withheld.
F. Severability. Should any part of this Lease be declared invalid
for any reason, such decision shall not affect or impair the validity of the
remaining part or parts hereof, and this Lease shall remain in full force and
effect as to all parts not declared invalid or unenforceable as if the same had
been executed with the invalid or unenforceable portion(s) thereof eliminated.
G. Applicable Law. This Lease shall be governed by, and construed
and enforced in accordance with, the laws of Georgia (without regard to its
rules of conflicts of laws).
H. Further Assurances. Lessee shall, upon the request of Lessor,
execute and deliver any and all further documents which may be required,
contemplated or desired by Lessor in furtherance of the transactions
contemplated by this Lease.
I. Amendment or Modifications. This Lease shall not be amended or
modified without the prior written consent of the parties hereto.
J. Time. Time is of the essence of this Lease.
K. Binding. This Lease shall be binding upon, and inure to the
benefit of, the parties hereto, their estates, heirs, personal representatives,
successors in interest and assigns.
L. Counterparts. This Lease may be executed in one of more
counterparts, each of which shall constitute one and the same instrument.
9
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IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease as of the
date first set forth above.
LESSOR:
ASHTON WOODS LIMITED PARTNERSHIP,
a Georgia limited partnership
By: Ashton Woods Investors, Inc.,
Its General Partner
By: /s/ Alan C. Dahl
-----------------------------------
Alan C. Dahl, President
LESSEE:
WELCARE/ASHTON PROPERTIES, INC.,
a Georgia corporation
By: /s/ J. Stephen Eaton
-----------------------------------
J. Stephen Eaton, President
10
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EXHIBIT A
LEGAL DESCRIPTION
ASHTON WOODS
All that tract or parcel of land lying and being in Land Lots 300 and 307,
18th District, Dekalb County, Georgia and being more particularly described as
follows:
Beginning at an iron pin found (1/2" rebar) at the corner common to Land
Lots 300, 301, 306 and 307, said district and county; thence along the west line
of Land Lot 307, N 01(degree) 03' 42" E, 379.38' to an iron pin found (1/2" open
top pipe); thence leaving said Land Lot line, N 89(degree) 49' 00" E, 307.92' to
an iron pin found (1/2" crimp top pipe); thence S 01(degree) 06' 21" W, 706.84'
to an iron pin found (3/4" crimped top pipe); thence S 89(degree) 49' 00" W,
309.85' to an iron pen set (1/2" rebar) on the west line of Land Lot 300; thence
along said Land Lot line, N 01(degree) 29' 42" E, 327.51' to the point of
beginning.
Said tract contains 5.00 acres.
TOGETHER WITH all right, title, claim, interest or demand in and to the
following:
1. Easement for Construction and Maintenance of Sanitary Sewer from the
City of Chamblee to Woodhaven Nursing center, Inc., dated March 19,
1 965, recorded in deed Book 1 983, page 534, DeKaIb County,
Georgia, Deed Records.
2. Easement for Construction and Maintenance of Sanitary Sewer from the
City of Chamblee to Woodhaven Nursing Center, Inc., dated May 26, 1
965, recorded in Deed Book 1992, page 524, aforesaid records.
11
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EXHIBIT B
Monthly Lease Payment $67,935.51
12
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EXHIBIT 10.12
<PAGE>
AMENDED AND RESTATED LEASE AGREEMENT
(Kents Nursing Center)
THIS AMENDED AND RESTATED LEASE AGREEMENT (the "Lease") is made and
entered into as of the 6th day of July, 1994, effective as of the Commencement
Date, by and between EBT Healthcare Properties, L.P., a Delaware limited
partnership (hereinafter referred to as the "Lessor") and WelCare International
Properties Corporation, a Georgia corporation (hereinafter referred to as the
"Lessee").
W I T N E S S E T H :
WHEREAS, Lessor is the owner of that certain real property, more
particularly described on Exhibit "A" attached hereto and incorporated herein by
reference, improved with a 107-bed nursing home facility known as Kents Nursing
Center (the "Facility"), together with Lessor's easements and appurtenances in
adjoining and adjacent land, highways, roads, streets, lanes, whether public or
private, reasonably required for the installation, maintenance, operation and
service of sewer, water, gas, power, and other utility lines and for driveways
and approaches to and from abutting highways for the use and benefit of the
above-described parcel of real estate, together with that certain personal
property, fixtures, equipment and supplies used in connection with such real
estate and improvements (the "Premises");
WHEREAS, Lessor and Lessee entered into that certain Lease Agreement dated
as of October 1, 1993, whereby Lessor agreed to lease to Lessee the Premises
(the "Original Lease"); and
WHEREAS, Lessor and Lessee desire to amend and restate the Original Lease
in its entirety as provided in this Lease.
NOW THEREFORE, in consideration of Ten Dollars ($10.00) in hand paid by
each party to the other, the mutual promises herein contained and other good and
valuable consideration, the receipt, adequacy and sufficiency of which are
hereby acknowledged, the parties do hereby agree as follows:
1. Ownership. Lessor is the owner of the Facility which is located on the
Premises.
2. Term. The term of this Lease shall be deemed to have commenced on the
1st day of October, 1993 (the "Commencement Date"), and shall end on the 30th
day of September, 2006 unless sooner terminated, and Lessee is hereby granted an
option to extend this Lease for two (2) additional five (5) year periods on the
same terms as provided in this Lease; provided, however, that at the time of
such election to extend, unless Lessee and Lessor shall have otherwise agreed in
writing upon the rent to be paid during the extension term(s), Lessee shall
provide Lessor with a letter from a third-party appraiser reasonably acceptable
to Lessor stating that the Base Rent (as hereinafter defined) and any other sums
payable under this Lease constitute a fair market rental rate for the Premises
(the "Fair Rental Rate"). Lessee shall pay the reasonable fees and charges of
such appraiser. If the Fair Rental Rate is greater than or less than the Base
Rent at the time of the extension of this Lease, then the Lessee can either (i)
elect not to extend this Lease, or (ii) pay as Base Rent an amount equal to the
Fair Rental Rate. Lessee must notify the Lessor in writing of its election to
exercise any of the renewal extensions at least three (3) months prior to the
expiration of the
<PAGE>
then current lease term. Lessor and Lessee agree that they both shall be bound
by the appraiser's determination of the Fair Rental Rate to the extent herein
indicated.
3. Rental Payments.
A. Base Rent. Lessee shall pay to Lessor the amounts set forth on
Exhibit "B" as rent for the Premises in arrears upon the last day of each and
every month during the term of this Lease (the "Base Rent").
B. Additional Rent. Lessee shall pay to Lessor, monthly in arrears,
$358.00 for each 1/8% that the Prime Rate established by SouthTrust Bank of
Alabama, National Association (the "Prime Rate") exceeds 7.25% as additional
rent (the "Additional Rent"). The Additional Rent shall be calculated based on
the Prime Rate during the previous month taking into account any changes in the
Prime Rate during such month.
C. Payment of Rent. Lessor and Lessee acknowledge and agree that
this Lease and all Base Rent and Additional Rent (together, the "Rent") payable
hereunder may be assigned as additional collateral for a mortgage loan or loans
to Lessor. In such event, Lessor and Lessee mutually agree that, if required by
the lender (the "Mortgagee") pursuant to such mortgage loan (the "Mortgage"),
all payments of Rent shall be made to a lockbox or another account designated by
Mortgagee (a "Lockbox Account") and Mortgagee is hereby authorized by Lessor and
Lessee to debit such account each month for the amount equal to the monthly debt
service payments due pursuant to the promissory note secured by the Mortgage.
Payments so made by the Lessee shall be credited as payments of Rent made under
this Lease and shall satisfy the obligations of Lessee hereunder, to the extent
so paid. If payments of Rent are not made a Lockbox Account for the benefit of
Mortgagee, then such payments shall be made to Lessor at Lessor's address as
provided in Section 31 of this Lease or such other address as Lessor shall
specify pursuant to Section 31 at least thirty (30) days prior to a payment
date.
D. Debt Service Reserve Fund. No security deposit is required of
Lessee pursuant to this Lease except as follows. If required by Mortgagee,
pursuant to the terms of the Mortgage and this Lease, Lessor shall deposit into
an account with Mortgagee pursuant to an Assignment and Pledge of Deposit
Account (the "Deposit Agreement") an amount equal to three months debt service
on the Premises to serve as a debt service reserve fund, which may increase if
debt service payments increase (the "Debt Service Reserve Fund"). The Debt
Service Reserve Fund shall be governed by the terms of the Deposit Agreement.
Notwithstanding the foregoing, if Lessee provides Lessor with additional funds
to enable the deposit of additional debt service reserves as contemplated by the
Deposit Agreement, or if (and to the extent) Lessor shall have defaulted in its
obligations to fund the Premises Improvement Capital Account (as hereinafter
defined) and Lessee funds such account, then amounts pledged to Mortgagee as a
Debt Service Reserve Fund shall, upon repayment in full of the Mortgage or upon
any release of the Debt Service Reserve Fund (or any portion thereof) by the
Mortgagee (the "Release Date"), be deemed a security deposit of Lessee and shall
be refunded to Lessee to the extent Lessee funded such amounts or Lessor
defaulted in its obligation to fund the Premises Improvement Capital Account at
the earlier of (i) the termination of this Lease or (ii) the Release Date.
4. Net Lease. This Lease is intended to be a net lease in that it is the
intention of the parties hereto that the Rent payable to Lessor shall not be
reduced by any cost or charge whatsoever and that all expenses and charges
related to the ownership and operation of the
2
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Premises after the date of this Lease, whether for upkeep, maintenance;
compliance with environmental, health and safety laws (including the Americans
with Disabilities Act); insurance; taxes; utilities; federal, state and
municipal requirements; and other charges of a like nature or type or otherwise
shall be paid by Lessee, subject to the other terms of this Lease, including,
but not limited to, the provisions for the Premises Improvement Capital Account
(as defined herein). This provision is not in derogation of specific provisions
herein, but in expansion thereof and as an indication of the general intentions
of the parties hereto.
5. Taxes and Assessments. Lessee hereby agrees to pay to the public
authorities charged with collection thereof, promptly as the same become due and
payable, all taxes, assessments, and other public charges levied upon or
assessed against the Premises and/or any building, structure, fixture or
improvements now or hereafter located thereon, or arising in respect of the
occupance, use or possession of the Premises, and which become due and payable.
6. Fuel, Utility Services. Lessee hereby agrees to pay for all fuel,
electricity, heat or power, gas and water, or any other utility charges incurred
upon the Premises after the date of this Lease.
7. Compliance with Laws. Lessee covenants that in the use and occupation
of the Premises and the buildings, structures, fixtures and improvements
thereon, and the sidewalks adjacent thereto, Lessee will comply in all material
respects with all authorities in any manner affecting the Premises or any
building, structures, fixtures and improvements thereon or the use thereof and
the terms of the Mortgage. Lessee further agrees that it will not permit any
unlawful occupation, business or trade to be conducted on the Premises, or any
use to be made thereof contrary to any law, ordinance or regulation with respect
thereto.
8. Repairs, Alterations and Additions.
A. General. Lessee shall be further obliged to pay any expense from
the Gross Revenues of the Premises for repairing any improvements upon the
Premises, including, without limitation, extermination and landscaping, and
Lessee shall make all reasonable repairs and replacements necessary to maintain
the Premises and all furniture and fixtures in a reasonably good, tenantable and
wholesome condition, complying in all material respects with all applicable
laws, regulations, ordinances, licenses and requirements of all authorities
having jurisdiction over the Premises, subject to Lessor's contribution to the
Premises Improvement Capital Account provided for herein. Lessor, however, is
not hereby relieved of responsibility of maintenance assumed by it pursuant to
the Mortgage or as provided below. For purposes of this Lease, "Gross Revenues"
shall mean the amount equal to the sum of all revenues received or receivable
from the operation of the Facility less contractual allowances for billings not
paid or received from applicable governmental agencies or other third party
payors as determined during each calendar year.
B. Premises Improvement Capital Account. Due to the age and condition of
the Facility's existing physical plants, Lessor shall fund, from time to time,
amounts as reasonably determined by Lessee to be necessary for capital
improvements and deferred maintenance at the Premises. Such amounts funded by
Lessor shall be placed in an account established by Lessee to fund such capital
improvements, deferred maintenance and other capital needs for the upkeep,
modernization, or expansion of the Premises (the "Premises Improvement Capital
Account"). Lessor's obligation to fund the Premises Improvement Capital Account
shall not
3
<PAGE>
exceed $107,000 per year ($1,000 per year per licensed bed in the Facility
located on the Premises) (the "Yearly Improvements Deposit"). The Yearly
Improvements Deposit shall be payable upon the written request of Lessee and
shall be paid into the Premises Improvement Capital Account within thirty (30)
days after such prior written notice is provided by Lessee to Lessor. The
Premises Improvement Capital Account shall be solely administered and controlled
by Lessee and shall be used as set forth above or otherwise for the benefit of
the Premises as determined by the Lessee in its sole discretion.
9. Insurance. Lessee shall maintain insurance as follows:
(a) Professional liability insurance in at least the amount of
$1,000,000 per occurrence, $2,000,000 aggregate with a $10,000,000 umbrella. All
such liability insurance shall name each of Lessor and Mortgagee as an
additional insured;
(b) Liability insurance in an amount equal to at least $1,000,000
per occurrence, $2,000,000 aggregate, with a $10,000,000 umbrella. All such
liability insurance shall name each of Lessor and Mortgagee as an additional
insured;
(c) "All-risk" coverage on the Facility, including all improvements,
equipment and inventory, in an amount not less than the replacement cost
thereof, insuring against such potential causes of loss as shall be required by
Lessor, including but not limited to loss or damage from wind, fire, ice,
subsidence and, if requested by Lessor, earthquake;
(d) Business income insurance (including rental value if the
Facility is leased in whole or part) equal to not less than twelve (12) months
estimated gross revenues less expenses not ordinarily incurred during the period
of business interruption; and
(e) Workers compensation insurance as required by the laws of the
State where the Facility is located.
Each of the policies described in (c) and (d) shall name Lessor (or, if
directed by Lessor, Mortgagee) as mortgagee and loss payee under a standard
non-contributory mortgagee and lender loss payable clause, and shall provide
that Lessor and Mortgagee shall receive not less than thirty (30) days written
notice prior to cancellation. The proceeds of either of the policies described
in (c) and (d) shall be payable by check jointly payable to Lessee and to Lessor
(or, if directed by Lessor, Mortgagee) and delivered to Lessor (or, if directed
by Lessor, Mortgagee).
Lessee appoints Lessor and Mortgagee as Lessee's attorney-in-fact to cause
the issuance of or an endorsement of any policy to bring Lessee into compliance
herewith and, at the sole option of Lessor and Mortgagee, to make any claim for,
receive payment for, and execute and endorse any documents, checks or other
instruments in payment for loss, theft, or damage covered under any such
insurance policy; however, in no event will Lessor or Mortgagee be liable for
failure to collect any amounts payable under any insurance policy. Lessee agrees
and acknowledges that the application of insurance proceeds shall be governed by
Section 4.4 of that certain Loan Agreement of even date herewith between
Mortgagee and Lessor.
If Lessor shall in any manner resume possession of the Premises, Lessor
shall thereupon become, subject to the terms of the Mortgage, the sole owner of
all insurance
4
<PAGE>
policies held by or required hereunder to be delivered to Lessor, with the sole
right to collect and retain all unearned premiums and dividends thereon, and
Lessee shall only be entitled to a credit, in reduction of the then outstanding
indebtedness secured hereby, in the amount of the cancellation refund.
10. Other Operating Expenses. Lessee agrees to pay all other operational
expenses of the Premises not heretofore mentioned.
11. Surrender. Lessee agrees that, upon termination by lapse of time or
otherwise of the term hereby created, or any extension thereto, it will deliver
and surrender up to the Lessor said Premises in reasonably good condition and
repair; any damage, deterioration or destruction resulting from ordinary wear
and tear, loss by fire, casualty and causes beyond Lessee's control are
excepted.
12. Liens. Lessee will not permit any mechanic's, laborer's, or
materialmen's liens to stand against the Premises for any labor or material
furnished to Lessee or claimed to have been furnished to Lessee in connection
with work of any character performed or claimed to have been performed on the
Premises by or at the direction or sufferance of Lessee, but nothing herein
contained shall in any way prejudice the rights of Lessee to contest to final
judgment or decree any such lien. In the event of failure of Lessee to procure
the discharge of any such lien or contest such lien as above provided, by bond
or any other method, Lessor may, without further notice, procure the discharge
thereof by bonding, payment or otherwise, and all costs and expenses incurred by
Lessor in obtaining such discharge shall become due as additional Rent upon the
next payment of Rent. Lessor shall not cause any mortgage or lien other than the
Mortgage and security interests related thereto to stand against or attach to
the Premises.
13. No Abatement of Rent. The partial destruction of any building on the
Premises by fire or natural elements shall not in any manner affect this Lease
or the rights and obligations of Lessee hereunder and the Rent shall not abate,
diminish or cease during reconstruction. The Rent shall not abate upon
foreclosure under the Mortgage. However, should the Lessor fail to undertake to
repair, rebuild or replace any such damage or destruction within thirty (30)
days after such fire or other casualty, or shall fail to complete such work
within six (6) months, then the terms of this Lease shall expire at the option
of Lessee, after ten (10) days written notice to Lessor.
14. Damage or Destruction. If the Premises covered hereby, or any part
thereof, shall be damaged by fire or other hazard against which insurance is
held, the amounts paid by any insurance company in pursuance of the contract of
insurance to the extent of the indebtedness then remaining unpaid, shall be
paid, subject to the terms of the Mortgage, to Lessor and released only for the
repairing or rebuilding of the Premises.
15. Condemnation. If the Premises shall be condemned or taken in its
entirety for a public or quasi-public use, all compensation therefore shall be
paid to Mortgagee to be used to pay the Mortgage as provided in the Mortgage and
any remaining funds will be divided between Lessor and Lessee, and this Lease
and all obligations hereunder shall terminate as of the date of taking. If only
a portion of the Premises shall be condemned or taken for a public or
quasi-public use, any and all awards or compensation arising from such
condemnation or taking shall be paid to Mortgagee subject to the terms of the
Mortgage, and this Lease shall continue without modification, unless and except
that if so much or such portion of the
5
<PAGE>
Premises be taken that the taking shall materially interfere with the efficient
operation of its business by Lessee on the Premises, the judgment of Lessee as
to the materiality of such interference being conclusive, then at any time
within sixty (60) days after the taking of such portion of the Premises, Lessee
may terminate this Lease by serving upon Lessor written notice of its intention
to do so. In the event this Lease is so terminated, then any and all awards or
compensation arising from such condemnation or taking shall be paid jointly to
Lessor and Lessee subject to the terms of the Mortgage, and all obligations
hereunder shall cease as of the date of such termination and any funds remaining
after the payment of the Mortgage shall be divided between the Lessor and
Lessee. Nothing contained herein shall be construed to preclude Lessee from
prosecuting any claim directly against the condemning authority in such
condemnation proceedings for loss of business, or depreciation to, damage to, or
cost of removal of, or for the value of its leasehold interest, stock, trade
fixtures, furniture and other personal property belonging to Lessee.
16. Assignment and Subletting. Lessee may not assign or encumber this
Lease or its rights hereunder except to Mortgagee without first obtaining the
written consent of Lessor which will not be unreasonably withheld; provided,
however, that Lessee's assignment of this Lease to an affiliate of Lessee shall
be valid and binding on Lessor without Lessor's prior written consent. In such
event, Lessee shall remain liable for the payment of all Rent required to be
paid hereunder and for the performance of all terms, covenants and conditions
herein undertaken by Lessee. Lessee shall have the right to enter into subleases
with respect to the operation of the Premises or any portion thereof, at any
time during the term of this Lease without the consent of Lessor, which
subleases shall not be deemed to create a tenancy in the Premises; provided,
however, that Lessee shall remain liable for the payment of all Rent required to
be paid hereunder and for the performance of all terms, covenants, and
conditions herein undertaken by Lessee. Lessor shall not assign or encumber this
Lease or its rights hereunder without first obtaining the written consent of
Lessee and providing Lessee with a written agreement from the assignee that it
will abide by all of the terms of this Lease.
17. Holding Over. In the event Lessee continues to occupy the Premises
after the last day of the term hereby created, or after the last day of any
extension of said term, and Lessor elects to accept rent thereafter, a tenancy
from month to month only shall be created and not for any longer period without
the written concurrence of Lessor.
18. Abandonment and Reletting. If Lessee shall abandon or vacate the
Premises, except as permitted hereunder, the same may be re-let by Lessor for
such rent, and upon such terms as to it may seem fit and in accordance with
Lessor's Partnership Agreement and the Mortgage. If a sufficient sum shall not
be thus realized monthly after paying the expense of such re-letting and
collecting, to satisfy the Rent, Lessee agrees to satisfy and pay all
deficiencies during each month of the remaining period of this Lease.
19. Subrogation and Waiver. Lessor hereby waives any and all claims
against Lessee, its assignees or sub-lessee for damage or destruction of any
improvements on the Premises (whether or not resulting from the fault or
negligence of Lessee, its assignees or sub- lessee or their agents or employees)
which improvements are covered by insurance obtained by Lessee and the parties
agree that any policies of insurance obtained by Lessor will recognize this
waiver of Lessor by a good and sufficient waiver of subrogation provision;
provided, however, that nothing herein shall be construed as waiving Lessor's
right to any insurance proceeds under policies obtained by Lessee, but paid for
by Lessor.
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20. Default, Termination and Damages.
A. Lessee's Default For Nonpayment of Rent. Except as otherwise
provided in this Lease, Lessee shall be in default under this Lease if it fails
to pay the Rent owed to Lessor hereunder for a period of sixty (60) days (a
"Monetary Default").
B. Lessee Default For Other Than Nonpayment of Rent. Lessee shall be
in default under this Lease if it defaults on any of the covenants herein
contained to be kept by Lessee, except the payment of Rent, and such default
shall continue after written notice for a period of ninety (90) days (a
"Non-monetary Default").
C. Right to Re-enter Facility. If a Monetary Default or Non-monetary
Default shall occur and continue, Lessor shall have the immediate right, whether
or not the term of this Lease shall have been terminated to re-enter and
repossess the Premises by summary proceedings, ejectment, any other legal action
or in any lawful manner Lessor determines to be necessary or desirable. No such
re-entry or repossession of the Premises shall be construed as an election by
Lessor to terminate the term of this Lease.
D. Duty to Mitigate. At any time or from time to time after the
re-entry or repossession of the Premises pursuant to Section 20.C. hereof,
whether or not the term of this Lease shall have been terminated, Lessor, in the
name of Lessee or Lessor or otherwise and upon notice to Lessee, shall, to the
extent required by applicable state law pertaining to the duty to mitigate
damages upon breach of a lease or other contract, use such efforts to relet the
Premises as is required by such law, Lessor may collect and receive any rents
payable by reason of such reletting consistent with Section 18, hereof.
E. Continuing Duty of Lessee. No expiration or termination of the
term of this Lease pursuant to this Section or and no expiration of the term
pursuant to Section 18 hereof, by operation of law or otherwise, and no
re-entry, repossession or reletting of the Premises pursuant to Section 18
hereof or otherwise, shall relieve Lessee of its liabilities and obligations
hereunder, all of which shall survive such expiration, termination, re-entry,
repossession or reletting.
21. Remedies Cumulative. The remedies conferred by this Lease upon Lessor
and Lessee are not intended to be exclusive, but are cumulative and in addition
to all remedies otherwise afforded by law.
22. Successors. This Lease and all covenants and agreements herein
contained shall be binding upon, apply and inure to the respective successors
and assigns of all parties to this Lease.
23. Lessor's Title. Subject to the terms of this Lease, Lessor's title is,
and always shall be, paramount to the title and interest of Lessee, and nothing
herein contained shall empower Lessee to do any act which can or shall encumber
the title of the Lessor. Provided the holder of any mortgage now or hereafter
encumbering the Premises shall provide Lessee with a non-disturbance agreement
reasonably satisfactory to Lessee, Lessee agrees to subordinate its interest in
this Lease to the Mortgage that encumbers the Premises. Nothing contained herein
shall relieve the Lessor of any obligations under the Mortgage.
7
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24. Books and Financial Statements. Lessee shall deliver to Lessor at the
end of each fiscal year, or more often as reasonably requested by Lessor, the
books of its operations of the Facility. Lessee shall provide to Lessor the
financial statements required by the Mortgage.
25. License. Lessee at all times shall maintain in force and effect a
license from the state in which the Facility is located to operate a nursing
home, and shall at all times employ a duly qualified administrator to operate
the Facility.
26. Employees. Lessee shall have direct responsibility for recruiting,
hiring, training, promoting, assigning and discharging all operating and service
personnel necessary for the proper operation and maintenance of the Premises or
shall have direct responsibility for leasing employees for the Premises. All
employees shall be employees of the Lessee and the Premises or leased by the
Lessee and shall not be employees of the Lessor.
27. Notice of Action Against License. Notwithstanding any other provision
of this Lease to the contrary, Lessee shall inform Lessor immediately by hand
delivery, telephone, telecopy (receipt confirmed) or telegraph of any action
taken, commenced or instituted by any state or federal authority having
jurisdiction over the Premises as a health care facility to terminate or revoke
any license certification of Lessee. Such notice shall be given to Lessor at the
address set forth in Paragraph 30.A. below.
28. Surrender of Possession. Lessee shall, on or before the last day of
the term of this Lease, surrender possession of the Premises to Lessor, free and
clear of sub-tenancies not specifically agreed upon by Lessor, reasonably clean
and in reasonably good condition and repair, ordinary wear and tear excepted.
29. Quiet Enjoyment. If and so long as Lessee is not in default hereunder,
Lessor agrees that it will not interfere with the peaceful and quiet occupation
and enjoyment of the Premises by Lessee.
30. Inspection of Books and Records. Lessor and Mortgagee shall have the
right, upon reasonable notice and at reasonable times, to inspect the books and
records and accounts relating to the Facility.
31. Miscellaneous Provisions.
A. Notices. Any notice or other communication by either party to the
other shall be in writing and shall be given, and be deemed to have been duly
given, if either delivered personally or mailed, postage prepaid, by registered
or certified mail, or reputable overnight delivery service addressed as follows:
TO LESSOR:
EBT Healthcare Properties, L.P.
3005 Mountain Ash Ct.
Garland, Texas 75044
Attention: Roland A. Belanger
8
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WITH A COPY TO:
Cashin, Morton & Mullins
Two Midtown Plaza, Suite 1900
1360 Peachtree Street, N.E.
Atlanta, Georgia 30309
Attention: James D. Spratt, Jr.
TO LESSEE:
WelCare International Properties Corporation
7000 Central Parkway
Suite 970
Atlanta, Georgia 30328
Attention: Alan C. Dahl
WITH A COPY TO:
Nelson Mullins Riley & Scarborough
1201 Peachtree Street
400 Colony Square, Suite 2200
Atlanta, Georgia 30361
Attention: Paul A. Quiros
or to such other address and to the attention of such other person or officer as
either party may from time to time designate.
B. Change of Address. Lessor and Lessee may change their address for
purposes of this Lease by giving notice thereof in accordance with the
provisions set forth for notices above.
C. Understanding and Agreements. This Lease constitutes all of the
understandings and agreements of whatever nature or kind existing between the
parties with respect to the subject matter hereof.
D. Headings. The paragraph headings contained herein are for
convenience of reference only and are not intended to define, limit or describe
the scope or intent of any provisions of this Lease.
E. Approval or Consent. Whenever, under any provision of this Lease,
the approval or consent of either party is required, the decision thereon shall
be promptly given, and such approval or consent shall not be unreasonably
withheld.
F. Severability. Should any part of this Lease be declared invalid
for any reason, such decision shall not affect or impair the validity of the
remaining part or parts hereof, and this Lease shall remain in full force and
effect as to all parts not declared invalid or unenforceable as if the same had
been executed with the invalid or unenforceable portion(s) thereof eliminated.
9
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G. Applicable Law. This Lease shall be governed by, and construed
and enforced in accordance with, the laws of Texas (without regard to its rules
of conflicts of laws).
H. Further Assurances. Lessee shall, upon the request of Lessor,
execute and deliver any and all further documents which may be required,
contemplated or desired by Lessor in furtherance of the transactions
contemplated by this Lease.
I. Amendment or Modifications. This Lease shall not be amended or
modified without the prior written consent of the parties hereto.
J. Time. Time is of the essence of this Lease.
K. Binding. This Lease shall be binding upon, and inure to the
benefit of, the parties hereto, their estates, heirs, personal representatives,
successors in interest and assigns.
L. Counterparts. This Lease may be executed in one of more
counterparts, each of which shall constitute one and the same instrument.
32. Lease Memorandum. The Original Lease is evidenced of record in the
Deed Records of Tarrant County, State of Texas, by the filing of that certain
Memorandum of Lease dated October 19, 1993, filed October 21, 1993, in Volume
11289, Page 1428. The aforesaid Memorandum of Lease shall continue in full force
and effect (as modified hereby) and shall memorialize and provide constructive
notice of the right, title and interest of Lessee in the Premises.
10
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IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease as of the
date first set forth above.
LESSOR:
EBT HEALTHCARE PROPERTIES, L.P.,
a Delaware limited partnership
By: EBT Healthcare, Inc.,
Its General Partner
By: /s/ Roland A. Belanger
-------------------------------------
Roland A. Belanger, President
LESSEE:
WELCARE INTERNATIONAL PROPERTIES
CORPORATION, a Georgia corporation
By: /s/ Alan C. Dahl
-------------------------------------
Alan C. Dahl, Vice President
11
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
KENT'S NURSING HOME, TEXAS PROPERTY
Lot AR, Block 8, COLLEGE HILL ADDITION to the City of Fort Worth, Tarrant
County, Texas, according to the Revised Plat recorded in Volume 388-16, Page
479, Plat Records, Tarrant County, Texas.
12
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LEASE PAYMENTS Exhibit B
Kents
Year 1 348,347
Year 2 348,347
Year 3 348,347
Year 4 348,347
Year 5 348,347
Year 6 348,347
Year 7 348,347
Year 8 348,347
Year 9 348,347
Year 10 348,347
Year 11 348,347
Year 12 348,347
Year 13 348,347
13
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SCHEDULE 10.12
CHPC has entered into lease agreements substantially identical to Exhibit
10.12 as follows:
1. Amended and Restated Lease Agreement dated July 6, 1994 with EBT
Healthcare Properties, L.P. ("EBT") for Orofino, Idaho facility. Material
details in which this agreement differs from Exhibit 10.12 are that the base
rent per year is $182,178 for the term of this agreement, and the "Additional
Rent" payment is $179.00 for each 1/8% that the Prime Rate established by
SouthTrust of Alabama, National Association exceeds 7.25% (the "Percentage
Amount").
2. Amended and Restated Lease Agreement dated July 6, 1994 with EBT for
Libby, Montana facility. Material details in which this agreement differs from
Exhibit 10.12 are that the base rent per year is $283,057 for the term of this
agreement, and the "Additional Rent" payment is $308.00 for the Percentage
Amount.
3. Amended and Restated Lease Agreement dated July 6, 1994 with EBT for
Pinewood, Idaho facility. Material details in which this agreement differs from
Exhibit 10.12 are that the base rent per year is $325,702 for the term of this
agreement, and the "Additional Rent" payment is $333.00 for the Percentage
Amount.
4. Amended and Restated Lease Agreement dated July 6, 1994 with EBT for
Union, Mississippi facility. Material details in which this agreement differs
from Exhibit 10.12 are that the base rent per year is $131,752 for the term of
this agreement, and the "Additional Rent" payment is $128.00 for the Percentage
Amount.
5. Amended and Restated Lease Agreement dated July 6, 1994 with EBT for
Natchez, Mississippi facility. Material details in which this agreement differs
from Exhibit 10.12 are that the base rent per year is $254,938 for the term of
this agreement, and the "Additional Rent" payment is $256.00 for the Percentage
Amount.
6. Amended and Restated Lease Agreement dated July 6, 1994 with EBT for
Winona, Mississippi facility. Material details in which this agreement differs
from Exhibit 10.12 are that the base rent per year is $291,808 for the term of
this agreement, and the "Additional Rent" payment is $296.00 for the Percentage
Amount.
7. Amended and Restated Lease Agreement dated July 6, 1994 with EBT for
Franklinton, Louisiana facility. Material details in which this agreement
differs from Exhibit 10.12 are that the term of this agreement terminates on
September 30, 2004, the base rent per year is $420,234 for the term of this
agreement, and there is no "Additional Rent" payment.
8. Amended and Restated Lease Agreement dated July 6, 1994 with EBT for
Bossier City, Louisiana facility. Material details in which this agreement
differs from Exhibit 10.12 are that the term of this agreement terminates on
September 30, 2004, the base rent per year is $141,191 for the term of this
agreement, and there is no "Additional Rent" payment.
14
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9. Amended and Restated Lease Agreement dated July 6, 1994 with EBT for
Ferriday, Louisiana facility. Material details in which this agreement differs
from Exhibit 10.12 are that the term of this agreement terminates on September
30, 2004, the base rent per year is $355,929 for the term of this agreement, and
there is no "Additional Rent" payment.
10. Amended and Restated Lease Agreement dated July 6, 1994 with EBT for
McComb, Mississippi facility. Material details in which this agreement differs
from Exhibit 10.12 are that the term of this agreement terminates on March 31,
2004, the base rent per year is $377,921 for the term of this agreement, and
there is no "Additional Rent" payment.
11. Amended and Restated Lease Agreement dated July 6, 1994 with EBT for
Hiawatha, Kansas facility. Material details in which this agreement differs from
Exhibit 10.12 are that the base rent per year is $106,615 for the term of this
agreement, and there is no "Additional Rent" payment.
12. Amended and Restated Lease Agreement dated July 6, 1994 with EBT for
Starkville, Mississippi facility. Material details in which this agreement
differs from Exhibit 10.12 are that the term of this agreement terminates on
September 30, 2004, the base rent per year is $364,966 for the term of this
agreement, and there is no "Additional Rent" payment.
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EXHIBIT 10.13
<PAGE>
Lakeland Facility
================================================================================
O P E R A T I N G L E A S E
HEALTH CARE PROPERTY INVESTORS, INC.
Lessor
AND
CARDINAL OF INDIANA, INC.
Lessee
Dated as of March 28, 1991
================================================================================
<PAGE>
TABLE OF CONTENTS
Article Page
----
ARTICLE I............................................................ 1
1. Leased Property; Term.................................... 1
ARTICLE II........................................................... 2
2. Definitions.............................................. 2
ARTICLE III.......................................................... 9
3.1 Rent..................................................... 9
3.2 Quarterly Calculation and Payment of
Additional Rent; Annual Reconciliation................... 10
3.3 Confirmation of Additional Rent.......................... 11
3.4 Additional Charges....................................... 12
3.5 Late Payment of Rent..................................... 12
3.6 Net Lease................................................ 13
3.7 Separate Account......................................... 13
ARTICLE IV........................................................... 13
4.1 Payment of Impositions................................... 13
4.2 Notice of Impositions.................................... 14
4.3 Adjustment of Impositions................................ 14
4.4 Utility Charges.......................................... 14
4.5 Insurance Premiums....................................... 14
4.6 Impound Account.......................................... 14
ARTICLE V............................................................ 15
5.1 No Termination, Abatement, etc........................... 15
ARTICLE VI........................................................... 16
6.1 Ownership of the Leased Property......................... 16
6.2 Personal Property........................................ 16
6.3 Option to Purchase Personal Property..................... 16
6.4 Transfer of Personal Property to Lessor.................. 16
ARTICLE VII.......................................................... 17
7.1 Condition of the Leased Property......................... 17
7.2 Use of the Leased Property............................... 17
7.3 Lessor to Grant Easements, etc........................... 19
ARTICLE VIII......................................................... 19
8.1 Compliance with Legal and Insurance
Requirements, Instruments, etc................................. 19
8.2 Legal Requirement Covenants.............................. 20
ARTICLE IX........................................................... 21
9.1 Maintenance and Repair................................... 21
9.2 Encroachments, Restrictions, Mineral
Leases, etc.............................................. 22
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ARTICLE X............................................................ 23
10. Construction of Capital Additions to the
Leased Property.......................................... 23
ARTICLE XI........................................................... 23
11. Liens.................................................... 23
ARTICLE XII.......................................................... 24
12. Permitted Contests....................................... 24
ARTICLE XIII......................................................... 25
13.1 General Insurance Requirements........................... 25
13.2 Replacement Cost......................................... 26
13.3 Additional Insurance..................................... 26
13.4 Waiver of Subrogation.................................... 27
13.5 Form Satisfactory, etc................................... 27
13.6 Increase in Limits....................................... 27
13.7 Blanket Policy........................................... 27
13.8 No Separate Insurance.................................... 28
ARTICLE XIV.......................................................... 28
14.1 Insurance Proceeds....................................... 28
14.2 Reconstruction in the Event of Damage or
Destruction Covered by Insurance......................... 28
14.3 Reconstruction in the Event of Damage or
Destruction Not Covered by Insurance..................... 29
14.4 No Abatement of Rent..................................... 30
14.5 Termination of Rights of First Refusal and
Option to Purchase....................................... 30
14.6 Waiver................................................... 30
14.7 New Personal Property.................................... 30
ARTICLE XV........................................................... 30
15. Condemnation............................................. 30
15.1 Definitions.............................................. 30
15.2 Parties, Rights and Obligations.......................... 31
15.3 Total Taking............................................. 31
15.4 Partial Taking........................................... 31
15.5 Restoration.............................................. 31
15.6 Award-Distribution....................................... 31
15.7 Temporary Taking......................................... 31
ARTICLE XVI.......................................................... 32
16.1 Events of Default........................................ 32
16.2 Certain Remedies......................................... 35
16.3 Damages.................................................. 35
16.4 Appointment of Receiver.................................. 37
16.5 Lessee's Obligation to Purchase.......................... 37
16.6 Waiver................................................... 37
16.7 Application of Funds..................................... 37
16.8 Facility Operating Deficiencies.......................... 37
ARTICLE XVII......................................................... 39
17. Lessor's Right to Cure Lessee's Default.................. 39
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ARTICLE XVIII........................................................ 39
18. Provisions Relating to Purchase-of the
Leased Property.......................................... 39
ARTICLE XIX.......................................................... 40
19. Renewal Terms............................................ 40
ARTICLE XX........................................................... 40
20. Holding Over............................................. 40
ARTICLE XXI.......................................................... 41
21.1 Letters of Credit........................................ 41
21.2 Times for Obtaining Letters of Credit.................... 41
21.3 Amounts for Letters of Credit............................ 42
21.4 Uses of Letters of Credit................................ 42
21.5 Promissory Note.......................................... 42
ARTICLE XXII......................................................... 43
22. Risk of Loss............................................. 43
ARTICLE XXIII........................................................ 43
23. Indemnification.......................................... 43
ARTICLE XXIV......................................................... 44
24. Subletting and Assignment................................ 44
ARTICLE XXV.......................................................... 46
25. Officer's Certificates and Financial
Statements............................................... 46
ARTICLE XXVI......................................................... 49
26. Lessor's Right to Inspect................................ 49
ARTICLE XXVII........................................................ 50
27. No Waiver................................................ 50
ARTICLE XXVIII....................................................... 50
28. Remedies Cumulative...................................... 50
ARTICLE XXIX......................................................... 50
29. Acceptance of Surrender.................................. 50
ARTICLE XXX.......................................................... 50
30. No Merger of Title....................................... 50
ARTICLE XXXI......................................................... 50
31. Conveyance by Lessor..................................... 50
ARTICLE XXXII........................................................ 51
32. Quiet Enjoyment.......................................... 51
ARTICLE XXXIII....................................................... 51
33. Notices.................................................. 51
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<PAGE>
ARTICLE XXXIV........................................................ 52
34.1 Appraisers............................................... 52
ARTICLE XXXV......................................................... 53
35.1 First Refusal to Purchase................................ 53
35.2 Lessee's Option to Purchase the Leased
Property................................................. 54
ARTICLE XXXVI........................................................ 54
36.1 Lessor May Grant Liens................................... 54
36.2 Breach by Lessor......................................... 55
ARTICLE XXXVII....................................................... 55
37.1 Arbitration.............................................. 55
37.2 Appointment of Arbitrators............................... 55
37.3 Third Arbitrator......................................... 56
37.4 Arbitration Procedure.................................... 56
37.5 Expenses................................................. 56
ARTICLE XXXVIII...................................................... 56
38. Miscellaneous............................................ 56
ARTICLE XXXIX........................................................ 57
39. Memorandum of Lease...................................... 57
ARTICLE XL........................................................... 58
40. Sale of Real Estate Assets............................... 58
ARTICLE XLI.......................................................... 58
41. Subdivision.............................................. 58
ARTICLE XLII......................................................... 58
42. Authority................................................ 58
ARTICLE XLIII........................................................ 59
43. Attorneys' Fees.......................................... 59
LIST OF EXHIBITS
Exhibit A Legal Description of the Land
Exhibit B Renewal and Purchase Group
Exhibit C Form of Promissory Note
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<PAGE>
LEASE
THIS LEASE ("Lease") is dated as of the 28th day of March, 1991, and is
between HEALTH CARE PROPERTY INVESTORS, INC. ("Lessor"), a Maryland corporation,
having its principal office at 10990 Wilshire Boulevard, Suite 1200, Los
Angeles, California 90024, and CARDINAL OF INDIANA, INC. ("Lessee"), a Kentucky
corporation, having its principal executive offices at 1300 Hurstbourne Place,
9300 Shelbyville Road, Louisville Kentucky 40222.
ARTICLE I
1. Leased Property; Term
Upon and subject to the terms and conditions hereinafter set forth,
Lessor leases to Lessee and Lessee rents from Lessor all of Lessor's rights and
interest in and to the following real property, improvements, related rights,
fixtures and personal property (collectively the "Leased Property"):
(i) the real property described in Exhibit A attached hereto
(collectively, the "Land"),
(ii) all buildings, structures, Fixtures (as hereinafter
defined) and other improvements of every kind including, but not limited
to, alleyways and connecting tunnels, sidewalks, utility pipes, conduits
and lines (on-site and off-site), parking areas and roadways appurtenant
to such buildings and structures presently situated upon the Land and
Capital Additions financed by Lessor (collectively, the "Leased
Improvements"),
(iii) all easements, rights and appurtenances relating to the
Land and the Leased Improvements (collectively, the "Related Rights"),
(iv) all permanently affixed equipment, machinery, fixtures,
and other items of real and/or personal property, including all components
thereof, now and hereafter located in, on or used in connection with and
permanently affixed to or incorporated into the Leased Improvements,
including, without limitation, all furnaces, boilers, heaters, electrical
equipment, heating, plumbing, lighting, ventilating, refrigerating,
incineration, air and water pollution control, waste disposal, air-cooling
and air-conditioning systems and apparatus, sprinkler systems and fire and
theft protection equipment, and built-in oxygen and vacuum systems, all of
which, to the greatest extent permitted by law, are hereby deemed by the
parties hereto to constitute real estate, together with all replacements,
modifications, alterations and additions thereto, (collectively the
"Fixtures"), and
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(v) All machinery, equipment, furniture, furnishings, moveable
walls or partitions, computers or trade fixtures or other personal
property, and consumable inventory and supplies, used or useful in
Lessee's business on the Leased Property, including without limitation all
items or furniture, furnishings, equipment, supplies and inventory, except
items, if any, included within the definition of Fixtures (collectively,
the "Personal Property").
SUBJECT, HOWEVER, to the easements, encumbrances, covenants, conditions and
restrictions and other matters which affect the Leased Property as of the
Commencement Date, to have and to hold for (1) a fixed term (the "Fixed Term")
commencing on March 28, 1991 (the "Commencement Date") and ending at midnight on
March 27, 2006, and (2) the Extended Terms provided for in Article XIX with
respect to the Leased Property other than the Personal Property, unless this
Lease is sooner terminated as hereinafter provided; and as to the Personal
Property, to have and to hold for a term commencing on the Commencement Date and
ending at midnight on March 27, 1996, unless this Lease is sooner terminated as
hereinafter provided.
ARTICLE II
2. Definitions. For all purposes of this Lease, except as otherwise
expressly provided or unless the context otherwise requires, (i) the terms
defined in this Article have the meanings assigned to them in this Article and
include the plural as well as the singular, (ii) all accounting terms not
otherwise defined herein have the meanings assigned to them in accordance with
generally accepted accounting principles as at the time applicable (iii) all
references in this Lease to designated "Articles," "Sections" and other
subdivisions are to the designated Articles, Sections and other subdivisions of
this Lease and (iv) the words "herein," "hereof" and "hereunder" and other words
of similar import refer to this Lease as a whole and not to any particular
Article, Section or other subdivision:
Additional Charges: As defined in Article III.
Additional Rent: As defined in Article III.
Affiliate: When used with respect to any corporation, the term
"Affiliate" shall mean any person which, directly or indirectly, controls or is
controlled by or is under common control with such corporation. For the purposes
of this definition, "control" (including the correlative meanings of the terms
"controlled by" and "under common control with"), as used with respect to any
person or partnership, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
person, through the ownership of voting securities, partnership interests or
other equity interests.
2
<PAGE>
Award: As defined in Article XV.
Base Year: The twelve (12) month period from January 1, 1993 to
December 31, 1993.
Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which national banks in the City of New York, New York are
authorized, or obligated, by law or executive order, to close.
Capital Additions: One or more new buildings, or one or more
additional structures annexed to any portion of any of the Leased Improvements,
which are constructed on any parcel or portion of the Land, during the Term,
including the construction of a new wing or new story, or the repair,
replacement, restoration, remodeling or rebuilding of the existing Leased
Improvements or any portion thereof where the purpose and effect of such work is
to provide a functionally new facility or portion thereof needed to provide
services not previously offered in the Leased Improvements.
Code: The Internal Revenue Code of 1986, as amended. Commencement
Date: As defined in Article 1.
Condemnation, Condemnor: As defined in Article XV.
Consolidated Financials: For any fiscal year or other accounting
period for Lessee and its consolidated subsidiaries, statements of earnings and
retained earnings and of changes in financial position for such period and for
the period from the beginning of the respective fiscal year to the end of such
period and the related balance sheet as at the end of such period, together with
the notes thereto, all in reasonable detail and setting forth in comparative
form the corresponding figures for the corresponding period in the preceding
fiscal year, and prepared in accordance with generally accepted accounting
principles.
Consolidated Net Worth: At any time, the sum of the following for
Lessee and its consolidated subsidiaries, on a consolidated basis determined in
accordance with generally accepted accounting principles:
(1) the amount of capital or stated capital (after deducting
the cost of any shares held in its treasury), plus
(2) the amount of capital surplus and retained earnings (or,
in the case of a capital surplus or retained earnings deficit, minus the
amount of such deficit), minus
(3) the sum of the following (without duplication of
deductions in respect of items already deducted in arriving at surplus and
retained earnings): (a) unamortized debt discount and expense; and (b) any
write-up in book value of assets resulting from a revaluation thereof
subsequent to the most recent Consolidated Financials prior to the date
here of,
3
<PAGE>
except any net write-up in value of foreign currency in accordance with
generally accepted accounting principles; any write-up resulting from a
reversal of a reserve for bad debts or depreciation and any write-up
resulting from a change in methods of accounting for inventory,
Contract of Acquisition: An agreement dated March 28, 1991, by and
among Cardinal Development Co., Inc, a Kentucky corporation ("Cardinal"), Lessee
and Lessor relative to the acquisition by Cardinal of the Leased Property and
leased between Lessor and Lessee,
Date of Taking: As defined in Article XV.
Encumbrance: As defined in Article XXXVI,
Extended Terms: As defined in Article XIX.
Event of Default: As defined in Article XVI.
Facility: The health care facility being operated or proposed to be
operated on the Leased Property.
Facility Mortgage: As defined in Article XIII.
Facility Mortgagee: As defined in Article XIII.
Facility Operating Deficiency: A deficiency in the conduct of the
operation of the Facility which, in the reasonable determination of Lessor, if
not corrected within a reasonable time, would have the likely effect of
jeopardizing the Facility's licensure or certification under government
reimbursement programs, based upon communications received from Lessee and
governmental agencies with respect thereto.
Fair Market Rental: As defined in Article XIX.
Fair Market Value: The fair market value of the Leased Property,
including all capital additions and renovations, and (a) assuming the same is
unencumbered by this Lease, (b) determined in accordance with the appraisal
procedures set forth in Article XXXIV or in such other manner as shall be
mutually acceptable to Lessor and Lessee, and (c) not taking into account any
reduction in value resulting from any indebtedness to which the Leased Property
is subject except as expressly provided herein below. In determining such Fair
Market Value the positive or negative effect on the value of the Leased Property
attributable to the interest rate, amortization schedule, maturity date,
prepayment penalty and other terms and conditions of any encumbrance which is
not removed at or prior to the closing of the transaction as to which such Fair
Market Value determination is being made shall be taken into account.
4
<PAGE>
Fiscal Year: The twelve (12) month period from January 1 to December
31.
Fixed Term: As defined in Article I.
Fixtures: As defined in Article I.
Gross Revenues: The term "Gross Revenues" shall mean all revenues
received or receivable from or by reason of the operation of the Facility, or
any other use of the Leased Property, including without limitation all patient
revenues received or receivable for the use of or otherwise by reason of all
rooms, beds and other facilities provided, meals served, services performed,
space or facilities subleased or goods sold on the Leased Property, including
without limitation, and except as provided below, any consideration received
under any subletting, licensing, or other arrangements with third parties
relating to the possession or use of any portion of the Leased Property;
provided, however, that Gross Revenues shall not include (a) revenues from
professional fees or charges by physicians and providers of ancillary services,
when and to the extent such charges are paid over to such physicians or
providers of ancillary services, or are accompanied by separate charges for use
of the Facility or any portion thereof, and (b) non-operating revenues such as
interest income or income from the sale of assets not sold in the ordinary
course of business; and provided, further that there shall be excluded from such
revenues:
(i) contractual allowances (relating to any period during the
Term of the Lease) for billings not paid by or received from the
appropriate governmental agencies or third party providers,
(ii) all proper patient billing credits and adjustments
according to generally accepted accounting principles relating to health
care accounting, and
(iii) Federal, state or local excise taxes and any tax based
upon or measured by said revenues which is added to or made a part of the
amount billed to the patient or other recipient of such services or goods,
whether included in the billing or stated separately.
To the extent that the Leased Property is subleased by Lessee, Gross Revenues
shall be calculated for all purposes of the Lease by including the Gross
Revenues of such sublessees with respect to the subleased property, i.e., the
Gross Revenues generated from the operations conducted on such subleased portion
of the Leased Property shall be included directly in the Gross Revenues for the
purpose of determining Additional Rent payable under this Lease and the rent
received or receivable by Lessee from or under such subleases shall be excluded
from Gross Revenues for such purpose.
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Guarantors: Cardinal Medical Corporation, Cardinal Care Corporation,
Cardinal Development Co., Inc., CHC, Inc., HRO Acquisition Corporation, Randall
J. Bufford and David V. Hall.
Hazardous Substances: Collectively, any hazardous or toxic
substance, material or waste, regulated or listed pursuant to any federal, state
or local environmental law, including without limitation, the Clean Air Act, the
Clean Water Act, the Toxic Substances Control Act, the Comprehensive
Environmental Response Compensation and Liability Act, the Resource Conservation
and Recovery Act, the Federal Insecticide, Fungicide, Rodenticide Act, the Safe
Drinking Water Act and the occupational Safety and Health Act.
HCPI: Health Care Property Investors, Inc., a Maryland corporation.
Impositions: Collectively, all taxes (including, without limitation,
all capital stock, franchise and state income taxes of Lessor (or, if Lessor is
not HCPI, of HCPI as a result of its investment in Lessor), all ad valorem,
sales and use, single business, gross receipts, transaction privilege, rent or
similar taxes), assessments (including, without limitation, all assessments for
public improvements or benefits, whether or not commenced or completed prior to
the date hereof and whether or not to be completed within the Term), ground
rents, water, sewer or other rents and charges, excises, tax levies, fees
(including without limitation, license, permit, inspection, authorization and
similar fees), and all other governmental charges, in each case whether general
or special, ordinary or extraordinary, or foreseen or unforeseen, of every
character in respect of the Leased Property and/or the Rent (including all
interest and penalties thereon due to any failure in payment by Lessee), which
at any time prior to, during or in respect of the Term hereof may be assessed or
imposed on or in respect of or be a lien upon (a) Lessor or Lessor's interest in
the Leased Property, (b) the Leased Property or any part thereof or any rent
therefrom or any estate, right, title or interest therein, or (c) any occupancy,
operation, use or possession of, or sales from or activity conducted on or in
connection with the Leased Property or the leasing or use of the Leased Property
or any part thereof; provided, however, nothing contained in this Lease shall be
construed to require Lessee to pay (1) any federal tax based on net income
(whether denominated as a franchise or capital stock or other tax) imposed on
Lessor or any other person or (2) any transfer, or net revenue tax of Lessor or
any other person except Lessee and its successors or (3) any tax imposed with
respect to the sale, exchange or other disposition by Lessor of any Leased
Property or the proceeds thereof, or (4), except as expressly provided elsewhere
in this Lease, any principal or interest on any assumed indebtedness on the
Leased Property, except to the extent that any tax, assessment, tax levy or
charge, which Lessee is obligated to pay pursuant to the first sentence of this
definition and which is in effect at any time during the term hereof is totally
or partially repealed, and a tax, assessment, tax
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levy or charge set forth in clause (1) or (2) is levied, assessed or imposed
expressly in lieu thereof.
Incremental Revenues: The amount by which the Gross Revenues for the
current Fiscal Year exceed 95% of the Gross Revenues for the Base Year of the
Lease. Incremental Revenues for any partial Fiscal Year shall be the difference
between the Gross Revenues for such Partial Fiscal Year and 95% of the Gross
Revenues for the corresponding time period of the Base Year.
Insurance Requirements: All terms of any insurance policy required
by this Lease and all requirements of the issuer of any such policy.
Land: As defined in Article I.
Lease: As defined in the preamble.
Leased Improvements: Leased Property: Each as defined in Article I.
Legal Requirements: All federal, state, county, municipal and other
governmental statutes laws, rules, orders, regulations, ordinances, judgments,
decrees and injunctions affecting either the Leased Property or the
construction, use or alteration thereof, whether now or hereafter enacted and in
force, including any which may (i) require repairs, modifications or alterations
in or to the Leased Property, (ii) in any way adversely affect the use and
enjoyment thereof, and all permits, licenses and authorizations and regulations
relating thereto, and all covenants, agreements, restrictions and encumbrances
contained in any instruments, either of record or known to Lessee (other than
encumbrances created by Lessor without the consent to Lessee), at any time in
force affecting the Leased Property, or (iii) require the cleanup or other
treatment of any Hazardous Substance or other toxic material.
Lending Institution: Any insurance company, federally insured
commercial or savings bank, national banking association, savings and loan
association, employees, welfare, pension or retirement fund or system, corporate
profit sharing or pension trust, college or university, or real estate
investment trust, including any corporation qualified to be treated for federal
tax purposes as a real estate investment trust, having a net worth of at least
$50,000,000.
Lessee: Cardinal of Indiana, Inc., a Kentucky corporation.
Lessor: Health Care Property Investors, Inc., a Maryland corporation
and its successors and assigns.
Letter of Credit Date: As defined in Section 21.2.
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Minimum Rent: As defined in Article III.
Minimum Repurchase Price: The purchase price of the Leased Property
at the time of acquisition of the Leased Property by Lessor plus the price paid
by Lessor for any additions or renovations to the Leased Property.
New Personal Property: As defined in Section 6.2.
Officer's Certificate: A certificate of Lessee signed by an officer
authorized to so sign by its board of directors or by-laws.
Overdue Rate: On any date, a rate equal to 2% above the Prime Rate,
but in no event greater than the maximum rate then permitted under applicable
law.
Payment Date: Any due date for the payment of the installments of
Minimum Rent, Additional Rent or any other sums payable under this Lease.
Personal Property: As defined in Article I. Primary Intended Use: As
defined in Section 7.2.2.
Prime Rate: On any date, a rate equal to the annual rate on such
date announced by Citibank, N.A. to be its prime rate or base rate for 90-day
unsecured loans to its corporate borrowers of the highest credit standing but in
no event greater than the maximum rate then permitted under applicable law.
Rent: Collectively, the Minimum Rent, Additional Rent and Additional
Charges, all as defined in Article III.
SEC: Securities and Exchange Commission.
State: The State or Commonwealth in which the Leased Property is
located.
Subsidiaries: Corporations or partnerships, each of which Lessee
owns, directly or indirectly, more than 50% of the voting stock or partnership
interest (individually, a "Subsidiary").
Taking: A taking or voluntary conveyance during the Term hereof of
all or part of the Leased Property, or any interest therein or right accruing
thereto or use thereof, as the result of, or in settlement of any condemnation
or other eminent domain proceeding affecting the Leased Property whether or not
the same shall have actually been commenced.
Term: Collectively, the Fixed Term and any Extended Terms, as the
context may require, unless earlier terminated pursuant to the provisions
hereof.
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Transfer consideration: As defined in Article XXIV.
Unavoidable Delays: Delays due to strikes, lockouts, inability to
procure materials, power failure, acts of God, governmental restrictions, enemy
action, civil commotion, fire, unavoidable casualty or other causes beyond the
control of the party responsible for performing an obligation hereunder,
provided that lack of funds shall not be deemed a cause beyond the control of
either party hereto unless such lack of funds is caused by the failure of the
other party hereto to perform any obligations of such party, under this Lease or
any guaranty of this Lease.
Unsuitable for Its Primary Intended Use: A state or condition of the
Facility such that by reason of damage or destruction, or a partial taking by
condemnation in the good faith judgment of Lessee, reasonably exercised, the
Facility cannot be operated on a commercially practicable basis for its Primary
Intended Use taking into account, among other relevant factors, the number of
usable beds affected by such damage or destruction or partial taking.
ARTICLE III
3.1 Rent. Lessee will pay to Lessor in lawful money of the United States
of America which shall be legal tender for the payment of public and private
debts the following amounts as Minimum Rent (as defined below) and Additional
Rent (as defined below) during the Term. Payments of Minimum Rent (as defined
below) shall be made by a prearranged payment deposit through the Electronic
Automated Clearing House Network ("ACH") initiated by Lessee to Lessor's account
at an ACH member bank on the first day of each calendar month. Prior to the
Commencement Date of this Lease, Lessee will provide Lessor with a written
authorization in a form satisfactory to Lessor authorizing Lessor to debit
Lessee's account at an ACH member bank and a voided blank check of Lessee which
shows Lessee's account number and the ACH member bank's routing number.
Additional Rent (as defined below) shall be paid at Lessor's address set forth
above or at such other place or to such other person, firms or corporations as
Lessor from time to time may designate in writing.
(a) Minimum Rent: For the first year of the Lease, the annual sum of
$224,100.00, payable in advance in equal consecutive monthly installments of
$18,675.00 the first day of each calendar month; provided, however, that the
first monthly payment of Minimum Rent shall be payable on the Commencement Date
(prorated as to any partial month at the beginning of the Term). If Lessee has
failed to provide Lessor with the letter of credit required under Section 21.1
before May 1, 1991, the Minimum Rent shall be increased to the annual sum of
$228,600.00, payable in advance in equal consecutive monthly installments of
$19,050.00. If Lessee has failed to provide Lessor with the letter of credit
required under Section 21.1 before August 1, 1991, the Minimum Rent shall be
increased to the annual
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sum of $233,100.00, payable in advance in equal consecutive monthly installments
of $19,425.00. If Lessee has failed to provide Lessor with the letter of credit
required under Section 21.1 before November 1, 1991, the Minimum Rent shall be
increased to the annual sum of $237,600.00, payable in advance in equal
consecutive monthly installments of $19,800.00. Any such increases in the
Minimum Rent, and as further increased by the provisions in the next paragraph,
shall remain in effect throughout the Term of this Lease whether or not Lessee
subsequently provides Lessor with the letter of credit required under Section
21.1.
Beginning on the first anniversary of the Commencement Date of this
Lease and through the end of the tenth year after the Commencement Date of this
Lease the Minimum Rent shall be further increased by the annual sum of
$5,400.00, and the monthly installments payable on the first day of each
calendar month shall be increased by $450.00. Beginning on the tenth anniversary
of the Commencement Date of this Lease, the Minimum Rent shall be further
increased (but under no circumstances shall the Minimum Rent be decreased) by an
amount equal to fifty (50) percent of any increase in the 5-year Treasury Note
rate, as quoted in the Wall Street Journal, since the Commencement Date
multiplied by the Minimum Repurchase Price.
(b) Additional Rent: In addition to the Minimum Rent, Lessee shall
pay to Lessor Additional Rent. Additional Rent shall first be paid for the
quarter ended March 31, 1993 and for each quarter thereafter. Additional Rent
shall equal 8.5 percent of Incremental Revenues. Beginning in the fourth year
after the Commencement Date of this Lease and in each year thereafter, the
Additional Rent shall not be less than seventy five (75) percent of the highest
of any of the prior years' Additional Rent.
3.2 Quarterly Calculation and Payment of Additional Rent; Annual
Reconciliation. Lessee shall calculate and pay Additional Rent quarterly as
provided for in section 3.1(b) for the portion of the entire Fiscal Year, on a
cumulative basis, up to the end of the fiscal quarter then most recently ended,
less the Additional Rent paid in such Fiscal Year. Such Additional Rent,
adjusted as aforesaid, shall be delivered to the Lessor, together with an
Officer's Certificate setting forth the calculation thereof, within thirty (30)
days after the end of each fiscal quarter.
Within thirty (30) days after the end of each Fiscal Year, Lessee shall
deliver to Lessor an Officer's Certificate setting forth the Gross Revenues for
the Fiscal Year just ended. Upon receipt by Lessor of the officer's Certificate
for the Leased Property for the full Fiscal Year, Lessor shall determine the
Additional Rent for the Fiscal Year and give Lessee notice of the same together
with the calculations upon which the Additional Rent was based. If such
Additional Rent exceeds the sum of the quarterly payments of Additional Rent
previously paid by Lessee with respect to said Fiscal Year, Lessee shall
forthwith pay such deficiency to Lessor. If the Additional Rent for said
preceding
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Fiscal Year as so determined is less than the amount previously paid with
respect thereto by Lessee, Lessor shall, at Lessee's option, either (i) remit to
Lessee its check in an amount equal to such difference, or (ii) grant Lessee a
credit against the quarterly payment of Additional Rent next coming due.
Any difference between the annual Additional Rent for any Fiscal Year as
shown in said officer's Certificate and the total amount of quarterly payments
for such Fiscal Year previously paid by Lessee whether in favor of Lessor or
Lessee, shall bear interest at a rate equal to the rate payable on 90-day U.S.
Treasury Bills as of January 1 of the year following the close of such Fiscal
Year until the amount of such difference shall be paid or otherwise discharged,
As soon as practicable after the expiration or earlier termination of the
Term, a final reconciliation shall be made taking into account, among other
relevant adjustments, any unresolved contractual allowances which relate to
Gross Revenues accrued prior to such termination date; provided that if the
final reconciliation has not been made within six (6) months of such expiration
or earlier termination, then a final reconciliation shall be made at that time
based on any available relevant information, including Lessee's good faith best
estimate of the amount of any unresolved contractual allowances.
3.3 Confirmation of Additional Rent. Lessee shall utilize, or cause to be
utilized, an accounting system for the Leased Property in accordance with its
usual and customary practices and in accordance with generally accepted
accounting principles which will accurately record all Gross Revenues and Lessee
shall retain for at least three (3) years after the expiration of each Fiscal
Year (and in any event until the reconciliation described in Section 3.2 above
for such Fiscal Year has been made) reasonably adequate records conforming to
such accounting system showing all Gross Revenues for such Fiscal Year. Lessor,
at its own expense except as provided hereinbelow, shall have the right from
time to time by its accountants or representatives to audit the information set
forth in the Officer's Certificate referred to in Section 3.2 and in connection
with such audits to examine Lessee's records with respect thereto (including
supporting data and sales tax returns) subject to any prohibitions or
limitations on disclosure of any such data under applicable law or regulations
including without limitation any duly enacted "Patients' Bill of Rights" or
similar legislation, including such limitations as may be necessary to preserve
the confidentiality of the Facility-patient relationship and the
physician-patient privilege. If any such audit discloses a deficiency in the
payment of Additional Rent. and either Lessee agrees with the result of such
audit or the matter is compromised or determined by arbitration under the
provisions of this Lease, Lessee shall forthwith pay to Lessor the amount of the
deficiency, as finally agreed or determined, together with interest at the
Overdue Rate from the date when said payment should have been made to the date
of payment thereof; provided, however, that as to any
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audit that is commenced more than two (2) years after the date Gross Revenues
for any Fiscal Year are reported by Lessee to Lessor, the deficiency, if any,
with respect to such Gross Revenues shall bear interest as permitted herein only
from the date such determination of deficiency is made unless such deficiency is
the result of gross negligence or wilful misconduct on the part of Lessee. If
any such audit discloses that the Gross Revenues actually received by Lessee for
any Fiscal Year exceed those reported by Lessee by more than 2%, Lessee shall
pay the reasonable cost of such audit and examination. Any proprietary
information obtained by Lessor pursuant to the provisions of this Section shall
be treated as confidential, except that such information may be used, subject to
appropriate confidentiality safeguards, in any litigation or arbitration
proceedings between the parties and except further that Lessor may disclose such
information to prospective lenders or purchasers. The obligations of Lessee
contained in this section shall survive the expiration or earlier termination of
this Lease.
3.4 Additional Charges. In addition to the Minimum Rent and Additional
Rent, (1) Lessee will also pay and discharge as and when due and payable all
other amounts, liabilities, obligations and Impositions which Lessee assumes or
agrees to pay under this Lease, and (2) in the event of any failure on the part
of Lessee to pay any of those items referred to in clause (1) above, Lessee will
also promptly pay and discharge every fine, penalty, interest and cost which may
be added for non-payment or late payment of such items (the items referred to in
clauses (1) and (2) above being referred to herein collectively as the
"Additional Charges"). To the extent that Lessee pays any Additional Charges to
Lessor pursuant to any requirement of this Lease, Lessee shall be relieved of
its obligation to pay such Additional Charges to the entity to which they would
otherwise be due.
3.5 Late Payment of Rent. Lessee hereby acknowledges that late payment by
Lessee to Lessor of Minimum Rent, Additional Rent or Additional Charges will
cause Lessor to incur costs not contemplated under the terms of this Lease, the
exact amount of which is presently anticipated to be extremely difficult to
ascertain. Such costs may include, without limitation, processing and accounting
charges and late charges which may be imposed on Lessor by the terms of any
mortgage or deed of trust covering the Leased Property and other expenses of a
similar or dissimilar nature. Accordingly, Lessor will notify Lessee by
facsimile if Lessor has not received any installment of Minimum Rent, Additional
Rent or Additional Charges (but only as to those Additional Charges which are
payable directly to Lessor) on its due date and if such installment of Minimum
Rent, Additional Rent or Additional Charges shall not be paid within three (3)
Business Days of Lessee's receipt of such facsimile notice, Lessee will pay
Lessor on demand, as Additional Charges, a late charge equal to 5% of such
installment or the maximum amount permitted by law, whichever is the lesser. The
parties agree that this late charge represents a fair and reasonable estimate of
the costs that Lessor will incur by
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reason of late payment by Lessee. In addition, if any installment of Minimum
Rent, Additional Rent or Additional Charges (but only as to those Additional
Charges which are payable directly to Lessor) shall not be paid on its due date,
the amount unpaid shall bear interest, from the due date of such installment to
the date of payment thereof, computed at the Overdue Rate (or at the maximum
rate permitted by law, whichever is the lesser) on the amount of such
installment, and Lessee will pay such interest to Lessor on demand, as
Additional Charges. The payment of said late charge or such interest shall not
constitute waiver of, nor excuse or cure, any default under this Lease, nor
prevent Lessor from exercising any other rights and remedies available to
Lessor.
3.6 Net Lease. The Rent shall be paid absolutely net to Lessor, so that
this Lease shall yield to Lessor the full amount of the installments of Minimum
Rent, Additional Rent and Additional Charges throughout the Term, all as more
fully set forth in Article IV and subject to any other provisions of this Lease
which expressly provide for adjustment or abatement of Rent or other charges.
3.7 Separate Account. Lessee shall deposit the gross receipts of the
Facility into a separate, segregated bank account, and Lessee shall provide
copies of all bank statements of such account to Lessor.
ARTICLE IV
4.1 Payment of Impositions. Subject to Article XII relating to permitted
contests, Lessee will pay, or cause to be paid, all Impositions before any fine,
penalty, interest or cost may be added for non-payment, such payments to be made
directly to the taxing authorities where feasible, and will promptly, upon
request, furnish to Lessor copies of official receipts or other satisfactory
proof evidencing such payments. Lessee's obligation to pay such Impositions
shall be deemed absolutely fixed upon the date such Impositions become a lien
upon the Leased Property or any part thereof. If any such Imposition may, at the
option of the taxpayer, lawfully be paid in installments (whether or not
interest shall accrue on the unpaid balance of such imposition), Lessee may
exercise the option to pay the same (and any accrued interest on the unpaid
balance of such Imposition) in installments and in such event, shall pay such
installments during the Term hereof (subject to Lessee's right of contest
pursuant to the provisions of Article XII) as the same respectively become due
and before any fine, penalty, premium, further interest or cost may be added
thereto. Lessor at its expense, shall, to the extent permitted by applicable
law, prepare and file all tax returns and reports as may be required by
governmental authorities in respect of Lessor's net income, gross receipts,
franchise taxes and taxes on its capital stock, and Lessee, at its expense,
shall, to the extent permitted by applicable laws and regulations, prepare and
file all other tax returns and reports in respect of any Imposition as may be
required
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by governmental authorities. If any refund shall be due from any taxing
authority in respect of any Imposition paid by Lessee, the same shall be paid
over to or retained by Lessee if no Event of Default shall have occurred
hereunder and be continuing. Any such funds retained by Lessor due to an Event
of Default shall be applied as provided in Article XVI. Lessor and Lessee shall,
upon request of the other, provide such data as is maintained by the party to
whom the request is made with respect to the Leased Property as may be necessary
to prepare any required returns and reports. In the event governmental
authorities classify any property covered by this Lease as personal property,
Lessee shall file all personal property tax returns in such jurisdictions where
it must legally so file. Lessor, to the extent it possesses the same, and
Lessee, to the extent it possesses the same, will provide the other party, upon
request, with cost and depreciation records necessary for filing returns for any
property so classified as personal property. Where Lessor is legally required to
file personal property tax returns, Lessee will be provided with copies of
assessment notices indicating a value in excess of the reported value in
sufficient time for Lessee to file a protest. Lessee may, upon notice to Lessor,
at Lessee's option and at Lessee's sole cost and expense, protest, appeal, or
institute such other proceedings as Lessee may deem appropriate to effect a
reduction of real estate or personal property assessments and Lessor, at
Lessee's expense as aforesaid, shall fully cooperate with Lessee in such
protest, appeal, or other action. Billings for reimbursement by Lessee to Lessor
of personal property taxes shall be accompanied by copies of a bill therefor and
payments thereof which identify the personal property with respect to which such
payments are made.
4.2 Notice of Impositions. Lessor shall give prompt notice to Lessee of
all Impositions payable by Lessee hereunder of which Lessor at any time has
knowledge, but Lessor's failure to give any such notice shall in no way diminish
Lessee's obligations hereunder to pay such Impositions.
4.3 Adjustment of Impositions. Impositions imposed in respect of the
tax-fiscal period during which the Term terminates shall be adjusted and
prorated between Lessor and Lessee, whether or not such Imposition is imposed
before or after such termination, and Lessee's obligation to pay its prorated
share thereof shall survive such termination.
4.4 Utility Charges. Lessee will pay or cause to be paid all charges for
electricity, power, gas, oil, water and other utilities used in the Leased
Property during the Term.
4.5 Insurance Premiums. Lessee will pay or cause to be paid all premiums
for the insurance coverage required to be maintained pursuant to Article XIII
during the Term.
4.6 Impound Account. Lessor may, at its option to be exercised by thirty
(30) days' written notice to Lessee, require Lessee to deposit, at the time of
any payment of Minimum Rent, an
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amount equal to one-twelfth of Lessee's estimated annual taxes, of every kind
and nature, required pursuant to Section 4.1 and one-twelfth of Lessee's
estimated annual insurance premiums required pursuant to Section 13.1 into an
interest-bearing escrow account as directed by Lessor. Such amounts shall be
applied to the payment of the obligations in respect of which said amounts were
deposited in such order of priority as Lessor shall determine, on or before the
respective dates on which the same or any of them would become delinquent.
Nothing in this Section 4.6 shall be deemed to affect any right or remedy of
Lessor under this Lease. If requested by Lessor, Lessee shall, at its sole cost
and expense, cause to be furnished to Lessor a tax reporting service, to be
designated by Lessor, covering the Leased Property. Any interest accruing on the
amounts placed in the escrow account shall be paid to Lessee.
ARTICLE V
5.1 No Termination, Abatement, etc. Except as otherwise specifically
provided in this Lease, Lessee, to the extent permitted by law, shall remain
bound by this Lease in accordance with its terms and shall neither take any
action without the consent of Lessor to modify, surrender or terminate the same,
nor seek nor be entitled to any abatement, deduction, deferment or reduction of
Rent, or set-off against the Rent nor shall the respective obligations of Lessor
and Lessee be otherwise affected by reason of (a) any damage to, or destruction
of, any Leased Property or any portion thereof from whatever cause or any Taking
of the Leased Property or any portion thereof, (b) the lawful or unlawful
prohibition of, or restriction upon, Lessee's use of the Leased Property, or any
portion thereof, the interference with such use by any person, corporation,
partnership or other entity, or by reason of eviction by paramount title; (c)
any claim which Lessee has or might have against Lessor or by reason of any
default or breach of any warranty by Lessor under this Lease or any other
agreement between Lessor and Lessee, or to which Lessor and Lessee are parties,
(d) any bankruptcy, insolvency, reorganization, composition, readjustment,
liquidation, dissolution, winding up or other proceedings affecting Lessor or
any assignee or transferee of Lessor, or (e) for any other cause whether similar
or dissimilar to any of the foregoing other than a discharge of Lessee from any
such obligations as a matter of law. Lessee hereby specifically waives all
rights, arising from any occurrence whatsoever, which may now or hereafter be
conferred upon it by law to (i) modify surrender or terminate this Lease or quit
or surrender the Leased Property or any portion thereof, or (ii) entitle Lessee
to any abatement, reduction suspension or deferment of the Rent or other sums
payable by Lessee hereunder, except as otherwise specifically provided in this
Lease. The obligations of Lessor and Lessee hereunder shall be separate and
independent covenants and agreements and the Rent and all other sums payable by
Lessee hereunder shall continue to be payable in all events unless the
obligations to pay the same shall be terminated pursuant to the express
provisions of this Lease or
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by termination of this Lease other than by reason of an Event of Default.
ARTICLE VI
6.1 Ownership of the Leased Property. Lessee acknowledges that the Leased
Property is the property of Lessor and that Lessee has only the right to the
exclusive possession and use of the Leased Property upon the terms and
conditions of this Lease.
6.2 Personal Property. After the commencement of this Lease, Lessee may
(and shall as provided hereinbelow), at its expense, install, affix or assemble
or place on any parcels of the Land or in any of the Leased Improvements, any
items of personal property (the "New Personal Property"), and such New Personal
Property and replacements thereof shall be the property of and owned by Lessee.
Except as provided in Section 6.4, Lessor shall have no rights to the New
Personal Property. Lessee shall provide and maintain during the entire Lease
Term all Personal Property, including without limitation, all Personal Property
necessary in order to operate the Facility in compliance with all licensure and
certification requirements, in compliance with all applicable Legal Requirements
and Insurance Requirements and otherwise in accordance with customary practice
in the industry for the Primary Intended Use. Lessee will, at its expense,
restore the Leased Property to the condition required by Section 9.1(d).
6.3 Option to Purchase Personal Property. Lessee shall have the option
exercisable on not less than six (6) months' prior written notice to purchase
the Personal Property upon the expiration of the fifth year of the Term at the
fair market value of the Personal Property as of the date of such purchase so
long as such purchase shall not in Lessor's determination result in an
unacceptable amount of gross income for purposes of the 95% gross income test
stated in Section 856(c)(2) of the Code or otherwise impair the status of
Lessor, or any partner of Lessor if Lessor is a partnership, as a Real Estate
Investment Trust under the Code. If Lessor determines such an unacceptable
amount of gross income would result from such purchase, Lessee shall have the
option to lease the Personal Property on a month-to-month basis at the fair
market rental of the Personal Property until Lessor is able to sell the Personal
Property without Lessor or any partner of Lessor, if Lessor is a partnership,
receiving an unacceptable amount of gross income for the purposes described
above. The fair market value of the Personal Property shall be determined by an
appraisal in a manner mutually acceptable to Lessor and Lessee with the costs of
such appraisal to be borne equally by Lessor and Lessee,
6.4 Transfer of Personal Property to Lessor. Upon the termination of this
Lease, all Personal Property and New Personal Property shall become the property
of Lessor, if not already owned by Lessor, and Lessee shall execute all
documents and take any actions reasonably necessary to evidence such ownership.
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ARTICLE VII
7.1 Condition of the Leased Property. Lessee acknowledges receipt and
delivery of possession of the Leased Property and that Lessee has examined and
otherwise has knowledge of the condition of the Leased Property prior to the
execution and delivery of this Lease and has found the same to be in good order
and repair, free from Hazardous Substances or other toxic materials, and
satisfactory for its purposes hereunder. Regardless, however of any inspection
made by Lessee of the Leased Property and whether or not any patent or latent
defect or condition was revealed or discovered thereby Lessee is leasing the
Leased Property "as is" in its present condition. Lessee waives any claim or
action against Lessor in respect of the condition of the Leased Property
including without limitation any defects or adverse conditions not discovered or
otherwise known by Lessee as of the date hereof. LESSOR MAKES NO WARRANTY OR
REPRESENTATION EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED PROPERTY OR ANY PART
THEREOF, EITHER AS TO ITS FITNESS FOR USE, DESIGN OR CONDITION FOR ANY
PARTICULAR USE OR PURPOSE OR OTHERWISE, OR AS TO THE NATURE OR QUALITY OF THE
MATERIAL OR WORKMANSHIP THEREIN, OR THE EXISTENCE OF ANY TOXIC OR HAZARDOUS
WASTE, BUILDING MATERIAL OR OTHER FORM OF TOXIC OR HAZARDOUS SUBSTANCES, IT
BEING AGREED THAT ALL SUCH RISKS LATENT OR PATENT ARE TO BE BORNE SOLELY BY
LESSEE. Lessor shall cooperate with Lessee in the prosecution, which may include
the assignment of any such rights to the extent permitted by law, of any of
Lessor's rights to proceed against any predecessor in title for breaches of
warranties or representations, or for latent defects in the Leased Property. Any
such action shall be at Lessee's expense.
7.2 Use of the Leased Property.
7.2.1 Lessee covenants that it will obtain and maintain all
approvals needed to use and operate the Leased Property and the Facility under
applicable local, state and federal law, including but not limited to licensure
and Medicare and/or Medicaid certification.
7.2.2 After the Commencement Date and during the entire Term, Lessee
shall use or cause to be used the Leased Property and the improvements thereon
as a nursing home and for such other uses as may be necessary or incidental to
such use (the particular such use to which the Leased Property is put at any
particular time is herein referred to as the "Primary Intended Use"). Lessee
shall not use the Leased Property or any portion thereof for any other use
without the prior written consent of Lessor, which consent Lessor may withhold
in its sole discretion. No use shall be made or permitted to be made of the
Leased Property, and no acts shall be done, which will cause the cancellation of
any insurance policy covering the Leased Property or any part thereof, nor shall
Lessee sell or otherwise provide to residents or patients therein, or permit to
be kept used or sold in or about the Leased Property any article which may be
prohibited by
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law or by the standard form of fire insurance policies, or any other insurance
policies required to be carried hereunder, or fire underwriters regulations.
Lessee shall, at its sole cost, comply with all of the requirements pertaining
to the Leased Property or other improvements of any insurance board,
association, organization or company necessary for the maintenance of insurance,
as herein provided, covering the Leased Property.
7.2.3 Lessee covenants and agrees that during the Term it will
operate continuously the Leased Property as a provider of health care services
in accordance with its Primary Intended Use and to maintain its certifications
for reimbursement and licensure and its accreditation, if compliance with
accreditation standards is required to maintain the operations of the Facility
and if a failure to comply would adversely affect operations of the Facility,
7.2.4 Lessee shall conduct its business at the Facility in
conformity with the standards of patient care practice provided in similar
facilities in the State and shall maintain all applicable and customary
licenses, accreditations and affiliations maintained by skilled and intermediate
nursing facilities of the type and quality of the Facility in the State.
7.2.5 Lessee shall not commit or suffer to be committed any waste on
the Leased Property, or in the Facility, nor shall Lessee cause or permit any
nuisance thereon. Lessee shall not allow any Hazardous Substance or other toxic
material to be located in, on, or under the Leased Property, or incorporated in
the Facility or any improvements thereon, except for those substances
customarily used by a skilled and intermediate nursing facility provided such
substances are used in a customary manner, nor allow the Leased Property to be
used as a landfill or a waste disposal site, or a manufacturing, handling,
storage, distribution or disposal facility for any Hazardous Substance or other
toxic material.
7.2.6 Lessee shall at all times and in all material respects comply
with all federal, state or local laws, ordinances, regulations and orders
relating to industrial hygiene, environmental protection, or the use, analysis,
generation, manufacture, storage, disposal or transportation of any Hazardous
Substance.
7.2.7 If Lessee becomes aware of the presence of any Hazardous
Substance in, on or under the Leased Property or any adjacent property or if
Lessee, Lessor, or the Leased Property becomes subject to any order of any
federal, state or local agency to repair, close, detoxify, decontaminate or
otherwise cleanup the Leased Property, Lessee shall, at its own cost and
expense, carry out and complete or cause to be carried out or completed any
repair, closure, detoxification, decontamination or other cleanup of the Leased
Property. If Lessee fails to implement or cause to be implemented and diligently
pursue any such repair, closure,
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detoxification, decontamination or other cleanup of the Leased Property, Lessor
shall have the right, but not the obligation, to carry out such action and to
recover all of the costs and expenses from Lessee as Additional Charges.
Notwithstanding anything in this Agreement to the contrary, nothing in this
Agreement shall be interpreted or construed so as to limit Lessee's remedies
against or its right to seek indemnification and damages from any third party,
including but not limited to the previous owners of the Leased Property or
parties who have exercised control over the Leased Property, in connection with
claims, damages and expenses associated with the presence or cleanup of
Hazardous Substances in, on or under any of the Leased Property.
7.2.8 Lessee shall neither suffer nor permit the Leased Property or
any portion thereof, including any Capital Addition or New Personal Property, to
be used in such a manner as (i) might reasonably tend to impair Lessor's title
thereto or to any portion thereof or (ii) may reasonably make possible a claim
or claims of adverse usage or adverse possession by the public, as such, or of
implied dedication of the Leased Property or any portion thereof.
7.3 Lessor to Grant Easements, etc. Lessor will, from time to time so long
as no Event of Default has occurred and is continuing, at the request of Lessee
and at Lessee's cost and expense (but subject to the approval of Lessor, which
approval shall not be unreasonably withheld or delayed, and provided, however,
that if Lessor has not responded to any such request of Lessee within 30 days
after receipt thereof, such request shall be deemed approved), (i) grant
easements and other rights in the nature of easements, (ii) release existing
easements or other rights in the nature of easements which are for the benefit
of the Leased Property, (iii) dedicate or transfer unimproved portions of the
Leased Property for road, highway or other public purposes, (iv) execute
petitions to have the Leased Property annexed to any municipal corporation or
utility district, (v) execute amendments to any covenants and restrictions
affecting the Leased Property and (vi) execute and deliver to any person any
instrument appropriate to confirm or effect such grants, releases dedications
and transfers (to the extent of its interest in the Leased Property), but only
upon delivery to Lessor of an Officer's Certificate stating that such grant
release, dedication, transfer, petition or amendment is not detrimental to the
proper conduct of the business of Lessee on the Leased Property and does not
materially reduce its value. Lessor does hereby irrevocably appoint Lessee the
attorney-in-fact of Lessor during the Term of this Lease to execute any
documents relating to the above matters which have been approved or are deemed
to have been approved by Lessor as provided above.
ARTICLE VIII
8.1 Compliance with Legal and Insurance Requirements, Instruments, etc.
Subject to Article XII regarding permitted
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contests, Lessee, at its expense, will promptly (a) comply with all Legal
Requirements and Insurance Requirements in respect of the use, operation,
maintenance, repair and restoration of the Leased Property, whether or not
compliance therewith shall require structural changes in any of the Leased
Improvements or interfere with the use and enjoyment of the Leased Property and
(b) procure, maintain and comply with all licenses, certificates of need,
provider agreements and other authorizations required for any use of the Leased
Property then being made, and for the proper erection, installation, operation
and maintenance of the Leased Property or any part thereof, including without
limitation any capital additions. Lessor may, but is not obligated to, enter
upon the Leased Property and take such actions and incur such costs and expenses
to effect such compliance as it deems advisable to protect its interest in the
Leased Property, and Lessee shall reimburse Lessor for the full amount of all
costs and expenses incurred by Lessor in connection with such compliance
activities.
8.2 Legal Requirement Covenants. Lessee covenants and agrees that the
Leased Property shall not be used for any unlawful purpose. Lessee shall acquire
and maintain all licenses, certificates, permits, provider agreements and other
authorizations and approvals needed to operate the Leased Property in its
customary manner for the Primary Intended Use, and any other use conducted on
the Leased Property as may be permitted from time to time hereunder. Lessee
further covenants and agrees that Lessee's use of the Leased Property and
maintenance, alteration, and operation of the same, and all parts thereof shall
at all times conform to all applicable local, state, and federal laws,
ordinances, rules and regulations unless the same are held by a court of
competent jurisdiction to be unlawful. Lessee may, however, upon prior written
notice to Lessor contest the legality or applicability of any such law,
ordinance rule or regulation, or any licensure or certification decision if
Lessee maintains such action in good faith, with due diligence, without
prejudice to Lessor's rights hereunder, and at Lessee's own expense. If by the
terms of any such law, ordinance, rule or regulation, compliance therewith
pending the prosecution of any such proceeding may legally be delayed without
the occurrence of any lien, charge or liability of any kind against the Facility
or Lessee's leasehold interest therein and without subjecting Lessee or Lessor
to any liability, civil or criminal, for failure so to comply therewith, Lessee
may delay compliance therewith until the final determination of such proceeding.
If any lien, charge or civil or criminal liability would be incurred by reason
of any such delay, Lessee, on the prior written consent of Lessor, which consent
shall not be unreasonably withheld, may nonetheless contest as aforesaid and
delay as aforesaid provided that such delay would not subject Lessor to criminal
liability and Lessee both (a) furnishes to Lessor security reasonably
satisfactory to Lessor against any loss or injury by reason of such contest or
delay, and (b) prosecutes the contest with due diligence and in good faith.
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ARTICLE IX
9.1 Maintenance and Repair.
(a) Lessee, at its expense, will keep the Leased Property and New
Personal Property and all private roadways, sidewalks and curbs appurtenant
thereto and which are under Lessee's control in good order and repair (whether
or not the need for such repairs occurs as a result of Lessee's use, any prior
use, the elements or the age of the Leased Property, or any portion thereof),
and, except as otherwise provided in Article XIV, with reasonable promptness,
make all necessary and appropriate repairs thereto of every kind and nature,
whether interior or exterior, structural or non-structural, ordinary or
extraordinary, foreseen or unforeseen or arising by reason of a condition
existing prior to the commencement of the Term of this Lease (concealed or
otherwise). All repairs shall, to the extent reasonably achievable, be at least
equivalent in quality to the original work. Lessee will not take or omit to take
any action the taking or omission of which might materially impair the value or
the usefulness of the Leased Property or any part thereof for its Primary
Intended Use.
(b) Lessor shall not under any circumstances be required to build or
rebuild any improvements on the Leased Property, or to make any repairs,
replacements, alterations, restorations or renewals of any nature or description
to the Leased Property, whether ordinary or extraordinary, structural or
non-structural, foreseen or unforeseen, or to make any expenditure whatsoever
with respect thereto, in connection with this Lease, or to maintain the Leased
Property in any way. Lessee hereby waives, to the extent permitted by law, the
right to make repairs at the expense of Lessor pursuant to any law in effect at
the time of the execution of this Lease or hereafter enacted.
(c) Nothing contained in this Lease and no action or inaction by
Lessor shall be construed as (i) constituting the consent or request of Lessor
expressed or implied, to any contractor, subcontractor, laborer, materialman or
vendor to or for the performance of any labor or services or the furnishing of
any materials or other property for the construction, alteration, addition,
repair or demolition of or to the Leased Property or any part thereof, or (ii)
giving Lessee any right, power or permission to contract for or permit the
performance of any labor or services or the furnishing of any materials or other
property in such fashion as would permit the making of any claim against Lessor
in respect thereof or to make any agreement that may create, or in any way be
the basis for, any right, title, interest, lien, claim or other encumbrance upon
the estate of Lessor in the Leased Property, or any portion thereof.
(d) Unless Lessor shall convey any of the Leased Property to Lessee
pursuant to the provisions of this Lease or unless the Lease shall have been
terminated pursuant to the
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provisions of Section 14.2.1, Lessee will, upon the expiration or prior
termination of the Term, vacate and surrender the Leased Property to Lessor in
the condition in which the Leased Property was originally received from Lessor,
except as repaired, rebuilt, restored, altered or added to as permitted or
required by the provisions of this Lease and except for ordinary wear and tear
(subject to the obligation of Lessee to maintain the Leased Property in good
order and repair during the entire Term of the Lease), and with due
consideration being given to the age of the Leased Improvements at such time.
9.2 Encroachments, Restrictions, Mineral Leases, etc. If any of the Leased
Improvements shall, at any time, encroach upon any property, street or
right-of-way adjacent to the Leased Property, or shall violate the agreements or
conditions contained in any lawful restrictive covenant or other agreement
affecting the Leased Property, or any part thereof, or shall impair the rights
of others under any easement or right-of-way to which the Leased Property is
subject, or the use of the Leased Property is impaired, limited or interfered
with by reason of the exercise of the right or surface entry or any other rights
under a lease or reservation of any oil, gas, water or other minerals, then
promptly upon the request of Lessor or at the behest of any person affected by
any such encroachment, violation or impairment, Lessee, at its sole cost and
expense (subject to its right to contest the existence of any such encroachment,
violation or impairment), shall protect, indemnify, save harmless and defend
Lessor from and against all losses, liabilities, obligations, claims, damages,
penalties, causes of action, costs and expenses (including without limitation
reasonable attorneys' fees and expenses) based on or arising by reason of any
such encroachment, violation or impairment and in such case, in the event of an
adverse final determination, either (i) obtain valid and effective waivers or
settlements of all claims, liabilities and damages resulting from each such
encroachment, violation or impairment, whether the same shall affect Lessor or
Lessee or (ii) make such changes in the Leased Improvements, and take such other
actions, as Lessee in the good faith exercise of its judgment deems reasonably
practicable, to remove such encroachment, and to end such violation or
impairment, including, if necessary, the alteration of any of the Leased
Improvements, and in any event take all such actions as may be necessary in
order to be able to continue the operation of the Leased Improvements for the
Primary Intended Use substantially in the manner and to the extent the Leased
Improvements were operated prior to the assertion of such violation or
encroachment. Lessee's obligations under this Section 9.2 shall be in addition
to and shall in no way discharge or diminish any obligation of any insurer under
any policy of title or other insurance and Lessee shall be entitled to a credit
for any sums recovered by Lessor under any such policy of title or other
insurance.
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ARTICLE X
10. Construction of Capital Additions to the Leased Property. If no Event
of Default shall have occurred and be continuing, Lessee shall have the right,
upon and subject to the terms and conditions set forth below, to construct or
install Capital Additions on the Leased Property with the prior written consent
of Lessor which shall not be unreasonably withheld if the Capital Addition Cost,
when aggregated with the costs of all other Capital Additions made by Lessee,
would not exceed $200,000. Notwithstanding any other provision of this Article X
appearing to the contrary, no Capital Additions shall be made without the
consent of Lessor, which consent may be withheld in Lessor's sole and absolute
discretion, which may be based upon considerations of Lessor including, but not
limited to, Lessor's decision not to fund any Capital Addition, if the Capital
Addition Cost of such proposed Capital Addition, when aggregated with the costs
of all other Capital Additions made by Lessee, would exceed $200,000. Prior to
Lessor's consent to construction of any Capital Addition, Lessee shall submit to
Lessor in writing a proposal setting forth in reasonable detail any proposed
Capital Addition and shall provide to Lessor such plans and specifications,
permits, licenses, contracts and other information concerning the proposed
Capital Addition as Lessor may reasonably request. Without limiting the
generality of the foregoing, such proposal shall indicate the approximate
projected cost of constructing such Capital Addition and the use or uses to
which it will be put. Furthermore, no Capital Addition shall be made which would
tie in or connect any Leased Improvements on the Leased Property with any other
improvements on property adjacent to the Leased Property (and not part of the
land covered by this Lease) including, without limitation, tie-ins of buildings
or other structures or utilities, unless Lessee shall have obtained the prior
written approval of Lessor, which approval in Lessor's sole discretion may be
granted or withheld.
ARTICLE XI
11. Liens. Subject to the provisions of Article XII relating to permitted
contests, Lessee will not directly or indirectly create or allow to remain and
will promptly discharge at its expense any lien, encumbrance, attachment, title
retention agreement or claim upon the Leased Property or any attachment, levy,
claim or encumbrance in respect of the Rent, not including, however, (a) this
Lease, (b) the matters, if any, that existed as of the Commencement Date, (c)
restrictions, liens and other encumbrances which are consented to in writing by
Lessor, or any easements granted pursuant to the provisions of Section 7.3 of
this Lease, (d) liens for those taxes of Lessor which Lessee is not required to
pay hereunder, (e) subleases permitted by Article XXIV, (f) liens for
Impositions or for sums resulting from noncompliance with Legal Requirements so
long as (1) the same are not yet payable or are payable without the addition of
any fine or penalty or (2)
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such liens are in the process of being contested as permitted by Article XII,
(g) liens of mechanics, laborers, materialmen, suppliers or vendors for sums
either disputed or not yet due, provided that (1) the payment of such sums shall
not be postponed under any related contract for more than sixty (60) days after
the completion of the action giving rise to such lien and such reserve or other
appropriate provisions as shall be required by law or generally accepted
accounting principles shall have been made therefor or (2) any such liens are in
the process of being contested as permitted by Article XII, and (h) any liens
which are the responsibility of Lessor pursuant to the provisions of Article
XXXVI of this Lease.
ARTICLE XII
12. Permitted Contests. Lessee, on its own or on Lessor's behalf (or in
Lessor's name) but at Lessee's expense, may contest, by appropriate legal
proceedings conducted in good faith and with due diligence, the amount or
validity or application, in whole or in part, of any Imposition or any Legal
Requirement or insurance Requirement or any lien, attachment, levy, encumbrance,
charge or claim not otherwise permitted by Article XI, provided that (a) in the
case of an unpaid Imposition, lien, attachment, levy, encumbrance, charge or
claim, the commencement and continuation of such proceedings shall suspend the
collection thereof from Lessor and from the Leased Property, (b) neither the
Leased Property nor any Rent therefrom nor any part thereof or interest therein
would be in any danger of being sold, forfeited, attached or lost pending the
outcome of such proceedings, (c) in the case of a Legal Requirement, Lessor
would not be in any danger of civil or criminal liability for failure to comply
therewith pending the outcome of such proceedings, (d) in the event that any
such contest shall involve a sum of money or potential loss in excess of Fifty
Thousand ($50,000) Dollars, then Lessee shall deliver to Lessor and its counsel
an opinion of Lessee's counsel to the effect set forth in clauses (a), (b) and
(c), to the extent applicable; provided however, that the requirement of
delivery of such opinion of Lessee's counsel may be waived by the Lessor upon
written request of the Lessee, (e) in the case of a Legal Requirement and/or an
Imposition, lien, encumbrance or charge, Lessee shall give such reasonable
security as may be demanded by Lessor to insure ultimate payment of the same and
to prevent any sale or forfeiture of the affected Leased Property or the Rent by
reason of such non-payment or noncompliance, provided, however, the provisions
of this Article XII shall not be construed to permit Lessee to contest the
payment of Rent (except as to contests concerning the method of computation or
the basis of levy of any Imposition or the basis for the assertion of any other
claim) or any other sums payable by Lessee to Lessor hereunder, (f) in the case
of an Insurance Requirement, the coverage required by Article XIII shall be
maintained, and (g) if such contest be finally resolved against Lessor or
Lessee, Lessee shall, as Additional Charges due hereunder, promptly pay the
amount required to be paid, together with all interest and
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penalties accrued thereon, or comply with the applicable Legal Requirement or
Insurance Requirement. Lessor, at Lessee's expense, shall execute and deliver to
Lessee such authorizations and other documents as may reasonably be required in
any such contest, and, if reasonably requested by Lessee or if Lessor so
desires, Lessor shall join as a party therein, Lessee shall indemnify and save
Lessor harmless against any liability, cost or expense of any kind that may be
imposed upon Lessor in connection with any such contest and any loss resulting
therefrom. Lessee shall be entitled to any refund of any claim and such charges
and penalties or interest thereon which have been paid by Lessee or paid by
Lessor and for which Lessor has been fully reimbursed by Lessee.
ARTICLE XIII
13.1 General Insurance Requirements. During the term of this Lease, Lessee
shall at all times keep the Leased Property, and all property located in or on
the Leased Property, including all personal property, insured with the kinds and
amounts of insurance described below. This insurance shall be written by
companies authorized to do insurance business in the State in which the Leased
Property is located. The policies must name Lessor as an additional insured.
Losses shall be payable to Lessor and/or Lessee as provided in Article XIV. In
addition, the policies shall name as an additional insured the holder of any
mortgage, deed of trust or other security agreement ("Facility Mortgagee")
securing any indebtedness or any other Encumbrance placed on the Leased Property
in accordance with the provisions of Article XXXVI ("Facility Mortgage") by way
of a standard form of mortgagee's loss payable endorsement. Any loss adjustment
shall require the written consent of Lessor, Lessee, and each Facility
Mortgagee. Evidence of insurance shall be deposited with Lessor and, if
requested, with any Facility Mortgagee(s). If any provision of any Facility
Mortgage requires deposits of insurance to be made with such Facility Mortgagee,
Lessee shall either pay to Lessor monthly the amounts required and Lessor shall
transfer such amounts to each Facility Mortgagee, or, pursuant to written
direction by Lessor, Lessee shall make such deposits directly with such Facility
Mortgagee. The policies on the Leased Property, including the Leased
Improvements, and Fixtures and Personal Property, shall insure against the
following risks:
13.1.1 Loss or damage by fire, vandalism and malicious mischief,
extended coverage perils commonly known as "All Risk," earthquake and all
physical loss perils including but not limited to sprinkler leakage in an amount
not less than one hundred percent (100%) of the then full replacement cost
thereof (as defined below in Section 13.2);
13.1.2 Loss or damage by explosion of steam boilers, pressure
vessels or similar apparatus, now or hereafter installed in the Facility, in
such limits with respect to any one accident as may be reasonably requested by
Lessor from time to time;
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13.1.3 Loss of rental under a rental value insurance policy covering
risk of loss during the first twelve (12) months of reconstruction necessitated
by the occurrence of any of the hazards described in Sections 13.1.1 or 13.1.2
in an amount sufficient to prevent Lessor from becoming a co-insurer;
13.1.4 Claims for personal injury or property damage under a policy
of comprehensive general public liability insurance with amounts not less than
Five Million and No/100 Dollars ($5,000,000.00) per occurrence and in the
aggregate in respect of bodily injury and death and Five Million No/100 Dollars
($5,000,000.00) for property damage;
13.1.5 Claims arising out of malpractice in an amount not less than
Five Million and No/100 Dollars ($5,000,000.00) for each person and for each
occurrence and in the aggregate; and
13.1.6 Flood (when the Leased Property is located in whole or in
part within a designated flood plain area) and such other hazards and in such
amounts as may be customary for comparable properties in the area.
13.2 Replacement Cost. The term "full replacement cost" as used herein,
shall mean the actual replacement cost thereof from time to time including
increased cost of construction endorsement, less exclusions provided in the
normal fire insurance policy, In the event either party believes that full
replacement cost (the then replacement cost less such exclusions) has increased
or decreased at any time during the Lease Term, it shall have the right to have
such full replacement cost redetermined by the fire insurance company which is
then carrying the largest amount of fire insurance carried on the Leased
Property, hereinafter referred to as "impartial appraiser." The party desiring
to have the full replacement cost so redetermined shall forthwith, on receipt of
such determination by such impartial appraiser, give written notice thereof to
the other party hereto. The determination of such impartial appraiser shall be
final and binding on the parties hereto, and Lessee shall forthwith increase, or
may decrease, the amount of the insurance carried pursuant to this Section, as
the case may be, to the amount so determined by the impartial appraiser. Each
party shall pay one-half (1/2) of the fee, if any, of the impartial appraiser.
If, Lessee shall have made improvements to the Leased Property, Lessor may at
Lessee's expense have such full replacement cost redetermined at any time after
such improvements are made regardless of when the full replacement cost was last
determined.
13.3 Additional Insurance. In addition to the insurance described above,
Lessee shall maintain such additional insurance as may be reasonably required
from time to time by any Facility Mortgagee and shall further at all times
maintain adequate worker's compensation insurance coverage for all persons
employed by Lessee on the Leased Property. Such worker's compensation insurance
shall
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be in accordance with the requirements of applicable local, state and federal
law.
13.4 Waiver of Subrogation. All insurance policies carried by either party
covering the Leased Property including without limitation, contents, fire and
casualty insurance, shall expressly waive any right of subrogation on the part
of the insurer against the other party. The parties hereto agree that their
policies will include such waiver clause or endorsement so long as the same are
obtainable without extra cost, and in the event of such an extra charge the
other party, at its election, may pay the same, but shall not be obligated to do
so.
13.5 Form Satisfactory, etc. All of the policies of insurance referred to
in this Section shall be written in form satisfactory to Lessor and by insurance
companies satisfactory to Lessor, Lessor agrees that it will not unreasonably
withhold its approval as to the form of the policies of insurance or as to the
insurance companies selected by Lessee. Lessee shall pay all of the premiums
therefore, and deliver such policies or certificates thereof to Lessor prior to
their effective date (and with respect to any renewal policy, at least ten (10)
days prior to the expiration of the existing policy), and in the event of the
failure of Lessee either to effect such insurance in the names herein called for
or to pay the premiums therefor, or to deliver such policies or certificates
thereof to Lessor at the times required, Lessor shall be entitled, but shall
have no obligation, to effect such insurance and pay the premiums therefor,
which premiums shall be repayable to Lessor with interest at the Overdue Rate
upon written demand therefor and failure to repay the same shall constitute an
Event of Default within the meaning of Section 16.1(d). Each insurer mentioned
in this Section shall agree, by endorsement on the policy or policies issued by
it, or by independent instrument furnished to Lessor, that it will give to
Lessor thirty (30) days, written notice before the policy or policies in
question shall be altered, allowed to expire or cancelled.
13.6 Increase in Limits. In the event that either party shall at any time
deem the limits of the personal injury or property damage public liability
insurance then carried to be either excessive or insufficient, the parties shall
endeavor to agree on the proper and reasonable limits for such insurance to be
carried; and such insurance shall thereafter be carried with the limits thus
agreed on until further change pursuant to the provisions of this Section, If
the parties shall be unable to agree thereon, the proper and reasonable limits
for such insurance to be carried shall be determined by an impartial third party
selected by the parties. Nothing herein shall permit the amount of insurance to
be reduced below the amount or amounts required by any of the Facility
Mortgages.
13.7 Blanket Policy. Notwithstanding anything to the contrary contained in
this Section, Lessee's obligations to carry
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the insurance provided for herein may be brought within the coverage of a
so-called blanket policy or policies of insurance carried and maintained by
Lessee; provided, however, that the coverage afforded Lessor will not be reduced
or diminished or otherwise be different from that which would exist under a
separate policy meeting all other requirements of this Lease by reason of the
use of such blanket policy of insurance, and provided further that the
requirements of this Article XIII are otherwise satisfied.
13.8 No Separate Insurance. Lessee shall not on Lessee's own initiative or
pursuant to the request or requirement of any third party, take out separate
insurance concurrent in form or contributing in the event of loss with that
required in this Article, to be furnished by or which may reasonably be required
to be furnished by, Lessee or increase the amounts of any then existing
insurance by securing an additional policy or additional policies, unless all
parties having an insurable interest in the subject matter of the insurance,
including in all cases Lessor and all Facility Mortgagees, are included therein
as additional insured and the loss is payable under said insurance in the same
manner as losses are payable under this Lease. Lessee shall immediately notify
Lessor of the taking out of any such separate insurance or of the increasing of
any of the amounts of the then existing insurance by securing an additional
policy or additional policies.
ARTICLE XIV
14.1 Insurance Proceeds. All proceeds payable by reason of any loss or
damage to the Leased Property, or any portion thereof, and insured under any
policy of insurance required by Article XIII of this Lease shall be paid to
Lessor and held by Lessor in trust and shall be made available for
reconstruction or repair, as the case may be, of any damage to or destruction of
the Leased Property, or any portion thereof, and shall be paid out by Lessor
from time to time for the reasonable costs of such reconstruction or repair. Any
excess proceeds of insurance remaining after the completion of the restoration
or reconstruction of the Leased Property (or in the event neither Lessor nor
Lessee is required or elects to repair and restore all such insurance proceeds)
shall be retained by Lessor free and clear upon completion of any such repair
and restoration except as otherwise specifically provided below in this Article
XIV. All salvage resulting from any risk covered by insurance shall belong to
Lessor.
14.2 Reconstruction in the Event of Damage or Destruction Covered by
Insurance.
14.2.1 If during the Term the Leased Property is totally or
partially destroyed from a risk covered by the insurance described in Article
XIII and the Facility thereby is rendered Unsuitable for its Primary Intended
Use, Lessee shall either (A) restore the Facility to substantially the same
condition as existed immediately before the damage or destruction, or (B) offer
to
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acquire the Leased Property from Lessor for a purchase price equal to the
greater of the Minimum Repurchase Price and the Fair Market Value of the Leased
Property immediately prior to such damage or destruction. If Lessor does not
accept Lessee's offer to so purchase the Leased Property, Lessee may either
withdraw its offer to purchase the Leased Property and proceed to restore the
Facility to substantially the same condition as existed immediately before the
damage or destruction or terminate the Lease and Lessor shall be entitled to
retain the insurance proceeds.
14.2.2 If during the Term, the Leased Improvements, Personal
Property and/or the Fixtures are totally or partially destroyed from a risk
covered by the insurance described in Article XIII, but the Facility is not
thereby rendered Unsuitable for its Primary Intended Use, Lessee shall restore
the Facility to substantially the same condition as existed immediately before
the damage or destruction. Such damage or destruction shall not terminate this
Lease; provided, however if Lessee cannot within a reasonable time obtain all
necessary government approvals, including building permits, licenses,
conditional use permits and any certificates of need, after diligent efforts to
do so in order to be able to perform all required repair and restoration work
and to operate the Facility for its Primary Intended Use in substantially the
same manner immediately prior to such damage or destruction, Lessee may offer to
purchase the Leased Property for a purchase price equal to the greater of the
Minimum Repurchase Price or the Fair Market Value of the Leased Property
immediately prior to such damage or destruction. If Lessee shall make such offer
and Lessor does not accept the same, Lessee may either (A) withdraw such offer,
in which event this Lease shall remain in full force and effect and Lessee shall
proceed to restore the Facility as soon as reasonably practicable to
substantially the same condition as existed immediately before such damage or
destruction, or (B) terminate this Lease, in which event Lessor shall be
entitled to retain the insurance proceeds.
14.2.3 If the cost of the repair or restoration exceeds the amount
of proceeds received by Lessor from the insurance required under Article XIII,
Lessee shall be obligated to contribute any excess amounts needed to restore the
Facility. Such difference shall be paid by Lessee to Lessor to be held in trust
together with any other insurance proceeds for application to the cost of repair
and restoration.
14.2.4 In the event Lessor accepts Lessee's offer to purchase the
Leased Property, as provided above, this Lease shall terminate as to the Leased
Property upon payment of the purchase price and Lessor shall remit to Lessee all
insurance proceeds pertaining to the Leased Property being held in trust by
Lessor.
14.3 Reconstruction in the Event of Damage or Destruction Not Covered by
Insurance. If during the Term, the Facility is totally or materially destroyed
from a risk not covered by the insurance described in Article XIII, whether or
not such damage or
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destruction renders the Facility Unsuitable for its Primary Intended Use, Lessee
shall restore the Facility to substantially the same condition it was in
immediately before such damage or destruction and such damage or destruction
shall not terminate this Lease.
14.4 No Abatement of Rent. This Lease shall remain in full force and
effect and Lessee's obligation to make rental payments and to pay all other
charges required by this Lease shall remain unabated during the period required
for repair and restoration. However, any rental insurance proceeds actually
received by Lessor shall be used to offset any Rent required under this Lease.
14.5 Termination of Rights of First Refusal and Option to Purchase. Any
termination of this Lease pursuant to this Article XIV shall cause any right of
first refusal granted to Lessee under Section 35.1, and the option to purchase
granted to Lessee under Section 35.2 of this Lease to-be terminated and to be
without further force or effect.
14.6 Waiver. Lessee hereby waives any statutory rights of termination
which may arise by reason of any damage or destruction of the Facility which
Lessor or Lessee is obligated to restore or may restore under any of the
provisions of this Lease.
14.7 New Personal Property. All insurance proceeds payable by reason of
any loss of or damage to any New Personal Property shall be paid to Lessee, and
Lessee shall hold such insurance proceeds in trust to pay the cost of repairing
or replacing damaged New Personal Property.
ARTICLE XV
15. Condemnation.
15.1 Definitions.
15.1.1 "Condemnation" means (a) the exercise of any governmental
power, whether by legal proceedings or otherwise, by a Condemnor, and (b) a
voluntary sale or transfer by Lessor to any Condemnor, either under threat of
condemnation or while legal proceedings for condemnation are pending.
15.1.2 "Date of Taking" means the date the Condemnor has the right
to possession of the property being condemned.
15.1.3 "Award" means all compensation, sums or anything of value
awarded, paid or received on a total or partial condemnation.
15.1.4 "Condemnor" means any public or quasipublic authority, or
private corporation or individual, having the power of condemnation.
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15.2 Parties, Rights and Obligations. If during the Term there is any
taking of all or any part of the Leased Property or any interest in this Lease
by condemnation, the rights and obligations of the parties shall be determined
by this Article XV.
15.3 Total Taking. If the Leased Property is totally and permanently taken
by condemnation, this Lease shall terminate on the Date of Taking.
15.4 Partial Taking. If a portion of the Leased Property is taken by
condemnation, this Lease shall remain in effect if the Facility is not thereby
rendered Unsuitable for Its Primary Intended Use, but if the Facility is thereby
rendered Unsuitable for its Primary Intended Use, this Lease shall terminate on
the Date of Taking.
15.5 Restoration. If there is a partial taking of the Leased Property and
this Lease remains in full force and effect pursuant to Section 15.4, Lessor at
its cost shall accomplish all necessary restoration up to but not exceeding the
amount of the award payable to Lessor, as provided herein; provided, however,
that Lessor shall have no obligation to repair or restore alterations made by
Lessee or Lessee's leasehold improvements.
15.6 Award-Distribution. The entire Award shall belong to and be paid to
Lessor, except that, subject to the rights of the Facility Mortgagees, Lessee
shall be entitled to receive from the Award, if and to the extent such Award
specifically includes such item, the following:
15.6.1 A sum attributable to the value, if any of the leasehold
interest of Lessee under this Lease.
15.6.2 Any sums attributable to relocation expenses and business
interruption.
15.6.3 Any sums attributable to any New Personal Property paid for
by Lessee.
15.6.4 Provided, however, that in any event Lessor shall receive
from the Award, subject to the rights of the Facility Mortgagees, no less than
the greater at the time of such Award of the Fair Market Value attributable to
the property taken or the percentage of the Minimum Repurchase Price
attributable to the property taken.
15.7 Temporary Taking. The taking of the Leased Property, or any part
thereof, by military or other public authority shall constitute a taking by
condemnation only when the use and occupancy by the taking authority has
continued for longer than six (6) months. During any such six (6) month period,
which shall be a temporary taking, all the provisions of this Lease shall remain
in full force and effect. In the event of any such temporary taking, the entire
amount of any such Award made for such temporary taking
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allocable to the Term of this Lease, whether paid by way of damages, rent or
otherwise, shall be paid to Lessee.
ARTICLE XVI
16.1 Events of Default. If any one or more of the following events
(individually, an "Event of Default") shall occur:
(a) an Event of Default shall occur under any other lease between
Lessor or any Affiliate of Lessor and Lessee or any Affiliate of Lessee,
(b) if Lessee shall fail to make payment of the Rent payable by
Lessee under this Lease when the same becomes due and payable and such failure
is not cured by Lessee within a period of five (5) days after receipt by Lessee
of notice thereof from Lessor; provided, however, that such notice shall be in
lieu of and not in addition to any notice required under applicable law, or
(c) if Lessee shall fail to obtain a letter of credit before the
applicable Letter of Credit Date as required by Article XXI, or
(d) if Lessee shall fail to observe or perform any other term,
covenant or condition of this Lease and such failure is not cured by Lessee
within a period of thirty (30) days after receipt by Lessee of notice thereof
from Lessor, unless such failure cannot with due diligence be cured within a
period of thirty (30) days, in which case such failure shall not be deemed to
continue if Lessee proceeds promptly and with due diligence to cure the failure
and diligently completes the curing thereof; provided, however, that such notice
shall be in lieu of and not in addition to any notice required under applicable
law, or
(e) if Lessee or any Guarantor shall:
(i) admit in writing its inability to pay its debts generally
as they become due,
(ii) file a petition in bankruptcy or a petition to take
advantage of any insolvency act,
(iii) make an assignment for the benefit of its creditors,
(iv) consent to the appointment of a receiver of itself or of
the whole or any substantial part of its Property, or
(v) file a petition or answer seeking reorganization or
arrangement under the Federal bankruptcy laws or any other applicable law
or statute of the United States of America or any state thereof, or
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(f) if Lessee or any Guarantor shall, on a petition in bankruptcy
filed against it, be adjudicated as bankrupt or a court of competent
jurisdiction shall enter an order or decree appointing, without the consent of
Lessee, a receiver of Lessee or of the whole or substantially all of its
property, or approving a petition filed against it seeking reorganization or
arrangement of Lessee under the Federal bankruptcy laws or any other applicable
law or statute of the United States of America or any state thereof, and such
judgment, order or decree shall not be vacated or set aside or stayed within 60
days from the date of the entry thereof, or
(g) if Lessee or any Guarantor shall be liquidated or dissolved, or
shall begin proceedings toward such liquidation or dissolution, or shall, in any
manner, permit the sale or divestiture of substantially all its assets other
than in connection with a merger or consolidation of Lessee into, or a sale of
substantially all of Lessee's assets to, another corporation provided that the
survivor of such merger or the purchaser of such assets shall assume all of
Lessee's obligations under this Lease by a written instrument, in form and
substance reasonably satisfactory to Lessor accompanied by an opinion of
counsel, reasonably satisfactory to Lessor and addressed to Lessor stating that
such instrument of assumption is valid, binding and enforceable against the
parties thereto in accordance with its terms (subject to usual bankruptcy and
other creditors, rights exceptions), and provided further that immediately after
giving effect to any such merger, consolidation or sale the Lessee or other
corporation (if not the Lessee) surviving the same, shall have a consolidated
net worth equal to or greater than the Consolidated Net Worth, as defined,
immediately prior to such merger, consolidation or sale all as to be set forth
in an Officer's Certificate and delivered to Lessor within a reasonable period
of time after such merger, consolidation or sale, or
(h) if the estate or interest of Lessee in the Leased Property or
any part thereof shall be levied upon or attached in any proceeding and the same
shall not be vacated or discharged within the later of ninety (90) days after
commencement thereof or 30 days after receipt by Lessee of notice thereof from
Lessor, (unless Lessee shall be contesting such lien or attachment in good faith
in accordance with Article XII hereof); provided, however, that such notice
shall be in lieu of and not in addition to any notice required under applicable
law, or
(i) if, except as a result of damage, destruction or a partial or
complete condemnation, Lessee voluntarily ceases operations on the Leased
Property for a period in excess of 30 days, or
(j) if any of the representations or warranties made by Lessee or
any Guarantor in the Contract of Acquisition proves to be untrue when made in
any material respect which materially and adversely affects Lessor, and which is
not cured within 20 days
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after receipt by Lessee of notice from Lessor thereof, or, if not susceptible of
being cured within the 20 days, Lessee has commenced to cure within 20 days
after notice thereof and has thereafter diligently proceeded to cure such
default in the representation or warranty; provided, however, that such notice
shall be in lieu of and not in addition to any notice required under applicable
law, or
(k) if the Facility's applicable license or third-party provider
reimbursement agreements essential for the Facility's operation for its Primary
Intended Use are at any time suspended, terminated or revoked, or
(l) if any local, state or federal agency having jurisdiction over
the operation of the Facility removes ten percent (10%) or more of the patients
located in the Facility and an equal number of patients are not replaced within
thirty (30) days after such patients are removed, or
(m) if Lessee voluntarily transfers ten (10) or more patients
located in the Facility, or
(n) if Lessee fails to give notice to Lessor not later than ten (10)
days after Lessee's receipt hereof of any Class A fine notice from any
government authority or officer acting on behalf thereof relating to the
Facility, or
(o) if Lessee fails to notify Lessor within three (3) Business Days
after receipt of any written notice from any governmental agency terminating or
suspending or threatening termination or suspension, of any license or
certification relating to the Facility, or
(p) if Lessee fails to give notice to Lessor not later than ten (10)
days after the end of each calendar month during the Term of any notice, claim
or demand from any governmental authority or any officer acting on behalf
thereof, of any violation of any law, order, ordinance, rule or regulation with
respect to the operation of the Facility and the noncure of which would have a
material impact on the Facility, or
(q) if Lessee fails during the Term of this Lease to cure or abate
any Class A violation occurring during the Term that is claimed by any
governmental authority, or any officer acting on behalf thereof, of any law,
order, ordinance, rule or regulation pertaining to the operation of the
Facility, and within the time permitted by such authority for such cure or
abatement, or
(r) if any proceedings are instituted against Lessee by any
governmental authority which are reasonably likely to result in either (i) the
revocation of any license granted to Lessee for the operation of the Facility,
(ii) the decertification of the Facility from participation in the Medicaid
reimbursement program, or (iii) the issuance of a stop placement order against
Lessee, or
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(s) if any default and acceleration of any other indebtedness of
over $250,000 in the aggregate of Lessee or any Affiliate of Lessee has
occurred,
(t) if Lessee fails to provide Lessor with the letter of credit
required by Section 21.1 before December 31, 1991.
then, and in any such event, Lessor may terminate this Lease by giving Lessee
not less than five (5) days' notice of such termination and upon the expiration
of the time fixed in such notice, the Term shall terminate and all rights of
Lessee under this Lease shall cease, Lessor shall have all rights at law and in
equity available to Lessor as a result of Lessee's breach of this Lease, or
Lessee will, to the extent permitted by law, pay as Additional Charges all
costs and expenses incurred by or on behalf of Lessor, including, without
limitation, reasonable attorneys' fees and expenses, as a result of any Event of
Default hereunder. Lessor will, to the extent permitted by law, pay Lessee's
reasonable attorney's fees and expenses if there is litigation in which the
parties disagree as to whether an action or inaction by Lessee is an Event of
Default hereunder and Lessee ultimately prevails on such issue.
No Event of Default (other than a failure to make payment of money) shall
be deemed to exist under clause (d) during any time the curing thereof is
prevented by an Unavoidable Delay provided that upon the cessation of such
Unavoidable Delay, Lessee shall remedy such default without further delay.
16.2 Certain Remedies. If an Event of Default shall have occurred (and the
event giving rise to such Event of Default has not been cured within the
curative period relating thereto as set forth in Section 16.1 above) and be
continuing, whether or not this Lease has been terminated pursuant to Section
16.1, Lessee shall, to the extent permitted by law, if required by Lessor so to
do, immediately surrender to Lessor the Leased Property pursuant to the
provisions of Section 16.1 and quit the same and Lessor may enter upon and
repossess the Leased Property by reasonable force, summary proceedings,
ejectment or otherwise, and may remove Lessee and all other persons and any and
all personal property from the Leased Property subject to rights of any
residents or patients and to any requirement of law. If an Event of Default
shall have occurred, Lessor will take reasonable steps to mitigate its damages.
16.3 Damages. Neither (a) the termination of this Lease pursuant to
Section 16.1. (b) the repossession of the Leased Property, (c) the failure of
Lessor, notwithstanding reasonable good faith efforts, to relet the Leased
Property, (d) the reletting of all or any portion thereof, nor (e) the failure
of Lessor to collect or receive any rentals due upon any such reletting, shall
relieve Lessee of its liability and obligations hereunder, all of which shall
survive any such termination, repossession or
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reletting. In the event of any such termination, Lessee shall forthwith pay to
Lessor all Rent due and payable with respect to the Leased Property to and
including the date of such termination.
Thereafter:
Lessee shall forthwith pay to Lessor, at Lessor's option, as and for
liquidated and agreed current damages for Lessee's Default, either:
(A) the sum of:
(i) the worth at the time of award of the unpaid Rent which
had been earned at the time of termination,
(ii) the worth at the time of award of the amount by which the
unpaid Rent which would have been earned after termination until the time
of award exceeds the amount of such rental loss that Lessee proves could
have been reasonably avoided,
(iii) the worth at the time of award of the amount by which
the unpaid Rent for the balance of the Term after the time of award
exceeds the amount of such rental loss that Lessee proves could be
reasonably avoided, and
(iv) any other amount necessary to compensate Lessor for all
the detriment proximately caused by Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom.
In making the above determinations, the worth at the time of the award
shall be determined by the court having jurisdiction thereof using the
lowest rate of capitalization (highest present worth) reasonably
applicable at the time of such determination and allowed by applicable law
and the Additional Rent shall be deemed to be the same as for the then
current Fiscal Year or, if not determinable, the immediately preceding
Fiscal Year, for the remainder of the Term, or such other amount as either
party shall prove reasonably could have been earned during the remainder
of the Term or any portion thereof,
or (B)
without termination of Lessee's right to possession of the Leased
Property, each installment of said Rent and other sums payable by Lessee
to Lessor under the Lease as the same becomes due and payable, which Rent
and other sums shall bear interest at the maximum annual rate permitted by
the law of the state in which the Leased Property is located from the date
when due until paid, and Lessor may enforce,
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by action or otherwise, any other term or covenant of this Lease,
16.4 Appointment of Receiver. Upon the occurrence of an Event of Default,
and upon filing of a suit or other commencement of judicial proceedings to
enforce the rights of Lessor hereunder, Lessor shall be entitled, as a matter of
right, to the appointment of a receiver or receivers acceptable to Lessor of the
Leased Property and the Facility and of the revenues, earnings, income, products
and profits thereof, pending such proceedings, with such powers as the court
making such appointment shall confer.
16.5 Lessee's Obligation to Purchase. If an Event of Default shall have
occurred and be continuing, by including such requirement in the five (5) day
notice of termination of this Lease given to Lessee by Lessor pursuant to the
provisions of the first (unnumbered) paragraph of Section 16.1 (such notice
requirement being set forth immediately following clause (t) of said Section
16.1) or by separate notice given by Lessor to Lessee at any time thereafter
prior to the time such Event of Default shall be cured, Lessor may require
Lessee to purchase the Leased Property on the first Minimum Rent payment date
occurring not less than thirty (30) days after the date of receipt of, or such
later date that is specified in, said notice requiring such purchase for an
amount equal to the higher of the then current Fair Market Value or the Minimum
Repurchase Price of the Leased Property plus all Rent then due and payable
(excluding the installment of Minimum Rent due on the purchase date) as of the
date of purchase. If Lessor exercises such right, Lessor shall convey the Leased
Property to Lessee on the date fixed therefor in accordance with the provisions
of Article XVIII upon receipt of the purchase price therefor and this Lease
shall thereupon terminate, Any purchase by Lessee of the Leased Property
pursuant to this Section shall be in lieu of the damages specified in Sections
16.3.
16.6 Waiver. If this Lease is terminated pursuant to Section 16.1. Lessee
waives, to the extent permitted by applicable law (a) any right of redemption,
re-entry or repossession, (b) any right to a trial by jury in the event of
summary proceedings to enforce the remedies set forth in this Article XVI, and
(c) the benefit of any laws now or hereafter in force exempting property from
liability for rent or for debt.
16.7 Application of Funds. Any payments received by Lessor under any of
the provisions of this Lease during the existence or continuance of any Event of
Default (and such payment is made to Lessor rather than Lessee due to the
existence of an Event of Default) shall be applied to Lessee's obligations in
the order which Lessor may determine or as may be prescribed by the laws of the
State of California.
16.8 Facility Operating Deficiencies. On notice of request therefor by
Lessor to Lessee, upon the occurrence of a Facility
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Operating Deficiency specified with particularity in Lessor's notice, and for a
period equal to the greater of six (6) months or the time necessary fully to
remedy the Facility Operating Deficiency, Lessee shall engage the services of a
management company, unaffiliated with Lessee and approved by Lessor, to assume
responsibility for management of the Facility for the purpose of taking all
steps reasonably necessary to remedy the Facility Operating Deficiency(ies).
Pursuant to a written agreement among the management company, Lessee and Lessor,
the management company will have complete responsibility for operation of the
Facility, subject to Lessee's retaining only such power and authority as shall
be required by the State as the minimum level of power and authority to be
possessed by the licensed operator of a nursing home of the type of the Facility
in the State. The management company shall provide the following services:
(a) furnish an on-site, full-time licensed administrator
approved by Lessor who shall be an employee of the management company;
(b) take all steps reasonably necessary to keep the Facility
fully licensed by the State, certified as a provider under applicable
government reimbursement programs and duly accredited by applicable
agencies and bodies;
(c) perform all of Lessee's obligations hereunder with respect
to maintenance and repair of the Facility;
(d) conduct at the onset of the management company's
engagement, and monthly thereafter, audits of Facility operations in at
least the following departments and services: patient care, activities and
therapy, dietary, medical records, drugs and medicines, supplies,
housekeeping and maintenance, and report the results of these audits in
writing to Lessor no later than five (5) days after the end of each
calendar month;
(e) immediately upon receipt thereof, deliver to Lessor by
overnight courier copies of all communications received from any
regulatory agency of the State or federal government with respect to the
Facility; and
(f) with respect to the Facility Operating Deficiency(ies)
which gave rise to the request to Lessee to engage the management company,
prepare and deliver to Lessor within five (5) days after the commencement
of the management company's responsibilities at the Facility a
comprehensive written report of the nature and extent of the
Deficiency(ies) and advise Lessor orally by telephone no later than noon
local time on each Friday thereafter as to steps being taken by the
management company to remedy the same and the status of any threatened or
actual governmental administrative action with respect thereto.
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The management company shall have complete access to the Facility,
its records, offices and facilities, in order that it may carry out its duties.
If Lessee shall fail to designate a management company acceptable to Lessor
within five (5) days after receipt of the notice of request therefor, Lessor may
designate such management company by further notice to Lessee. Lessee shall be
responsible for payment of all fees and expenses reasonably charged and incurred
by the management company in carrying out its duties, provided that the
management fee chargeable by a management company designated by Lessor, as
hereinabove provided, shall not exceed 7% of the Facility's Gross Revenues.
ARTICLE XVII
17. Lessor's Right to Cure Lessee's Default. If Lessee shall fail to make
any payment or to perform any act required to be made or performed under this
Lease, and to cure the same within the relevant time periods provided in Section
16.1, Lessor, after notice to and demand upon Lessee, and without waiving or
releasing any obligation or Default, may (but shall be under no obligation to)
at any time thereafter make such payment or perform such act for the account and
at the expense of Lessee, and may, to the extent permitted by law, enter upon
the Leased Property for such purpose and take all such action thereon as, in
Lessor's opinion, may be necessary or appropriate therefor, No such entry shall
be deemed an eviction of Lessee. All sums so paid by Lessor and all costs and
expenses (including, without limitation reasonable attorneys' fees and expenses,
in each case, to the extent permitted by law) so incurred, together with a late
charge thereon (to the extent permitted by law) at the Overdue Rate from the
date on which such sums or expenses are paid or incurred by Lessor, shall be
paid by Lessee to Lessor on demand. The obligations of Lessee and rights of
Lessor contained in this Article shall survive the expiration or earlier
termination of this Lease.
ARTICLE XVIII
18. Provisions Relating to Purchase-of the Leased Property. In the event
Lessee purchases the Leased Property from Lessor pursuant to any of the terms of
this Lease, Lessor shall, upon receipt from Lessee of the applicable purchase
price, together with full payment of any unpaid Rent due and payable with
respect to any period ending on or before the date of the purchase, deliver to
Lessee an appropriate deed or other conveyance conveying the entire interest of
Lessor in and to the Leased Property to Lessee free and clear of all
encumbrances other than (i) those that Lessee has agreed hereunder to pay or
discharge, (ii) those mortgage liens, if any, which Lessee has agreed in writing
to accept and to take title subject to, (iii) those liens and encumbrances which
were in effect on the date of conveyance of the Leased Property to Lessor and
(iv) any other encumbrances permitted to be imposed on the Leased Property under
the provisions of Section 36.1 which are assumable
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at no cost to Lessee or to which Lessee may take subject without cost to Lessee.
The difference between the applicable purchase price and the total of the
encumbrances assumed or taken subject to shall be paid in cash to Lessor or as
Lessor may direct, in federal or other immediately available funds except as
otherwise mutually agreed by Lessor and Lessee, Closing of any such sale shall
be contingent upon and subject to Lessee obtaining all required governmental
consents and approvals for such transfer and if such sale shall fail to be
consummated by reason of the inability of Lessee to obtain all such approvals
and consents, any options to extend the Term of this Lease which otherwise would
have expired during the escrow period to such proposed sale shall be deemed to
remain in effect for 30 days after termination of the escrow or other
arrangement covering the closing of such proposed sale. All expenses of such
conveyance, including without limitation, the cost of title examination or
standard coverage title insurance, if reasonably required under the
circumstances then existing, attorneys' fees incurred by Lessor in connection
with such conveyance and release, transfer taxes and recording fees shall be
paid by Lessee.
ARTICLE XIX
19. Renewal Terms. If no Event of Default shall have occurred and be
continuing, Lessee is hereby granted the right to renew this Lease for two (2)
5-year optional renewal terms ("Extended Terms") after the expiration of the
Fixed Term, upon giving written notice to Lessor of such extension at least one
hundred eighty (180) days but not more than three hundred sixty (360) days prior
to the termination of the then current Term so long as Lessee exercises its
right to renew as to every facility contained in the group of properties of
which the Leased Property is a part as described in Exhibit B. During such
Extended Terms, all of the terms and conditions of this Lease shall continue in
full force and effect except that the Rent for and during the Extended Term
shall be the then current fair market rental ("Fair Market Rental") and which
unless otherwise mutually agreed to by Lessor and Lessee shall be determined by
arbitration pursuant to the provisions of Article XXXVII.
ARTICLE XX
20. Holding Over. If Lessee shall for any reason remain in possession of
the Leased Property after the expiration of the Term or earlier termination of
the Term hereof, such possession shall be as a month-to-month tenant during
which time Lessee shall pay as rental each month, two times the aggregate of (i)
one-twelfth of the aggregate Minimum Rent and Additional Rent payable with
respect to the last Lease Year of the preceding Term; (ii) all Additional
Charges accruing during the month; and (iii) all other sums, if any, payable by
Lessee pursuant to the provisions of this Lease with respect to the Leased
Property. During such period of month-
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to-month tenancy, Lessee shall be obligated to perform and observe all of the
terms, covenants and conditions of this Lease, but shall have no rights
hereunder other than the right, to the extent given by law to month-to-month
tenancies, to continue its occupancy and use of the Leased Property. Nothing
contained herein shall constitute the consent, express or implied, of Lessor to
the holding over of Lessee after the expiration or earlier termination of this
Lease.
ARTICLE XXI
21.1 Letters of Credit. Except as provided in Section 21,5, during the
entire Term of this Lease, Lessee shall have obtained, or cause to have been
obtained, letters of credit from a financial institution satisfactory to Lessor
naming Lessor as beneficiary to secure Lessee's obligations hereunder and
Lessee's or an Affiliate of Lessee's obligations under any other lease between
Lessor or any Affiliate of Lessor and Lessee or any Affiliate of Lessee, at the
times, in the amounts and for the purposes set forth below. The initial letters
of credit shall be for a term beginning on the Commencement Date and expiring on
February 8, 1992 and irrevocable during that period. Subsequent letters of
credit shall be for a term of one year and irrevocable during that period. Each
letter of credit shall provide that it will be honored upon a signed statement
by Lessor that Lessor is entitled to draw upon the letters of credit under this
Lease, and shall require no signature or statement from any party other than
Lessor. No notice to Lessee shall be required to enable Lessor to draw upon the
letter of credit. Each letter of credit shall also provide that following the
honor of any drafts in an amount less than the aggregate amount of the letter of
credit, the financial institution shall return the original letter of credit to
Lessor and Lessor's rights as to the remaining amount of the letter of credit
will not be extinguished. If the financial institution from which Lessee has
obtained a letter of credit shall admit in writing its inability to pay its
debts generally as they become due, file a petition in bankruptcy or a petition
to take advantage of any insolvency act, make an assignment for the benefit of
its creditors consent to the appointment of a receiver of itself or of the whole
or any substantial part of its property, or file a petition or answer seeking
reorganization or arrangement under the Federal bankruptcy laws or any other
applicable law or statute of the United States of America or any state thereof,
then Lessee shall obtain a replacement letter of credit within thirty (30) days
of such act from another financial institution satisfactory to Lessor,
21.2 Times for Obtaining Letters of Credit. The letters of credit covering
the period beginning on the Commencement Date and ending on February 8, 1992
shall be obtained and delivered to Lessor prior to execution of this Lease. The
next letters of credit shall be obtained and delivered to Lessor prior to
January 8, 1992 ("Letter of Credit Date") and each January 8 thereafter next
following the Letter of Credit Date, Each subsequent letter of
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credit shall cover the one year period beginning on February 8, 1992 and each
February 8 thereafter next following the Letter of Credit Date.
21.3 Amounts for Letters of Credit. The letter of credit covering the
period beginning on the Commencement Date and ending on February 8, 1992 shall
be in the amount of $952,425.00, and shall cover all facilities listed in
Exhibit B. The letters of credit covering the one year period beginning on
February 8, 1992 shall be in an amount equal to the Rent paid during the nine
full months immediately preceding the year in which each letter of credit is
obtained (except that if the letter of credit requirement is reduced as provided
below, the letters of credit covering this one year period shall be in an amount
equal to the Rent paid during the immediately preceding six months). The letters
of credit requirement shall be decreased to an amount equal to the Rent paid
during the six full months immediately preceding the year in which the letter of
credit is obtained if average cash flow coverage (after a management fee of 6%
of net patient revenues and a $200 per bed reserve) for such facilities equals
1.3 to 1 for nine consecutive months. The letter of credit requirement shall be
reinstated back to an amount equal to the Rent paid during the nine full months
immediately preceding the year the letter of credit is obtained if average cash
flow coverage (after a management fee of 6% of net patient revenues and a $200
per bed reserve) for such facilities falls below 1.3 to 1 for three consecutive
months.
21.4 Uses of Letters of Credit. Lessor shall have the right to draw upon a
letter of credit up to its full amount whenever an Event of Default pursuant to
Article XVI has occurred or an event of default under any other lease between
Lessor or an Affiliate of Lessor and Lessee or an Affiliate of Lessee has
occurred, provided further, in the event Lessee fails to obtain a satisfactory
letter of credit as required under this Article XXI prior to the applicable
Letter of Credit Date, Lessor has the right to draw upon the full amount of the
then existing letter of credit without giving any notice or time to cure to
Lessee. Any such draw shall not cure an Event of Default.
21.5 Promissory Note. As an alternative to providing the letter of credit
as required herein for the period from the Commencement Date to December 31,
1991, Lessee and Affiliates of Lessee may accept a promissory note in the form
attached as Exhibit C executed by Lessor in favor of Lessee in the aggregate
principal amount of $952,425.00 in lieu of some of the acquisition consideration
to be paid to Lessee and Affiliates of Lessee under the Contract of Acquisition.
Such promissory note shall be in lieu of the letter of credit required under
this Lease and all such other leases between Lessee and Lessor covering the
facilities listed in Exhibit B. The principal amount due under such promissory
note shall automatically be reduced to the extent of any damage caused by an
Event of Default. Any such reduction shall not cure an Event of Default
hereunder until the aggregate principal balance of the promissory note is
reinstated within the applicable cure
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period as provided herein to $952,425.00. The promissory note shall be paid in
full (as reduced as provided herein) by Lessor promptly upon receipt by Lessor
of the letter of credit required by this Lease and all such other leases between
Lessee and Lessor covering the facilities listed in Exhibit B.
ARTICLE XXII
22. Risk of Loss. During the Term of this Lease, the risk of loss or of
decrease in the enjoyment and beneficial use of the Leased Property as a
consequence of the damage or destruction thereof by fire, the elements,
casualties, thefts, riots, wars or otherwise, or in consequence of foreclosures,
attachments, levies or executions (other than by Lessor and those claiming from,
through or under Lessor) is assumed by Lessee, and, in the absence of gross
negligence, willful misconduct or breach of this Lease by Lessor pursuant to
Section 36.2, Lessor shall in no event be answerable or accountable therefor nor
shall any of the events mentioned in this Section entitle Lessee to any
abatement of Rent.
ARTICLE XXIII
23. Indemnification. Notwithstanding the existence of any insurance
provided for in Article XIII, and without regard to the policy limits of any
such insurance, Lessee will protect, indemnify, save harmless and defend Lessor
from and against all liabilities, obligations, claims, damages penalties, causes
of action, costs and expenses (including, without limitation, reasonable
attorneys' fees and expenses), to the extent permitted by law, imposed upon or
incurred by or asserted against Lessor by reason of: (a) any accident, injury to
or death of persons or loss of or damage to property occurring on or about the
Leased Property or adjoining sidewalks, including without limitation any claims
of malpractice, (b) any injury to or death of persons or loss of or damage to
property resulting from any Hazardous Substance used, stored or present on, in
or under the Leased Property or which migrates on, in or under the Leased
Property from any adjacent property, (c) Lessee's failure to comply with any
federal, state or local laws, ordinances, regulations or orders relating to any
Hazardous Substance, (d) any use, misuse, non-use, condition, maintenance or
repair by Lessee of the Leased Property, (e) any Impositions (which are the
obligations of Lessee to pay pursuant to the applicable provisions of this
Lease), (f) any failure on the part of Lessee to perform or comply with any of
the terms of this Lease, and (g) the non-performance of any of the terms and
provisions of any and all existing and future subleases of the Leased Property
to be performed by the landlord (Lessee) thereunder. Lessee's obligations under
this Article XVIII shall include, without limitation, any and all costs incurred
in connection with any investigation of site conditions and any and all costs of
any required or necessary repair, cleanup, detoxification, or decontamination of
the Leased Property
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(including, without limitation the soil and groundwater on or under the Leased
Property) and the preparation and implementation of any closure, remedial action
or other required plans in connection thereof. Any amounts which become payable
by Lessee under this Section shall be paid within ten (10) days after liability
therefor on the part of Lessee is determined by litigation or otherwise, and if
not timely paid shall bear a late charge (to the extent permitted by law) at the
Overdue Rate from the date of such determination to the date of payment. Lessee,
at its expense, shall contest, resist and defend any such claim, action or
proceeding asserted or instituted against Lessor or may compromise or otherwise
dispose of the same as Lessee sees fit. For purposes of this Article XXIII, any
acts or omissions of Lessee, or by employees, agents, assignees, contractors,
subcontractors or others acting for or on behalf of Lessee (whether or not they
are negligent, intentional, willful or unlawful), shall be strictly attributable
to Lessee.
Lessor shall indemnify, save harmless and defend Lessee from and against
all liabilities, obligations, claims, damages, penalties, causes of action,
costs and expenses imposed upon or incurred by or asserted against Lessee as a
result of the grossly negligent act or omission to act or wilful misconduct of
Lessor.
Lessee's or Lessor's liability for a breach of the provisions of this
Article arising during the Term hereof shall survive any termination of this
Lease; provided, however that if this Lease terminates without Lessee purchasing
the Leased Property, the liability of Lessee resulting from the existence of any
Hazardous Substance on, in or under the Leased Property shall be limited to
those injuries to or death of persons or loss of or damage to property resulting
from any Hazardous Substance which existed on, in or under the Leased Property
prior to the later of (i) the termination or expiration of this Lease or (ii)
the vacating of the Leased Property by Lessee.
ARTICLE XXIV
24. Subletting and Assignment. Lessee shall not, without Lessor's prior
written consent, which may be withheld in Lessor's reasonable discretion,
voluntarily or by operation of law assign (which term includes any sale,
encumbering, pledge or other transfer or hypothecation) this Lease, sublet all
or any part of the Leased Property or engage the services of any person for the
management or operations of the Facility. Subject in each instance to all the
provisions of this Article XXIV, Lessor's consent to any assignment, subletting
or management arrangement shall be deemed reasonably withheld if including but
not limited to: (i) such proposed assignee, sublessee or manager will use the
Leased Property in a manner which is inconsistent with the use restrictions set
forth in Section 7.2 of this Lease; or (ii) such proposed assignee, sublessee or
manager does not have sufficient expertise or experience for the operation of
the Facility; or (iii)
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such proposed assignee, sublessee or manager is, in Lessor's reasonable opinion,
does not have the financially capability to fulfill all the obligations under
the Lease. If Lessee desires at any time to assign this Lease, to sublet the
Facility or any portion thereof or engage the services of any person for the
management or operation of the Facility, it shall first notify Lessor of its
desire to do so and shall submit in writing to Lessor: (i) the name of the
proposed sublessee, assignee or manager; (ii) the terms and provisions of the
proposed sublease, assignment or management agreement; and (iii) such financial
information as Lessor reasonably may request concerning the proposed sublessee,
assignee or manager. It shall not be unreasonable for Lessor to require as a
condition to granting such consent that the obligations of any assignee which is
a subsidiary or affiliate of another corporation be guaranteed by the parent or
controlling corporation. Any sublease shall be expressly subject and subordinate
to all applicable terms and conditions of this Lease. Furthermore, any sublease,
assignment or management agreement shall expressly provide that the sublessee,
assignee or manager shall furnish Lessor with such financial information as
Lessor may reasonably request from time to time. Any purported or attempted
assignment, sublease, management agreement or other permission to use the
Facility contrary to the provisions of this Article shall be void and, at the
option of Lessor, shall terminate this Lease. If Lessee is a corporation (or
partnership), any transfer of its stock (or partnership interests) or any
dissolution, merger or consolidation, which results in a change in the control
of Lessee from the person or persons owning a majority of its voting stock (or
partnership interests) immediately prior thereto, or the sale or other transfer
of all or substantially all of the assets of Lessee, shall constitute an
assignment of Lessee's interest in this Lease within the meaning of this Article
XXIV and the provisions requiring consent contained herein. It shall be
reasonable for Lessor to require as a condition to giving such consent that the
new controlling person(s) execute a guaranty of this Lease. It shall be
reasonable for Lessor to condition its consent to any subletting, assignment or
management arrangement upon payment by Lessee to Lessor of 50% of all "Transfer
Consideration" (defined below) received or to be received, directly or
indirectly, by Lessee on account of such assignment, subletting or management
arrangement. Such Transfer Consideration shall be paid to Lessor at the same
time or times as the same is paid to or used by Lessee, Failure to pay Lessor
the Transfer Consideration, or any portion or installment thereof, shall be
deemed a default under this Lease entitling Lessor to exercise all remedies
available to it under law, including, but not limited to, those specified in
Article XVI of this Lease. "Transfer Consideration" shall mean (i) in the case
of a subletting, any consideration paid or given, directly or indirectly, by the
sublessee to Lessee pursuant to the sublease for the use of the Facility, or any
portion thereof, over and above the rent, however denominated, in this Lease,
payable by Lessee to Lessor for the use of the Facility (or portion thereof),
prorating as appropriate the amount payable by Lessee to Lessor under this Lease
if less than all of the
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Facility is sublet, and (ii) in the case of a sublease, assignment or management
arrangement, any consideration paid or given, directly or indirectly, by the
sublessee, assignee or manager to Lessee in exchange for entering into the
sublease, assignment or management arrangement. As used herein, consideration
shall include consideration in any form, including, but not limited to, money,
property, assumption of liabilities, discounts, services, credits or any other
item or thing of value. Irrespective of the form of such consideration, Lessor
shall be entitled to be paid in cash in an amount equivalent to the aggregate of
the cash portion of the Transfer Consideration and the value of any non-cash
portion of the Transfer Consideration. Transfer Consideration shall not include
consideration paid for New Personal Property. If any Transfer Consideration is
to be paid or given in installments, Lessee shall pay each such installment at
the time the same is to be paid or given. The consent by Lessor to any
assignment, subletting or management arrangement shall not constitute a consent
to any subsequent assignment, subletting or management arrangement by Lessee or
to any subsequent or successive assignment, subletting or management arrangement
by the sublessee, assignee or manager. Lessee shall reimburse Lessor for
Lessor's reasonable costs and expenses incurred in conjunction with the
processing and documentation of any assignment, subletting or management
arrangement, including attorneys', architects', engineers' or other consultants'
fees whether or not such sublease, assignment or management agreement is
actually consummated. Anything contained in this Lease to the contrary
notwithstanding, Lessee shall not (i) sublet, assign or enter into a management
arrangement for the Leased Property on any basis such that the rental or other
amounts to be paid by the sublessee, assignee or manager thereunder would be
based, in whole or in part, on the income or profits derived by the business
activities of the sublessee, assignee or manager; (ii) furnish or render any
services to the sublessee, assignee or manager or manage or operate the Leased
Property so subleased, assigned or managed; (iii) sublet, assign or enter into a
management arrangement for the Leased Property to any person that Lessee or
Lessor owns, directly or indirectly (by applying constructive ownership rules
set forth in Section 856(d)(5) of the Code); or (iv) sublet, assign or enter
into a management arrangement for the Leased Property in any other manner which
could cause any portion of the amounts received by Lessor pursuant to this Lease
or any sublease to fail to qualify as "rents from real property" within the
meaning of Section 856(d) of the Code, or any similar or successor provision
thereto or which could cause any other income received by Lessor to fail to
qualify as income described in Section 856(c)(2) of the Code.
ARTICLE XXV
25. Officer's Certificates and Financial Statements.
(a) At any time and from time to time upon Lessee's receipt of not
less than ten (10) days' prior written request by
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Lessor, Lessee will furnish to Lessor an Officer's Certificate certifying that
this Lease is unmodified and in full force and effect (or that this Lease is in
full force and effect as modified and setting forth the modifications), the
dates to which the Rent has been paid, whether or not to the best knowledge of
Lessee, Lessor is in default in the performance of any covenant, agreement or
condition contained in this Lease and, if so, specifying each such default of
which Lessee may have knowledge, and responding to such other questions or
statements of fact as Lessor or any ground or underlying lessor or any mortgagee
or beneficiary shall reasonably request. Lessee's failure to deliver such
statement within such time shall constitute an acknowledgement by Lessee that
this Lease is unmodified and in full force and effect except as may be
represented to the contrary by Lessor, Lessor is not in default in the
performance of any covenant, agreement or condition contained in this Lease and
the other matters set forth in such request, if any, are true and correct. Any
such certificate furnished pursuant to this Section may be relied upon by Lessor
and any prospective mortgagee, ground lessor or purchaser of the Leased
Property.
(b) Lessee will furnish the following statements to Lessor:
(i) within 120 days after the end of each of Lessee's and
Guarantors' fiscal years, a copy of the audited consolidated balance
sheets of Lessee, its consolidated subsidiaries and Guarantors as of the
end of such fiscal year, and related audited consolidated statements of
income, changes in common stock and other stockholders, equity and changes
in the financial position of Lessee, its consolidated subsidiaries and
Guarantors for such fiscal year, prepared in accordance with generally
accepted accounting principles applied on a basis consistently maintained
throughout the period involved, such consolidated financial statements to
be certified by nationally recognized certified public accountants
(provided, however, that if any Guarantor does not ordinarily have audited
balance sheets and statements of income prepared, such Guarantor may
furnish unaudited copies of such statements);
(ii) within 120 days after the end of each of Lessee's and
Guarantors' fiscal years, and together with the annual audit report
furnished in accordance with clause (i) an Officer's Certificate stating
that to the best of the signer's knowledge and belief after making due
inquiry, Lessee is not in default in the performance or observance of any
of the terms of this Lease, or if Lessee shall be in default to its
knowledge, specifying all such defaults, the nature thereof, and the steps
being taken to remedy the same;
(iii) within 30 days after the end of each month for those
months occurring from the Commencement Date to three months after the
first month in which the average cash flow
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coverage (after a management fee of 6% of net patient revenues and a $200
per bed reserve) for the Facility equals or exceeds 1.3 for such month,
all consolidated financial reports Lessee produces for reporting purposes
and detailed statements of income and detailed operational statistics
regarding occupancy rates, patient mix and patient rates by type for the
Facility; thereafter within 60 days after the end of each of Lessee's
quarters, all quarterly consolidated financial reports Lessee produces for
reporting purposes and detailed statements of income and detailed
operational statistics regarding occupancy rates, patient mix and patient
rates by type for the Facility;
(iv) within 60 days after its due date, a copy of each cost
report filed with the appropriate governmental agency for the Facility;
(v) within 30 days after they are required to be filed with
the SEC, copies of any annual reports and of information, documents and
other reports (or copies of such portions of any of the foregoing as the
SEC may by rules and regulations prescribe) which Lessee is required to
file with the SEC pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934;
(vi) immediately upon its receipt thereof, Lessee shall
deliver to Lessor copies of all material written communications received
by Lessee from any regulatory agency of the State or federal government
relating to (i) surveys of the Facility for purposes of licensure,
Medicare and Medicaid certification and accreditation and (ii) any
proceeding, formal or informal, with respect to cited deficiencies with
respect to services and activities provided and performed at the Facility,
including patient care, patient activities, patient therapy, dietary,
medical records, drugs and medicines, supplies, housekeeping and
maintenance, or the condition of the Facility, and involving an actual or
threatened warning, imposition of a fine or a penalty, or suspension,
termination or revocation of the Facility's license to be operated in
accordance with its Primary Intended Use;
(vii) with reasonable promptness such other information
respecting the financial condition and affairs of Lessee and the Facility
as Lessor may reasonably request from time to time;
(viii) within 120 days after the end of each fiscal year of
the financial institution issuing the letter of credit required under
Article XXI, a copy of the audited consolidated balance sheets of such
financial institution as of the end of such fiscal year, and related
unaudited consolidated statements of income, changes in common stock and
other stockholders equity and changes in the financial position of such
financial institution and its consolidated subsidiaries
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for each such fiscal year, prepared in accordance with generally accepted
accounting principles applied on a basis consistently maintained
throughout the period involved, such consolidated financial statements to
be certified by nationally recognized certified public accountants;
(ix) immediately upon Lessee's learning, or having reasonable
cause to believe, that any Hazardous Substance or other toxic material is
located in, on, or under the Leased Property or any adjacent property,
Lessee shall notify Lessor in writing of (aa) any enforcement, cleanup,
removal, or other governmental or regulatory action instituted, completed
or threatened, (bb) any claim made or threatened by any person against
Lessee or the Leased Property relating to damage, contribution, cost
recovery, compensation, loss, or injury resulting from or claimed to
result from any Hazardous Substance, and (cc) any reports made to any
federal, state or local environmental agency arising out of or in
connection with any Hazardous Substance in or removed from the Leased
Property, including any complaints, notices, warnings or asserted
violations in connection therewith; and
(x) immediately upon its receipt thereof, Lessee shall deliver
to Lessor copies of all claims, reports, complaints, notices, warnings or
asserted violations relating in any way to the Leased Property or Lessee's
use thereof,
(c) Lessee hereby acknowledges that the failure to furnish Lessor
with any of the certificates or statements required by this Article XXV will
cause Lessor to incur costs and expenses not contemplated under the terms of
this Lease, the exact amount of which is presently anticipated to be extremely
difficult to ascertain. Accordingly, if Lessee fails to furnish Lessor with any
of the certificates or statements required by this Article XXV within five (5)
days after written demand by Lessor for the receipt thereof, Lessee agrees to
pay to Lessor, upon Lessor's request, $1,000 for each such failure as Additional
Charges. The parties agree that this charge represents a fair and reasonable
estimate of the costs that Lessor will incur by reason of Lessee's failure to
furnish Lessor with such certificates and statements,
ARTICLE XXVI
26. Lessor's Right to Inspect. Lessee shall permit Lessor and its
authorized representatives to inspect the Leased Property during usual business
hours subject to any security, health, safety or confidentiality requirements of
Lessee or any governmental agency or insurance requirement relating to the
Leased Property, or imposed by law or applicable regulations.
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ARTICLE XXVII
27. No Waiver. No failure by Lessor to insist upon the strict performance
of any term hereof or to exercise any right, power or remedy consequent upon a
breach thereof, and no acceptance of full or partial payment of Rent during the
continuance of any such breach, shall constitute a waiver of any such breach or
of any such term. To the extent permitted by law, no waiver of any breach shall
affect or alter this Lease, which shall continue in full force and effect with
respect to any other then existing or subsequent breach.
ARTICLE XXVIII
28. Remedies Cumulative. To the extent permitted by law, each legal,
equitable or contractual right, power and remedy of Lessor now or hereafter
provided either in this Lease or by statute or otherwise shall be cumulative and
concurrent and shall be in addition to every other right, power and remedy and
the exercise or beginning of the exercise by Lessor of any one or more of such
rights, powers and remedies shall not preclude the simultaneous or subsequent
exercise by Lessor of any or all of such other rights, powers and remedies.
ARTICLE XXIX
29. Acceptance of Surrender. No surrender to Lessor of this Lease or of
the Leased Property or any part of any thereof, or of any interest therein,
shall be valid or effective unless agreed to and accepted in writing by Lessor
and no act by Lessor or any representative or agent of Lessor, other than such a
written acceptance by Lessor, shall constitute an acceptance of any such
surrender.
ARTICLE XXX
30. No Merger of Title. There shall be no merger of this Lease or of the
leasehold estate created hereby by reason of the fact that the same person,
firm, corporation or other entity may acquire, own or hold, directly or
indirectly, (a) this Lease or the leasehold estate created hereby or any
interest in this Lease or such leasehold estate and (b) the fee estate in the
Leased Property.
ARTICLE XXXI
31. Conveyance by Lessor. If Lessor or any successor owner of the Leased
Property shall convey the Leased Property in accordance with the terms hereof
other than as security for a debt, Lessor or such successor owner, as the case
may be, shall thereupon
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be released from all future liabilities and obligations of the Lessor under this
Lease arising or accruing from and after the date of such conveyance or other
transfer as to the Leased Property and all such future liabilities and
obligations shall thereupon be binding upon the new owner.
ARTICLE XXXII
32. Quiet Enjoyment. So long as Lessee shall pay all Rent as the same
becomes due and shall fully comply with all of the terms of this Lease and fully
perform its obligations hereunder, Lessee shall peaceably and quietly have, hold
and enjoy the Leased Property for the Term hereof, free of any claim or other
action by Lessor or anyone claiming by, through or under Lessor, but subject to
all liens and encumbrances of record as of the date hereof or hereafter
consented to by Lessor, Lessee shall have the right, by separate and independent
action to pursue any claim it may have against Lessor as a result of a breach by
Lessor of the covenant of quiet enjoyment contained in this Section. No failure
by Lessor to comply with the covenant of quiet enjoyment shall give Lessee any
right to cancel or terminate this Lease or abate, reduce or make a deduction
from or offset against the Rent or any other sum payable under this Lease, or to
fail to perform any other obligation of Lessee hereunder.
ARTICLE XXXIII
33. Notices. All notices, demands, requests, consents, approvals and other
communications hereunder shall be in writing and delivered or mailed (by
registered or certified mail, return receipt requested and postage prepaid),
addressed to the respective parties, as follows:
(a) if to Lessee:
The Cardinal Group
1300 Hurstbourne Place
9300 Shelbyville Road
Louisville, KY 40222
Fax # (502) 425-3662
Attention: Randall J. Bufford
with a copy to:
Brown, Todd & Heyborn
1600 Citizens Plaza
Louisville, KY 40202-2873
Fax # (606) 252-5108
Attention: C. Edward Glasscock, Esq.
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(b) if to Lessor:
Health Care Property Investors, Inc.
10990 Wilshire Boulevard
Suite 1200
Los Angeles, California 90024
Fax # (213) 444-7817
Attention: Vice President-Legal
with a copy to:
Latham and Watkins
633 West Fifth Street
Los Angeles, California 90071
Fax # (213) 891-8763
Attention: Michael D. McKee, Esq.
or to such other address as either party may hereafter designate, and shall be
effective upon receipt.
ARTICLE XXXIV
34.1 Appraisers. In the event that it becomes necessary to determine the
Fair Market Value of the Leased Property for any purpose of this Lease, the
party required or permitted to give notice of such required determination shall
include in the notice the name of a person selected to act as appraiser on its
behalf. within 10 days after receipt of any such notice, Lessor (or Lessee, as
the case may be) shall by notice to Lessee (or Lessor, as the case may be)
appoint a second person as appraiser on its behalf. The appraisers thus
appointed, each of whom must be a member of the American Institute of Real
Estate Appraisers (or any successor organization thereto), shall, within 45 days
after the date of the notice appointing the first appraiser, proceed to appraise
the Leased Property to determine the Fair Market Value thereof as of the
relevant date (giving effect to the impact, if any, of inflation from the date
of their decision to the relevant date) provided, however that if only one
appraiser shall have been so appointed, or if two appraisers shall have been so
appointed but only one such appraiser shall have made such determination within
50 days after the making of Lessee's or Lessor's request, then the determination
of such appraiser shall be final and binding upon the parties. To the extent
consistent with sound appraisal practice as then existing at the time of any
such appraisal, such appraisal shall be made on a basis consistent with the
basis on which the Leased Property was appraised for purposes of determining its
Fair Market Value at the time the Leased Property was acquired by Lessor. If two
appraisers shall have been appointed and shall have made their determinations
within the respective requisite periods set forth above and if the difference
between the amounts so determined shall not exceed ten per cent (10%) of the
lesser of such amounts then the Fair Market Value shall be an amount equal to
50% of the sum of the amounts so determined. If the difference
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between the amounts so determined shall exceed ten percent (10%) of the lessor
of such amounts, then such two appraisers shall have 20 days to appoint a third
appraiser, but if such appraisers fail to do so, then either party may request
the American Arbitration Association or any successor organization thereto to
appoint an appraiser within 20 days of such request, and both parties shall be
bound by any appointment so made within such 20 day period. If no such appraiser
shall have been appointed within such 20 days or within 90 days of the original
request for a determination of Fair Market Value, whichever is earlier, either
Lessor or Lessee may apply to any court having jurisdiction to have such
appointment made by such court. Any appraiser appointed by the original
appraisers, by the American Arbitration Association or by such court shall be
instructed to determine the Fair Market Value within 30 days after appointment
of such appraiser. The determination of the appraiser which differs most in
terms of dollar amount from the determinations of the other two appraisers shall
be excluded, and 50% of the sum of the remaining two determinations shall be
final and binding upon Lessor and Lessee as the Fair Market Value for such
interest. This provision for determination by appraisal shall be specifically
enforceable to the extent such remedy is available under applicable law, and any
determination hereunder shall be final and binding upon the parties except as
otherwise provided by applicable law. Lessor and Lessee shall each pay the fees
and expenses of the appraiser appointed by it and each shall pay one-half of the
fees and expenses of the third appraiser and one-half of all other cost and
expenses incurred in connection with each appraisal.
ARTICLE XXXV
35.1 First Refusal to Purchase.
(a) During the Term of this Lease, Lessee shall have a first refusal
option to purchase the Leased Property upon the same terms and conditions as
Lessor shall propose to sell the Leased Property, or upon the same terms and
conditions of any offer from a third party to purchase the Leased Property which
Lessor intends to accept (or has accepted subject to Lessee's right of first
refusal herein); provided, that such first refusal option shall not apply to any
sale of the Leased Property by Lessor to an Affiliate of Lessor. If, during the
Term, Lessor reaches such agreement with a third party or proposes to offer the
Leased Property for sale, Lessor shall promptly notify Lessee of the purchase
price and all other material terms and conditions of such agreement or proposed
sale and Lessee shall have thirty (30) days after receipt of such notice from
Lessor within which time to exercise Lessee's option to purchase. If Lessee
exercises its option, then such transaction shall be consummated within sixty
(60) days after the date of receipt by Lessor of notice of such exercise in
accordance with the terms and conditions of such agreement, as to price and the
other conditions set forth therein and in accordance with the provisions of
Article XVIII hereof to the extent not inconsistent therewith,
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on the first day of the first month after all permits for owning or operating
the Facility on the Leased Property have been obtained by Lessee, but in no
event later than 120 days after the date of receipt by Lessor of notice of the
exercise by Lesser of this option. If Lessee shall not exercise Lessee's option
to purchase within said thirty (30) day period after receipt of said notice from
Lessor, Lessor shall be free for a period of one year after the expiration of
said 30 day period to sell the Leased Property to any third party at a price and
upon terms no less favorable to Lessor than those so offered to Lessee, Whether
or not such sale is consummated, Lessee shall be entitled to exercise its right
of first refusal as provided in this section, as to any subsequent sale of the
Leased Property during the Term of this Lease.
(b) Lessor agrees not to sell a part of the Leased Property to
anyone unless it is selling all parts of the Leased Property concurrently. In
any such case, Lessee's right of first refusal shall be applicable and the price
at which Lessee may purchase shall be the sum of the proposed sale prices of the
parts.
35.2 Lessee's Option to Purchase the Leased Property. Lessee shall have
the option exercisable on not less than 6 months' prior written notice given not
earlier than 9 months prior to the expiration of the Fixed Term and each
subsequent Extended Term to purchase the Leased Property upon the expiration of
the Fixed Term or Extended Term, as the case may be, at the Fair Market Value of
the Leased Property as of the expiration of said Fixed Term or Extended Term
provided that Lessee exercises its right to purchase every facility contained in
the group of properties of which the Leased Property is a part as described in
Exhibit B.
ARTICLE XXXVI
36.1 Lessor May Grant Liens. Without the consent of Lessee, Lessor may,
from time to time, directly or indirectly, create or otherwise cause to exist
any lien, encumbrance or title retention agreement ("Encumbrance") upon the
Leased Property, or any portion thereof or interest therein, whether to secure
any borrowing or other means of financing or refinancing. Any such Encumbrance
shall not be for an amount greater than the higher of the Minimum Repurchase
Price or the Fair Market Value of the Leased Property at the time the
Encumbrance is created. Any such Encumbrance, other than one the proceeds of
which are used to finance construction of Capital Additions (as to which the
following restrictions shall not apply) shall contain the right to prepay
(whether or not subject to prepayment penalty). This Lease is and at all times
shall be subject and subordinate to any ground or underlying leases, mortgages,
trust deeds or like encumbrances, which may now or hereafter affect the Leased
Property and to all renewals, modifications, consolidations, replacements and
extensions of any such lease, mortgage, trust deed or like encumbrance. This
clause shall be self-operative and no further instrument of subordination shall
be required by any ground or underlying lessor or by any
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mortgagee or beneficiary, affecting any lease or the Leased Property. In
confirmation of such subordination, Lessee shall execute promptly any
certificate that Lessor may request for such purposes; provided, however that
such subordination shall be conditioned upon the holder of such interest
executing and delivering to Lessee an agreement in a form acceptable to such
interest holder which agreement shall provide that such interest holder will
recognize Lessee's right to possession of the Leased Property under this Lease
so long as Lessee is not in default under the terms of this Lease.
36.2 Breach by Lessor. It shall be a breach of this Lease if Lessor shall
fail to observe or perform any term, covenant or condition of this Lease on its
part to be performed and such failure shall continue for a period of thirty (30)
days after notice thereof from Lessee (or such shorter time as may be required
in order to protect the health or welfare of any patients or other residents of
the Leased Property), unless such failure cannot with due diligence be cured
within a period of thirty (30) days, in which case such failure shall not be
deemed to continue if Lessor, within said thirty (30) day period, proceeds
promptly and with due diligence to cure the failure and diligently completes the
curing thereof. The time within which Lessor shall be obligated to cure any such
failure shall also be subject to extension of time due to the occurrence of any
Unavoidable Delay. If Lessor shall fail to pay when due any payment of an
obligation secured by a lien on the Leased Property, Lessee, without waiving or
releasing any rights or remedies, may (but shall be under no obligation at any
time thereafter to) upon written notice to Lessor make such payment, All sums so
paid by Lessee and all costs, and expenses (including, without limitation,
reasonable attorneys fees) so incurred, together with interest thereon (at the
Overdue Rate) from the date on which sums or expenses are paid or incurred by
Lessee, shall be paid by Lessor to Lessee on demand.
ARTICLE XXXVII
37.1 Arbitration. Except with respect to the payment of Minimum Rent
hereunder, in case any controversy shall arise between the parties hereto as to
any of the requirements of this Lease or the performance thereof, which the
parties shall be unable to settle by agreement or as otherwise provided herein,
such controversy shall be determined by arbitration to be initiated and
conducted as provisions of this Article XXXVII.
37.2 Appointment of Arbitrators. The party or parties requesting
arbitration shall serve upon the other a demand therefor, in writing, specifying
the matter to be submitted to arbitration and nominating some competent
disinterested person to act as an arbitrator; within twenty (20) days after
receipt of such written demand and notification, the other party shall, in
writing, nominate a competent disinterested person and the two (2) arbitrators
so designated shall, within ten (10) days thereafter,
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select a third arbitrator and give immediate written notice of such selection to
the parties and shall fix in said notice a time and place for the first meeting
of the arbitrators, which meeting shall be held as soon as conveniently possible
after the selection of all arbitrators at which time and place the parties to
the controversy may appear and be heard.
37.3 Third Arbitrator. In case the notified party or parties shall fail to
make a selection upon notice, as aforesaid, or in case the first two (2)
arbitrators selected shall fail to agree upon a third arbitrator within ten (10)
days after their selection, then such arbitrator or arbitrators, may, upon
application made by either of the parties to the controversy, after twenty (20)
days, written notice thereof to the other party or parties, be appointed by any
judge of any United States Court of Record having jurisdiction in the state in
which the Leased Property is located, or, if such office shall not then exist,
by a judge holding an office most nearly corresponding thereto.
37.4 Arbitration Procedure. Said arbitrators shall give each of the
parties not less than ten (10) days, written notice of the time and place of
each meeting at which the parties or any of them may appear and be heard and
after hearing the parties in regard to the matter in dispute and taking such
other testimony and making such other examinations and investigations as justice
shall require and as the arbitrators may deem necessary, they shall decide the
question submitted to them; and the decision of said arbitrators in writing
signed by a majority of them shall be final and binding upon the parties to such
controversy. In rendering such decision and award, the arbitrators shall not add
to, subtract from or otherwise modify the provisions of this Lease.
37.5 Expenses. The expense of such arbitration shall be divided between
Lessor and Lessee unless otherwise specified in the award. Each party in
interest shall pay the fees and expenses of its own counsel.
ARTICLE XXXVIII
38. Miscellaneous.
38.1 Anything contained in this Lease to the contrary notwithstanding, all
claims against, and liabilities of, the Lessee or Lessor arising prior to any
date of termination of this Lease shall survive such termination. If any term or
provision of this Lease or any application thereof shall be invalid or
unenforceable, the remainder of this Lease and any other application of such
term or provision shall not be affected thereby. If any late charges provided
for in any provision of this Lease are based upon a rate in excess of the
maximum rate permitted by applicable law, the parties agree that such charges
shall be fixed at the maximum permissible rate. Neither this Lease nor any
provision hereof may be changed, waived, discharged or terminated except by an
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instrument in writing and in recordable form signed by Lessor and Lessee. All
the terms and provisions of this Lease shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns. The
headings in this Lease are for convenience of reference only and shall not limit
or otherwise affect the meaning hereof. This Lease shall be governed by and
construed in accordance with the laws of the State of California (but not
including its conflict of laws rules), except for those certain procedural laws
which must be governed by the laws of the location of the Leased Property,
regarding which procedures the law of the state or commonwealth in which the
Leased Property is located shall govern.
38.2 Lessee specifically agrees to look solely to the Leased Property, and
to other assets of Lessor which directly relate to the proceeds (which shall
include any insurance proceeds or condemnation Awards) of the Leased Property,
for recovery of any judgment from Lessor. It is specifically agreed that no
constituent partner in Lessor or officer or employee of Lessor shall ever be
personally liable for any such judgment or for the payment of any monetary
obligation to Lessee. The provision contained in the foregoing sentence is not
intended to, and shall not, limit any right that Lessee might otherwise have to
obtain injunctive relief against Lessor or Lessor's successors in interest or
any action not involving the personal liability of Lessor (original or
successor). Furthermore, except as otherwise expressly provided herein, in no
event shall Lessor (original or successor) ever be liable to Lessee for any
indirect or consequential damages suffered by Lessee from whatever cause.
Notwithstanding the foregoing, Lessor shall be fully liable, to the extent of
the amount of such insurance proceeds or Awards actually received by Lessor, for
the willful misapplication of (i) insurance proceeds from any policy of
insurance covering any portion of the Leased Property, and (ii) any Award
received as a result of any Condemnation affecting the Leased Property.
38.3 Upon the expiration or earlier termination of the Term, Lessee shall
use its best efforts to transfer to Lessor or Lessor's nominee or to cooperate
with Lessor or Lessor's nominee in connection with the processing by Lessor or
Lessor's nominee of any applications for all licenses, operating permits and
other governmental authorization and all contracts, including contracts with
governmental or quasi-governmental entities which may be necessary for the
operation of the Facility; provided that the costs and expenses of any such
transfer or the processing of any such application shall be paid by Lessor or
Lessor's nominee.
ARTICLE XXXIX
39. Memorandum of Lease. Lessor and Lessee shall, promptly upon the
request of either, enter into a short form memorandum of this Lease, in form
suitable for recording under the laws of the state in which the Leased Property
is located, in which reference
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to this Lease, and all options contained herein, shall be made. Lessee shall pay
all costs and expenses of recording such Memorandum of Lease.
ARTICLE XL
40. Sale of Real Estate Assets. Notwithstanding any other provision of
this Lease, Lessor shall not be required to sell or transfer the Leased
Property, or any portion thereof, which is a real estate asset as defined in
Section 856(c)(6)(B), or functionally equivalent successor provision, of the
Code, to Lessee if Lessor's counsel advises Lessor that such sale or transfer
may not be a sale of property described in Section 857(b)(6)(C), or functionally
equivalent successor provision, of the Code. If Lessor determines not to sell
such property pursuant to the above sentence, Lessee's right, if any, to
purchase any or all of such property shall continue and be exercisable, upon and
subject to all applicable terms and conditions set forth in this Lease,
including without limitation the provisions of Article XXXV, at such time as the
transaction, upon the advice of Lessor's counsel, would be a sale of Property
described in Section 857(b)(6)(C), or functionally equivalent successor
provision, of the Code, and until such time Lessee shall lease the Leased
Property from Lessor at Fair Market Rental.
ARTICLE XLI
41. Subdivision. If the Land is in excess of that which is required to
operate the Leased Property in accordance with its Primary Intended Use, Lessor
may subdivide the Land and amend this Lease and the legal description attached
hereto as Exhibit A such that the Land contains only so much of the Land as is
necessary to operate the Leased Property in accordance with its Primary Intended
Use. If Lessor subdivides the Land there shall be no change in the Rent payable
or any other obligations of either party under this Lease. After any such
subdivision Lessee shall have no rights to any land which is no longer part of
the Leased Property and Lessor may sell, lease or develop any land which is no
longer part of the Leased Property. If Lessor elects to subdivide the Land
Lessee shall cooperate with Lessor and take all actions reasonably requested by
Lessor to effect such subdivision.
ARTICLE XLII
42. Authority. If Lessee is a corporation, trust, or general or limited
partnership, Lessee, and each individual executing this Lease, represent and
warrant that each is duly authorized to execute and deliver this Lease on behalf
of said entity and shall within thirty (30) days after execution of this Lease
deliver to Lessor evidence of such authority satisfactory to Lessor.
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ARTICLE XLIII
43. Attorneys' Fees. Lessee agrees to pay, as Additional Rent, all of
Lessor's reasonable attorneys' fees incurred in connection with the
administration or enforcement of this Lease, including without limitation,
attorneys' fees incurred in connection with Lessee's exercise of its option to
purchase the Leased Property, Lessee's exercise of its option to purchase the
Personal Property, the renewal of this Lease for any Extended Term, the review
of any new forms of letters of credit, the processing and documentation of any
assignment, subletting, or management arrangement, or the collection of past due
Rent.
IN WITNESS WHEREOF, the parties have caused this Lease to be executed and
attested by their respective officers thereunto duly authorized.
HEALTH CARE PROPERTY CARDINAL INDIANA, INC.
INVESTORS, INC., a a Kentucky corporation
Maryland corporation
By: /s/ James G. Reynolds By: /s/ David V. Hall
----------------------------- -----------------------------
Its:Senior Vice President Its: President
By: _____________________________ By: /s/ Randall J. Bufford
-----------------------------
Its: ____________________________ Its: Vice President
"Lessor" "Lessee"
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AMENDMENT TO OPERATING LEASE
This Amendment to Operating Lease (this "Amendment") is made and is
effective as of November 1, 1993 by and among HEALTH CARE PROPERTY INVESTORS,
INC., a Maryland corporation ("Lessor"), and CARDINAL OF INDIANA, INC., a
Kentucky corporation ("Lessee");
WHEREAS Lessor and Lessee entered into that certain Operating Lease, dated
as of March 28, 1991 (the "Lease"), for those certain premises located at 505
West 4th Street, City of Milford, County of Kosciusko, Indiana, and commonly
known as Lakeland Loving Care Center (the "Premises"); and
WHEREAS Lessee desires to assign all of its right, title and interest
under the Lease to TRANSITIONAL HEALTH PARTNERS d/b/a TRANSITIONAL HEALTH
SERVICES, a Delaware general partnership; and
WHEREAS as a condition to Lessor's consent to such assignment, Lessor and
Lessee have agreed to effect certain amendments to the Lease;
NOW, THEREFORE, for good and valuable consideration, Lessor and Lessee
agree as follows:
43.0.1 Definitions. All terms defined in the Lease shall have the same
meaning when used in this Amendment unless modified hereby.
43.0.2 Term. The last paragraph of Section 1 of the Lease is modified
hereby so that the Fixed Term ending date, which is currently March 27, 2006,
shall be March 27, 2011, and the phrase "Extended Terms" shall be replaced with
"Extended Term".
43.0.3 Incremental Revenues. Effective on and after November 1, 1993,
"Incremental Revenues" shall mean:
"The amount by which the Gross Revenues for the current Fiscal Year
exceed "Base Revenues". Base Revenues are equal to the sum of (i) Gross
Revenues for the quarter ended September 30, 1993, multiplied by 4, or
$1,563,324, plus (ii) $97,487, which equals $1,660,811. Gross Revenues for
the quarter ended September 30, 1993 are subject to audit at the option of
HCPI."
43.0.4 Proration. The following is added to Section 3.3 of the Lease:
"Incremental Revenues for any partial Fiscal Year shall be the difference
between the Gross Revenues for such partial Fiscal Year and Base Revenues
prorated on the basis of the actual number of days elapsed in such partial
Fiscal Year.
<PAGE>
"For purposes of the Fiscal Year 1993, the period to and including
October 31, 1993 and the period from and including November 1, 1993 shall
each be partial Fiscal Years."
43.0.5 Guarantors. The definition of "Guarantors" in Section 2 of the
Lease is amended to read as follows:
"Guarantor: Transitional Health Services, Inc."
The existing guaranties shall be replaced with a new guaranty from the
Guarantor.
43.0.6 Minimum Rent. Effective on and after November 1, 1993, Section
3.1(a) of the Lease is amended to read as follows:
"Minimum Rent shall be the annual sum of $156,719, payable in
advance in equal consecutive monthly installments of $13,060 on the first
day of each calendar month; provided, however, that Minimum Rent shall be
prorated as to any partial month during the Term on the basis of the
actual number of days in any such month.
"Beginning on the tenth anniversary of the Commencement Date of this
Lease, and again on the fifteenth such anniversary, the Minimum Rent shall
be further increased (but under no circumstances shall the Minimum Rent be
decreased) by an amount equal to fifty (50) percent of any increase in the
five-year treasury note rate, as quoted in the Wall Street Journal, since
the Commencement Date with respect to the increase on the tenth
anniversary, and since the tenth anniversary date with respect to the
increase on the fifteenth anniversary, in each case multiplied by the
Minimum Repurchase Price."
43.0.7 Annual Rent. The last sentence of paragraph (b) of Section 3.1 of
the Lease is deleted and replaced with the following:
"Beginning with the quarter ended March 31, 1994 and in each quarter
thereafter, the Additional Rent payable hereunder shall be at least equal
to the amount which will enable the sum of Minimum Rent and Additional
Rent payable for such quarter to be not less than 103% of the sum of the
preceding calendar year's total Minimum Rent and Additional Rent divided
by 4; without taking into account for such purposes the increase in
Minimum Rent effective as of the date hereof or the increases in Minimum
Rent that might become effective on the tenth and fifteenth anniversaries
of the Commencement Date; provided, however, that for the calendar year
ended December 31, 1994, in lieu of the calculation to be made as set
forth above in this paragraph (b) of Section 3.1, the sum of Minimum Rent
and Additional Rent shall in no event be less than $39,767.00 for each
calendar quarter thereof."
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43.0.8 Renewal Terms. Section 19 of the Lease is amended to read as
follows:
"If no Event of Default shall have occurred and be continuing,
Lessee is hereby granted the right to renew this Lease for one (1) 5-year
optional renewal term ("Extended Term") after the expiration of the Fixed
Term, upon giving written notice to Lessor of such extension at least one
hundred eighty (180) days but not more than three hundred sixty (360) days
prior to the termination of the Fixed Term so long as Lessee exercises its
right to renew as to every facility contained in the group of properties
of which the Leased Property is a part as described in Exhibit B. During
such Extended Term, all of the terms and conditions of this Lease shall
continue in full force and effect except that the Rent for and during the
Extended Term shall be the then current fair market rental ("Fair Market
Rental") and which unless otherwise mutually agreed to by Lessor and
Lessee shall be determined by arbitration pursuant to the provisions of
Article XXXVII."
43.0.9 Subletting and Assignment. The tenth through the seventeenth
sentences of Section 24 of the Lease (regarding Transfer Consideration) are
deleted.
43.0.10 Certificate of Need. Lessee hereby assigns to Lessor, effective as
of the expiration or earlier termination of the Lease, all of Lessee's interest
in any Certificate or Determination of Need relating to the Premises, and at the
request of Lessor, Lessee will execute and deliver any and all other documents
required to effect or perfect such assignment.
43.0.11 No Other Changes. Except as expressly set forth herein, the Lease
shall continue in full force and effect.
43.0.12 Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be a valid and binding original, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
LESSOR: LESSEE:
HEALTH CARE PROPERTY CARDINAL OF INDIANA, INC.,
INVESTORS, INC., a Maryland a Kentucky corporation
Corporation
By: /s/ James G. Reynolds By: /s/ Randall J. Bufford
-------------------------- ----------------------------
Its: Senior Vice President Its: Vice President
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SECOND AMENDMENT TO OPERATING LEASE
This Second Amendment to Operating Lease (this "Second Amendment") is made
and is effective as of April 1, 1994, by and between HEALTH CARE PROPERTY
INVESTORS, INC., a Maryland corporation ("Lessor"), and TRANSITIONAL HEALTH
PARTNERS d/b/a TRANSITIONAL HEALTH SERVICES, a Delaware general partnership
("Lessee");
WHEREAS Lessor and Lessee's predecessor in interest, Cardinal of Indiana,
Inc., a Kentucky corporation ("Former Lessee"), entered into that certain
Operating Lease, dated as of March 28, 1991 (the "Original Lease"), for those
certain premises located at 505 West 4th Street, City of Milford, County of
Kosciusko, Indiana, and commonly known as Lakeland Loving Care Center (the
"Premises"), which Original Lease was amended by that certain Amendment to
Operating Lease between Lessor and Former Lessee, made and effective as of
November 1, 1993 (the "First Amendment" and together with the Original Lease,
the "Lease"); and
WHEREAS Lessor and Lessee have agreed to effect certain amendments to the
Lease to revise the calculation of Additional Rent payable under the Lease;
NOW, THEREFORE, for good and valuable consideration, Lessor and Lessee
agree as follows:
43.0.13 Definitions. All terms defined in the Lease shall have the same
meaning when used in this Second Amendment unless modified hereby.
43.0.14 Annual Rent. The last sentence of paragraph (b) of Section 3.1 of
the Lease is deleted and the following is added to the sentence that preceded
such deleted sentence:
provided, however, that beginning with the quarter ended March 31, 1994
and in each quarter thereafter, the Additional Rent payable hereunder
shall not be less than the sum of the Additional Rent paid for the last
quarter of the Fiscal Year then most recently ended (the "Preceding Year")
plus the greatest of the following amounts:
"(i) One hundred percent (100%) of Gross Revenues for the
Preceding Year in excess of the Gross Revenue Threshold
for the Facility as shown on Schedule 1 attached hereto
and incorporated herein ("Excess Revenues"), up to but
not exceeding an amount equal to three percent (3%) of
the sum of the Preceding Year's total Minimum Rent and
Additional Rent (without taking into account for such
purposes the increases in Minimum Rent effective as of
the date hereof or the increases in Minimum Rent that
might become effective on the tenth and fifteenth
anniversaries of the Commencement Date), divided by four
(4);
<PAGE>
"(ii) The sum of one hundred percent (100%) of that portion,
if any, of the gross revenues for the Preceding Year of
each of the facilities listed on Schedule I that was
subject to an operating lease between Lessee or an
Affiliate of Lessee and Lessor or an Affiliate of Lessor
as of the last day of the Preceding Year which is in
excess of the Gross Revenue Threshold for such leased
facility as shown on Schedule 1, up to but not exceeding
an amount equal to three percent (3%) of the sum of the
Preceding Year's total Minimum Rent and Additional Rent
(without taking into account for such purposes the
increases in Minimum Rent effective as of the date
hereof or the increases in Minimum Rent that might
become effective on the tenth and fifteenth
anniversaries of the Commencement Date), divided by four
(4);
"(iii) The product of (A) the sum of the Preceding Year's total
Minimum Rent and Additional Rent, multiplied by (B) the
percentage increase in the Consumer Price Index for All
Urban Consumers (1982-1984 = 100), U.S. City Average, as
published by the Bureau of Labor Statistics, United
States Department of Labor (the "CPI") between the day
immediately preceding the first day of the Preceding
Year and the last day of the Preceding Year, up to but
not exceeding an amount equal to three percent (3%) of
the sum of the Preceding Year's total Minimum Rent and
Additional Rent (without taking into account for such
purposes the increases in Minimum Rent effective as of
the date hereof or the increases in Minimum Rent that
might become effective on the tenth and fifteenth
anniversaries of the Commencement Date), divided by four
(4);
"(iv) The product of (A) the sum of the Preceding Year's total
Minimum Rent and Additional Rent, multiplied by (B) the
percentage increase in the "Medical Care" portion of the
CPI between the day immediately preceding the first day
of the Preceding Year and the last day of the Preceding
Year, up to but not exceeding an amount equal to three
percent (3%) of the sum of the Preceding Year's total
Minimum Rent and Additional Rent (without taking into
account for such purposes the increases in Minimum Rent
effective as of the date hereof or the increases in
Minimum Rent that might become effective on the tenth
and fifteenth anniversaries of the Commencement Date),
divided by four (4); or
"(v) The product of (A) the sum of the Preceding Year's total
Minimum Rent and Additional Rent, multiplied by (B) the
quotient of (1) the average Medicaid rate per Medicaid
patient at the Facility during the Preceding Year
divided by (2) the average
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Medicaid rate per Medicaid patient at the Facility
during the Fiscal Year preceding the Preceding Year, up
to but not exceeding an amount equal to three percent
(3%) of the sum of the Preceding Year's total Minimum
Rent and Additional Rent (without taking into account
for such purposes the increases in Minimum Rent
effective as of the date hereof or the increases in
Minimum Rent that might become effective on the tenth
and fifteenth anniversaries of the Commencement Date),
divided by four (4);
"provided, however, that for the Fiscal Year ended December 31, 1994, the
sum of Minimum Rent and Additional Rent shall in no event be less than
$39,767.00 for each calendar quarter thereof."
43.0.15 No Other Changes. Except as expressly set forth herein, the Lease
shall continue in full force and effect.
43.0.16 Counterparts. This Second Amendment may be executed in any number
of counterparts, each of which shall be a valid and binding original, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Second Amendment as of
the date first above written.
LESSOR: LESSEE:
HEALTH CARE PROPERTY TRANSITIONAL HEALTH PARTNERS
INVESTORS. INC., a Maryland d/b/a TRANSITIONAL HEALTH
corporation SERVICES, a Delaware general partnership
By: /s/ James G. Reynolds By: /s/ John G. Hundley
-------------------------- ----------------------------
Its: Senior Vice President Its: Vice President of Legal Affairs
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Schedule I
Facility Gross Revenue Threshold
Amber Manor
Illinois Street, City of Petersburg, Indiana $ 950,000.00
Hillcrest Healthcare Center
203 Sparks Avenue, Jeffersonville, Indiana 3,500,000.00
Lakeland Loving Care Center
505 West 4th Street, Milford, Indiana 750,000.00
Lowell Healthcare Center
710 Michigan Street, Lowell, Indiana 1,725,000.00
Red Oaks Healthcare Center
910 South Carroll Avenue, Michigan City, Indiana 2,100,000.00
Scenic Hills Care Center
311 East First Street, Route I - Box 320, Ferdinand, Ind 1,050,000.00
4
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THIRD AMENDMENT TO OPERATING LEASE
THIS THIRD AMENDMENT TO OPERATING LEASE (this "Third Amendment") is made
and is effective as of March 31, 1995, by and between HEALTH CARE PROPERTY
INVESTORS, INC., a Maryland corporation ("Lessor"), and TRANSITIONAL HEALTH
PARTNERS d/b/a TRANSITIONAL HEALTH SERVICES, a Delaware general partnership
("Lessee").
WHEREAS, Lessee's predecessor in interest, Cardinal of Indiana, Inc., a
Kentucky corporation ("Former Lessee"), entered into that certain Operating
Lease, dated as of March 28, 1991, with Lessor (the "Original Lease"), for those
certain premises located at 505 West 4th Street, City of Milford, County of
Kosciusko, State of Indiana, and commonly known as Lakeland Loving Care Center
(the "Premises"), which Original Lease was amended by that certain Amendment to
Operating Lease between Lessor and Former Lessee, made and effective as of
November 1, 1993, and that certain Second Amendment to Operating Lease between
Lessor and Lessee, made and effective as of April 1, 1994 (as amended, the
"Lease"); and
WHEREAS, Lessor has agreed to sell a 71-bed nursing home located in the
City of Ann Arbor, County of Washtenaw, State of Michigan, commonly known as
Riverview of Ann Arbor, to Lessee and to accept in partial payment of the
purchase price therefor a certain Purchase Money Promissory Note in the
principal amount of $1,800,000 (the "Purchase Money Note"), to be secured by a
certain Purchase Money Mortgage and Security Agreement (the "Mortgage") and a
certain Assignment of Leases and Rents ("Assignment") from Lessee to Lessor; and
WHEREAS, Lessor and Lessee have agreed to amend the Lease to provide that
an Event of Default under the Purchase Money Note, the Mortgage or the
Assignment or under any other agreements between Lessor or an Affiliate of
Lessor and Lessee or an Affiliate of Lessee shall constitute an Event of Default
under the Lease;
NOW, THEREFORE, for good and valuable consideration, Lessor and Lessee
agree as follows:
43.0.17 Definitions. All terms defined in the Lease shall have the same
meaning when used in this Third Amendment unless modified hereby. The terms
"Purchase Money Note," "Mortgage," and "Assignment" shall have the respective
meanings set forth in the second recital of this Third Amendment.
43.0.18 Events of Default. Subparagraph (a) of Section 16.1 is hereby
amended to read as follows:
(a) An Event of Default shall occur (i) under any other lease
between Lessor or an Affiliate of Lessor and Lessee or an Affiliate of
Lessee, whether now existing or hereafter created, (ii) under the Purchase
Money Note or any extension or renewal thereof or any document, instrument
or agreement relating to or securing such Purchase Money Note, including
without limitation the
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Mortgage and the Assignment, (iii) under any other promissory note,
mortgage, security agreement, assignment of leases or assignment of rents
from Lessee or an Affiliate of Lessee to Lessor or an Affiliate of Lessor,
whether now existing or hereafter created, or (iv) under any other
agreement between Lessee or an Affiliate of Lessee and Lessor or an
Affiliate of Lessor, whether now existing or hereafter created,
3. No Other Changes. Except as expressly set forth herein, the Lease shall
continue in full force and effect.
43.0.19 Counterparts. This Third Amendment may be executed in any number
of counterparts, each of which shall be a valid and binding original, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Third Amendment as of
the date first above written.
LESSOR: LESSEE:
HEALTH CARE PROPERTY INVESTORS TRANSITIONAL HEALTH
PARTNERS INC., a Maryland
corporation d/b/a TRANSITIONAL HEALTH SERVICES,
a Delaware general partnership
By: /s/ Edward J. Henning By: THS PARTNERS I, INC., a
---------------------------- Delaware corporation
Its: Senior V.P. & General Its: General Partner
Counsel
By: /s/ John G. Hundley
------------------------------------
Its: Vice President / Asst. Secretary
and
By: THS PARTNERS I, INC., a
Delaware corporation
Its: General Partner
By: /s/ John G. Hundley
----------------------------------------
Its: Vice President / Asst. Secretary
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[Execution Copy]
FOURTH AMENDMENT
TO
OPERATING LEASE
THIS FOURTH AMENDMENT TO OPERATING LEASE (this "Amendment") is made and
effective as of this 1st day of January, 1996, by and between HEALTH CARE
PROPERTY INVESTORS, INC., a Maryland corporation ("Lessor"), and TRANSITIONAL
HEALTH PARTNERS d/b/a TRANSITIONAL HEALTH SERVICES, a Delaware general
partnership ("Lessee").
RECITALS
43.1 Lessor is the lessor and Lessee is the last and current successor to
the lessee's interest pursuant to that certain written Operating Lease dated as
of March 28, 1991 (the "Original Lease") between Lessor, as lessor, and CARDINAL
OF INDIANA, INC., a Kentucky corporation ("Original Lessee"), as the original
lessee, as amended by that certain Amendment to Operating Lease made and
effective November 1, 1993 (the "First Amendment"), that certain Second
Amendment to Operating Lease made and effective as of April 1, 1994 (the "Second
Amendment") and that certain Third Amendment to Operating Lease made and
effective as of March 31, 1995 (the "Third Amendment"). The Original Lease
together with the First Amendment, the Second Amendment and the Third Amendment
are referred to herein, collectively, as the "Lease. " The Lease covers Leased
Property consisting of Land, Leased Improvements, Related Rights, Fixtures and
Personal Property located at 505 West 4th Street, City of Milford, County-of
Kosciusko, State of Indiana, and commonly known as "Lakeland Loving Care
Center," all as more particularly described in the Lease.
On November 1, 1993, Original Lessee assigned its lessee/tenant
interests under the Lease to the Lessee pursuant to a Lease Assignment, Consent
and Release, which is recorded as Instrument No. 93-11-0923 with the Register of
Deeds of Kosciusko County, Indiana.
43.2 Transitional Health Services, Inc., a Delaware corporation ("THS"),
entered into a Guaranty of Obligations Pursuant to Lease dated November 1, 1993
(the "Guaranty"), in favor of Lessor, pursuant to which it guaranteed
performance by Lessee of all of Lessee's obligations under the Lease and certain
other leases between Lessee and Lessor.
43.3 On or about December 31, 1995, THS entered into a merger transaction
with WelCare Transitional Acquirors, Inc., a Delaware corporation ("WTA") (the
"Merger"). Pursuant to that certain Lessor's Consent to Lease Assignment among
Lessor, Lessee, THS, WTA and WelCare International, Inc. dated as of December
31, 1995, Lessor consented, among other things, to the Merger (the "Merger
Consent").
43.4 As a condition to the effectiveness of the Merger Consent, Lessor and
Lessee desire to amend the Lease to modify the calculation and payment of
additional rent by Lessee
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and to provide for the transfer of the Personal Property from Lessor to Lessee,
but only upon the terms and conditions set forth herein.
AMENDMENT
NOW, THEREFORE, in consideration of the foregoing Recitals and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
43.4.1 Gross Revenues. The definition of "Gross Revenues" appearing in
Article 11 of the Original Lease is hereby amended to read, in its entirety, as
follows:
"Gross Revenues: The term "Gross Revenues" shall mean all
revenues received or receivable from or by reason of the operation
of the Facility, or any other use of the Leased Property, including,
without limitation, all patient revenues received or receivable for
the use of or otherwise by reason of all rooms, beds and other
facilities provided, meals served, services performed, space or
facilities subleased or goods sold on the Leased Property and all
Capital Additions, including, without limitation, and except as
provided below, any consideration received under any subletting,
licensing, or other arrangements with third parties relating to the
possession or use of any portion of the Leased Property; provided,
however, that Gross Revenues shall not include non-operating
revenues such as interest income or income from the sale of assets
not sold in the ordinary course of business; and provided, further
that there shall be excluded from such revenues:
"(i) contractual allowances (relating to any period during the
Term) for billings not paid by or received from the appropriate
governmental agencies or third party providers,
"(ii) all proper patient billing credits and adjustments
according to generally accepted accounting principles relating to
health care accounting, and
"(iii) Federal, state or local excise taxes and any tax based
upon or measured by such revenues (including any provider tax) which
is added to or made a part of the amount billed to the patient or
other recipient of such services or goods, whether included in the
billing or stated separately.
"To the extent that the Leased Property is subleased by Lessee, Gross
Revenues shall be calculated for all purposes of the Lease by including
the Gross Revenues of such sublessees with respect to the subleased
property. i.e., the Gross Revenues generated from the operations conducted
on such subleased portion of the Leased Property shall be included
directly in the Gross Revenues for the purpose of determining Additional
Rent payable under this Lease and the rent received or receivable by
Lessee from or under such subleases shall be excluded from Gross Revenues
for such purpose."
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43.4.2 Incremental Revenues; Base Revenues.
(a) The definition of "Incremental Revenues" appearing in Article 11
of the Original Lease, as amended by Paragraph 3 of the First Amendment, is
hereby amended to read, in its entirety, as follows:
"Incremental Revenues: The amount by which Gross Revenues for the
current Fiscal Year exceed the Base Revenues."
(b) A replacement definition for "Base Revenues" is hereby added to
Article 11 of the Original Lease to read, in its entirety, as follows:
"Base Revenues: The term "Base Revenues" shall mean the sum of
$1,676,387."
43.4.3 Additional Rent Collar. Notwithstanding anything to the contrary in
the Lease, if in any Fiscal Year, the Additional Rent payable by Lessee would
otherwise be in excess of an amount such that the Effective Rent (as defined
below) for such Fiscal Year is more than One Hundred Three Percent (103%) of the
Effective Rent paid or payable for the immediately prior Fiscal Year (without
taking into account for such purposes any increases in Minimum Rent that might
become effective on the tenth (10th) and fifteenth (15th) anniversaries of the
Commencement Date) (the "Rent Collar"), then Lessee shall only be required to
pay Additional Rent for such Fiscal Year in an amount such that Effective Rent
payable by Lessee for such Fiscal Year does not exceed the applicable Rent
Collar, plus Sixty Percent (60%) of the amount in excess of the applicable Rent
Collar. By way of example only, if the Effective Rent otherwise payable for the
1996 Fiscal Year is One Hundred Four Percent (104%) of the Effective Rent paid
or payable for the 1995 Fiscal Year, Lessee shall pay Additional Rent for the
1996 Fiscal Year in an amount such that the Effective Rent for the 1996 Fiscal
Year does not exceed One Hundred Three and Six-Tenths Percent (103.6%) of the
Effective Rent paid for payable for the 1995 Fiscal Year (i.e., 103%, plus 60%
of 1%). As used herein, "Effective Rent" means the sum of Minimum Rent and
Additional Rent paid or payable by Lessee.
43.4.4 Transfer of Personal Property. Notwithstanding anything to the
contrary in Section 6.3 of the Original Lease, but subject to the provisions of
Section 6.4 of the Original Lease, for valuable consideration, including the
payment of $1.00, the receipt and sufficiency of which are hereby acknowledged,
Lessor hereby transfers and conveys, without warranty, either express or
implied, all right, title and interest of Lessor in and to the Personal
Property. In order that Lessee be in possession of an instrument evidencing such
transfer and conveyance, Lessor shall, concurrently with its execution and
delivery to Lessee of a fully executed copy of this Amendment, deliver to Lessee
a bill of sale in the form attached hereto as Exhibit A.
43.4.5 Effective Date. This Amendment shall be effective upon the date
hereof, notwithstanding any later execution and delivery hereof by Lessor and
Lessee.
43.4.6 Defined Terms. All terms used herein with initial capital letters
and not defined herein shall have the meanings given to such terms in the Lease.
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43.4.7 Lease in Effect. Lessor and Lessee acknowledge and agree that the
Lease, as hereby amended, is in full force and effect in accordance with its
terms.
IN WITNESS WHEREOF, the parties hereto have executed this Fourth Amendment
to Operating Lease as of the day and year first above written.
"Lessee" "Lessor"
TRANSITIONAL HEALTH HEALTH CARE PROPERTY INVESTORS,
PARTNERS d/b/a TRANSITIONAL INC., a Maryland corporation
HEALTH SERVICES, a Delaware
general partnership
By: /s/ Edward J. Henning
-------------------------------------
By: THS PARTNERS I, INC., a Edward J. Henning
Delaware corporation, General Senior Vice President,
Partner General Counsel and
Corporate Secretary
By: /s/ Alan C. Dahl
-------------------------
Its: Vice President
By: THS PARTNERS 11, INC., a
Delaware corporation, General
Partner
By: /s/ Alan C. Dahl
-------------------------
Its: Vice President
THS, as the surviving entity following the merger with WTA, hereby
consents to this Amendment and reaffirms to Lessor that its obligations under
the Guaranty remain in full force and effect with respect to the Lease as
amended hereby.
TRANSITIONAL HEALTH SERVICES, INC.,
a Delaware corporation
By: /s/ Alan C. Dahl
------------------------------------
Its: Vice President
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EXHIBIT A
BILL OF SALE
For valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the undersigned, Health Care Property Investors, Inc., a
Maryland corporation ("Transferor"), does hereby transfer and convey, without
warranty, either express or implied, to Transitional Health Partners d/b/a
Transitional Health Services, a Delaware general partnership ("Transferee"), all
right, title and interest of Transferor in and to the Personal Property (as
defined in that certain Operating Lease dated as of March 28, 1991, as amended
(the "Lease") between Transferor, as lessor, and Transferee's
predecessor-in-interest, Cardinal of Indiana, Inc., a Kentucky corporation, as
the original lessee). The foregoing transfer and conveyance is expressly made
subject to the provisions of Section 6.4 of the Lease.
Dated: As of January 1, 1996
"Transferor"
HEALTH CARE PROPERTY INVESTORS, INC.,
a Maryland corporation
By:______________________________________
Edward J. Henning
Senior Vice President,
General Counsel and Corporate
Secretary
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SCHEDULE 10.13
THP has entered into lease agreements substantially identical to Exhibit
10.13 as follows:
1. Operating Lease dated March 28, 1991 by and between Health Care
Property Investors, Inc. and Cardinal of Indiana, Inc. ("COI") for Petersburg,
Indiana facility, as amended by that certain Amendment to Operating Lease dated
November 1, 1993, as assigned to THP pursuant to that certain Lease Assignment,
Consent and Release dated November 1, 1993, as amended by that certain Second
Amendment to Operating Lease dated April 1, 1994, as amended by that certain
Third Amendment to Operating Lease dated March 31, 1995, as amended by that
certain Fourth Amendment to Operating Lease dated January 1, 1996. Material
details in which this agreement, as amended, differs from Exhibit 10.13 are that
the "Minimum Rent" is $361,276 per year, and the "Base Revenues" are $2,297,407.
2. Operating Lease dated March 28, 1991 by and between Health Care
Property Investors, Inc. and COI for Ferdinand, Indiana facility, as amended by
that certain Amendment to Operating Lease dated November 1, 1993, as assigned to
THP pursuant to that certain Lease Assignment, Consent and Release dated
November 1, 1993, as amended by that certain Second Amendment to Operating Lease
dated April 1, 1994, as amended by that certain Third Amendment to Operating
Lease dated March 31, 1995, as amended by that certain Fourth Amendment to
Operating Lease dated January 1, 1996. Material details in which this agreement,
as amended, differs from Exhibit 10.13 are that the "Minimum Rent" is $283,154
per year, and the "Base Revenues" are $2,427,694.
3. Operating Lease dated March 28, 1991 by and between Health Care
Property Investors, Inc. and COI for Lowell, Indiana facility, as amended by
that certain Amendment to Operating Lease dated November 1, 1993, as assigned to
THP pursuant to that certain Lease Assignment, Consent and Release dated
November 1, 1993, as amended by that certain Second Amendment to Operating Lease
dated April 1, 1994, as amended by that certain Third Amendment to Operating
Lease dated March 31, 1995, as amended by that certain Fourth Amendment to
Operating Lease dated January 1, 1996. Material details in which this agreement,
as amended, differs from Exhibit 10.13 are that the "Minimum Rent" is $531,929
per year, and the "Base Revenues" are $3,853,838.
4. Operating Lease dated August 8, 1990 by and between Health Care
Property Investors, Inc. and HRO Acquisition Corporation ("HRO") for
Jeffersonville, Indiana facility, as amended by that certain Amendment to
Operating Lease dated November 1, 1993, as assigned to THP pursuant to that
certain Lease Assignment, Consent and Release dated November 1, 1993, as amended
by that certain Second Amendment to Operating Lease dated April 1, 1994, as
amended by that certain Third Amendment to Operating Lease dated June 29, 1994,
as amended by that certain Fourth Amendment to Operating Lease dated March 31,
1995, as amended by that certain Fifth Amendment to Operating Lease dated July
10, 1995, as amended by that certain Sixth Amendment to Operating Lease dated
January 1, 1996. Material details in which this agreement, as amended, differs
from Exhibit 10.13 are that the "Fixed Term" expires on August 7, 2005, the
"Minimum Rent" is $912,770 per year, the "Base Revenues"
6
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are $7,270,184, and the "Renewal and Purchase Group" for this agreement is
Hillcrest Nursing Home and Red Oaks Nursing Home. In addition, the legal
description of the real property leased to THP has been amended due to sales
of portions of the real property to the Board of Directors of Clark Memorial
Hospital in lieu of condemnation.
5. Operating Lease dated August 8, 1990 by and between Health Care
Property Investors, Inc. and HRO for La Porte, Indiana facility, as amended by
that certain Amendment to Operating Lease dated November 1, 1993, as assigned to
THP pursuant to that certain Lease Assignment, Consent and Release dated
November 1, 1993, as amended by that certain Second Amendment to Operating Lease
dated April 1, 1994, as amended by that certain Third Amendment to Operating
Lease dated March 31, 1995, as amended by that certain Fourth Amendment to
Operating Lease dated January 1, 1996. Material details in which this agreement,
as amended, differs from Exhibit 10.13 are that the "Fixed Term" expires on
August 7, 2005, the "Minimum Rent" is $670,076 per year, the "Base Revenues"
are $4,863,037, and the "Renewal and Purchase Group" for this agreement is
Hillcrest Nursing Home and Red Oaks Nursing Home.
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EXHIBIT 10.14
<PAGE>
LEASE AGREEMENT
This is a LEASE AGREEMENT ("Lease") dated as of the 1st day of August,
1995, by and between BROWNSBORO HILL NURSING HOME, INC., a Kentucky corporation,
and BROWNSBORO HILLS PLAZA, a Kentucky general partnership, and their respective
successors and assigns (hereinafter referred to together as "Landlord"), and
TRANSITIONAL HEALTH PARTNERS d/b/a TRANSITIONAL HEALTH SERVICES, a Delaware
general partnership (hereinafter referred to as "Tenant").
NOW, THEREFORE, in consideration of the mutual covenants and obligations
herein contained, the parties agree:
1. FACILITY: Effective upon the receipt of the regulatory approvals or
lapse of any applicable statutory notice periods referred to in the Management
Agreement dated August 1, 1995, among the parties to this Lease (the "Management
Agreement") and the termination of the Management Agreement and subject the
preparation of Schedules to the Agreement dated August 1, 1995, among Landlord,
Tenant, Harold V. Bomar, Jr. and Harold V. Bomar, III with contents mutually
satisfactory to the parties (the "Effective Date"), but no later than October 1,
1995 (as provided in the Management Agreement) Landlord does hereby demise and
lease unto Tenant, and Tenant does hereby take, hire and let from Landlord that
certain tract or parcel of real estate, together with the buildings and
improvements (and including furniture, fixtures and equipment belonging to or
provided by Landlord) and constituting a 96 bed nursing home facility known
commonly as Brownsboro Hills Nursing Home, and a related 20-bed home for the
aged known commonly as Brownsboro Hills Plaza, and the privileges and
appurtenances thereunto appertaining, situate, lying and being on 2141 Sycamore
Avenue, Louisville, KY 40207, in Jefferson County, Kentucky, and being more
particularly described on "EXHIBIT A" hereto attached, hereafter referred to as
the "Facility."
2. COVENANT OF TITLE AND QUIET ENJOYMENT: Landlord covenants and warrants
that it alone has full right and lawful authority to enter into this Lease for
the full term hereof; that it is lawfully seized of the Facility in fee simple
and has good title thereto, free and clear of all tenancies, restrictions and
encumbrances (with the exception of liens securing lenders providing financing
for the Facility which is the subject of this Lease, and other matters not
adversely affecting the intended use of the Facility or merchantability of
title, or other matters agreed to between the parties) and that at all times
during the term of this Lease and any extensions of said term, Tenant's quiet
and peaceful enjoyment of the Facility shall not be disturbed or interfered with
by any party in privity of contract with Landlord.
3. AUTHORIZATIONS AND COMPLIANCE WITH GOVERNMENTAL PROGRAMS: Landlord
hereby represents and warrants to Tenant that (i) the use of the Facility as an
intermediate or skilled care and home for the aged nursing home facility is a
permitted use under all applicable zoning or other use restrictions or
regulations, and (ii) the character, materials, design, construction and
location of the improvements is, to the best of its knowledge, in full
compliance with all building codes, zoning laws and all other laws and
ordinances pertaining thereto.
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Tenant agrees (i) to use the Facility as an intermediate, skilled and home
for the aged nursing home facility and operate the Facility in full compliance
with all laws, regulations and licenses applicable thereto, (ii) that no part of
the Facility shall be used for any unlawful purpose, nor will any unlawful
condition or nuisance be permitted to exist thereon, and (iii) that its
operation of the Facility of a nursing home facility shall materially comply
with all licensure, certification, and other requirements of law applicable to
nursing home facilities.
4. TERM:
a. The term of this Lease (the "Initial Term") shall commence on the
Effective Date hereof and end on January 31, 2008.
b. If Tenant is not in default hereunder, Tenant shall have the
option to renew the term of this Lease after the Initial Term for three (3)
additional terms of five (5) years each (the "Renewal Term(s))", which together
with the Initial Term shall be referred to herein as the "Term"). Such Renewal
Terms shall be upon the same terms and conditions contained in this Lease for
the Initial Term except it (i) will be subject to an adjustment of Rent payments
as described in Section 5 below, and (ii) will not be less than the previous
year's Total Rent (as defined below). Tenant may exercise its option to renew
for the Renewal Term by notifying Landlord in writing of its intention to renew
at least one hundred eighty (180) days prior to the expiration of the Initial
Term or any Renewal Term.
5. RENT: Tenant shall pay to Landlord at its offices in Louisville,
Kentucky, or at such other place as it may advise in writing, in advance, on the
tenth (10th) day of each calendar month, without notice, demand, offset or
deduction, in lawful money of the United States of America, during and
throughout the term of this Lease, base rent, which shall be payable in monthly
installments of Fifty Six Thousand Two Hundred Fifty Dollars ($56,250.00) (the
"Base Rent"). Commencing August 1, 1996 (and increasing on each anniversary
thereof during the Term hereof), Tenant shall also pay on a monthly basis to
Landlord, additional rent ("Additional Rent"), which will be an annual amount
equal to the Base Rent times three percent (3%) times the number of years the
Lease has at that time been in effect on a non-compounded basis, i.e., year
two's rent shall be 103% of the Base Rent, year two shall be 106%, year 10 shall
be 130%, etc. Base Rent together with Additional Rent may be referred to herein
as "Total Rent."
If the Landlord does not receive from Tenant any payment of Base
Rent or Additional Rent within ten (10) days after such payment is due,
Landlord, at its option, may charge Tenant a late charge and handling fee equal
to five percent (5%) of such rental payment, and such late charge and handling
fee shall be due and payable by Tenant to Landlord immediately upon delivery of
written notice to Tenant. In addition, if any check of Tenant's is returned to
Landlord unpaid, Tenant shall reimburse Landlord for all charges associated with
such returned check and Landlord, at its option, in addition to all other rights
hereunder, may thereafter require that Tenant pay the Rent and any other charges
payable hereunder by a certified or cashier's check.
2
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If Landlord directs, the Tenant agrees to pay such portion of the
Total Rent directly to LandLord's mortgagee as may be necessary to service
Landlord's mortgage indebtedness, if any, and the balance of such Total Rent
remitted paid directly to Landlord.
6. REPORTS: Tenant agrees to provide Landlord with monthly and annual
financial statements accurately reflecting Tenant's consolidated financial
condition and the results for its business operations for the period then ended
with respect to its operations generally, as well as its business conducted at
the Facility. Such statements shall be due thirty (30) days after the quarter
then ended or ninety (90) days after the close of the Tenant's fiscal year, as
the case may be, and shall be prepared in accordance with generally accepted
accounting principles consistently applied, and further shall be in such form as
required by Landlord's mortgagee. Tenant agrees to also provide upon request to
Landlord, as the same are filed with the Kentucky Cabinet for Human Resources,
copies of the facility's Medicare and Medicaid Cost Reports, and copies of
annual state licensure survey reports.
7. LEGAL FEES AND COSTS: Tenant agrees, in the event it becomes necessary
for Landlord to enforce any provision of this Lease by legal action, or to
engage attorneys for the collection of rent or other monies due under this
Lease, to pay to Landlord reasonable attorney's fees and all court costs and
other costs of such collection or enforcement proceedings incurred by Landlord
if a valid claim is established.
8. UTILITIES: Landlord and Tenant agree that all water, sewer, electric
current and telephone facilities are available, connected and working as of the
Effective Date. Tenant shall pay when due all charges for heat, air
conditioning, water, gas, electricity and other utilities furnished to the
Facility for occupants thereof during the Term hereof.
9. REPAIR AND MAINTENANCE OF IMPROVEMENTS: Landlord warrants that the
entire Facility and the building and improvements thereon shall be in good, safe
condition and repair on the Effective Date. Tenant shall be responsible for
maintaining the Facility in good repair, including without limitation all
exterior and interior surfaces, electrical, plumbing, heating, air conditioning,
and other systems, as well as the exterior grounds, and shall at the end of the
Term return the same to Landlord in good repair and condition, with the
exception of casualties insured against (the proceeds of such insurance having
been paid to Landlord), ordinary wear and tear, and any damages caused or
suffered to be caused by Landlord (including any indemnity claims as set forth
in Section 28 below). If Tenant fails to make any repairs, and/or perform any
maintenance for which it is responsible, within thirty (30) days after written
notice thereof, Landlord may, at its sole option, make the repairs and/or
perform the maintenance and the reasonable expense thereof shall be paid by
Tenant, together with interest at a rate equal to ten percent (10%) if such
expense is not paid within thirty (30) days.
Landlord, its agents and employees, shall have the right at all reasonable
times and upon reasonable notice to Tenant, to enter the Facility or any part
thereof, to inspect and examine the same.
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10. TAXES AND ASSESSMENTS: Tenant agrees to pay when due all taxes on or
with respect to the Facility (except Landlord's income taxes). Such payments
shall be made in accordance with the terms, and payable directly to the
appropriate governmental authority. Landlord will promptly send Tenant copies of
all bills for taxes to be paid by Tenant and Tenant will pay the same to the
appropriate governmental authority. Tenant shall upon request promptly send
Landlord reasonable evidence of payment of such bill after such payment.
In the event this Lease shall commence, or shall end (by reason of
expiration of the Term or earlier termination pursuant to the provisions
hereof), on any date other than the first or last day of the year, or should the
year or period of assessment of real estate taxes be change to more or less than
one year, as the case may be, then the amount of taxes which may be payable by
Tenant as provided hereunder shall be appropriately apportioned.
11. INSURANCE INDEMNITY:
a. During the Term of this Lease, Tenant shall at all times keep the
Facility insured with the kinds and amounts of insurance described below. This
insurance shall be written by companies authorized to do insurance business in
the Commonwealth of Kentucky. The policies must name Landlord as an additional
insured. Losses shall be payable to Landlord and Tenant as provided in Section
11(e) below. In addition, the policies shall name as an additional insured any
mortgagee by way of a standard form of mortgagee's loss payable endorsement. Any
loss adjustment shall require the written consent of Landlord, Tenant, and each
mortgagee. Evidence of insurance shall be deposited with Landlord and, if
requested, with any mortgagee(s). The insurance policies shall provide thirty
(30) days notice of cancellation to all parties named therein as insured. The
policies on the Facility shall insure against the following risks:
(1) Loss or damage by fire and such other risks as may be
included in the broadest form of extended coverage insurance from time to time
available, including but not limited to loss or damage from leakage of any
sprinkler system now or hereafter installed in the Facility or on the Facility,
in amounts sufficient to prevent Landlord or Tenant from becoming a co-insurer
within the terms of the applicable policies and in any event in an amount not
less than one hundred percent (100%) of the then full replacement value thereof
(as defined below in Paragraph (b));
(2) Loss or damage by explosion of steam boilers, pressure
vessels or similar apparatus, now or hereafter installed in the Facility, in
such limits with respect to any one accident as may be reasonably agreed by
Landlord and Tenant from time to time;
(3) Claims for personal injury or property damage under a
policy of general public liability insurance with amounts not less than One
Million Dollars ($1,000,000) per occurrence/Three Million Dollars
($3,000,000.00) aggregate, in respect of bodily injury or death and property
damage;
(4) Claims arising out of malpractice in an amount not less
than One Million and No/100 Dollars ($1,000,000.00) for each person and for each
occurrence;
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(5) Such other hazards and in such amounts as may be customary
for comparable properties in the area and is available from insurance companies
authorized to do business in the Commonwealth of Kentucky;
(6) Business interruption insurance covering a risk of loss
during the first six (6) months of reconstruction resulting from the occurrence
of any of the hazards described in subsections (i) and (ii) of Paragraph (a) in
an amount sufficient to prevent Landlord from becoming a co-insurer; and
(7) Worker's compensation.
b. Replacement Cost. The term "full replacement value" of
improvements as used herein, shall mean the actual replacement cost thereof from
time to time, less exclusions provided in the normal fire insurance policy.
c. Additional Insurance. In addition to the insurance described
above, Tenant shall maintain such additional insurance (including Tenant's $10
million umbrella policy) as may be reasonably required from time to time by any
mortgages.
d. Waiver of Subrogation. Any provision in this Lease to the
contrary notwithstanding, each party, to the extent it is permitted to do so by
the terms and provisions of any of the above policies, hereby waives any and all
rights it may have against the other, its agents, or employees, for any loss or
damage from risks ordinarily insured against under such policies, but only to
the extent that such loss or damage is in fact covered by such insurance and is
collectible by the insured party. Each party further covenants and agrees that
it will, upon request of the other, request each such insurance company to
attach to such policy or policies issued by it a waiver of subrogation with
respect to the other party, its agents or employees.
e. Insurance Proceeds. All proceeds payable by reason of any loss or
damage to any of the improvements comprising the Facility and insured under any
policy of insurance required by (a) above of this Lease shall be paid to
Landlord and held by Landlord in trust (subject to the provisions of Paragraph
(f) below and the rights of the holders of the Facility mortgages) and shall be
made available for reconstruction or repair, as the case may be, of any damage
to or destruction of the Facility, and shall be paid out by Landlord from time
to time for the reasonable costs of such work. Any excess proceeds of insurance
remaining after the completion of the restoration or reconstruction of the
Facility shall be retained by Landlord and shall be credited against future
rental payments due from Tenant under this Lease. All salvage resulting from any
such loss covered by insurance shall belong to Landlord.
f. Damage or Destruction. If, during the Term, the Facility is
totally or partially destroyed from a risk covered by the insurance described in
Paragraph (a), Landlord shall, as soon as practicable, rebuild or restore the
Facility to substantially the same condition as existed immediately before the
destruction. If the remaining term is one (1) year or less, either party shall
have the right to terminate this Lease. If the costs of the restoration exceed
the amount of proceeds received by Landlord from the insurance required under
Paragraph (a)
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above, Tenant shall be solely responsible for paying the difference between the
amount of insurance proceeds and such cost of restoration.
g. Restoration of Tenant's Property. If Landlord is required to
restore the Facility as provided in Paragraph (f), Landlord shall not be
required to restore alterations made by Tenant, or Tenant's improvements, trade
fixtures or personal property, such excluded items being the sole responsibility
of Tenant to restore. Landlord shall be required to restore tangible personal
property owned by Landlord and leased to Tenant pursuant to this Lease or
otherwise.
h. Tenant's Blanket Policy. Notwithstanding anything to the contrary
contained in this Section 11, Tenant's obligation to carry the insurance
provided for herein may be brought within the coverage of a so-called blanket
policy carried and maintained by Tenant; provided, however, that the coverage
afforded Landlord will not be reduced or diminished or otherwise be different
from that which would exist under a separate policy meeting all other
requirements of this Lease.
12. ASSIGNMENT AND SUBLETTING: Provided Tenant is not in default of the
terms and provisions of this Lease, Tenant shall have the right to assign this
Lease or leasehold estate hereby created, or sublet all or any part of the
Facility, to another party with the prior written consent of the Landlord.
Landlord and any mortgagee shall not unreasonably withhold its consent to an
assignment or subletting of this Lease, and shall be given without the payment
of any additional consideration or other amendments or modifications to this
Lease or any other agreement. In determining reasonableness, the following
factors shall apply: (i) whether the assignee or sublessee agrees in writing to
be bound by the terms and conditions of this Lease, (ii) whether the assignee or
sublessee has assets and net worth sufficient to operate the premises and meet
the obligations of tenant, (iii) whether assignee or sublessee has experience
and a reputation in rendering long term care that is not less than roughly
comparable to that of the Tenant, and (iv) whether the assignee or sublessee
promptly obtains appropriate licensure approvals in accordance with applicable
Kentucky statutes and regulations. In the event Landlord refuses or withholds
such consent and Tenant wishes to challenge such decision, Tenant shall be
entitled to pursue both damages and injunctive relief. Tenant shall also have
the right to leasehold mortgage/collaterally assign its interest herein as
provided in Section 29 below. Any merger, consolidation, reorganization, or
liquidation of Tenant, or the sale of a controlling interest of the capital
stock of Tenant's consolidated group, or of a majority of the consolidated
group's assets, shall, for purposes of this Lease, constitute an assignment
thereof.
13. SIGNS: Tenant shall have the right to install, maintain and replace
in, on or over or in front of the Facility or in any part thereof such signs and
advertising matter as Tenant may desire, and Tenant shall comply with all
applicable requirements of governmental authorities having jurisdiction and
shall obtain any necessary permits for such purpose. As used in this paragraph,
the word "sign" shall be construed to include any placard, light or other
advertising symbol or object, irrespective of whether same be temporary or
permanent.
14. EMINENT DOMAIN: If the whole or substantially all of the Facility, or
all means of access thereto, be acquired by eminent domain, or by purchase in
lieu thereof, this Lease shall terminate and the Rent shall be abated during the
unexpired portion of the Lease
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subsequent to the actual physical taking. Separate awards for damages shall be
made to the Landlord and the Tenant for the taking to the extent permitted by
applicable law. Should, however, only a portion of the Facility be so condemned
or taken, this Lease shall continue in full force and effect provided, however,
that the Rent payable under the unexpired portion of this Lease shall be
adjusted to such extent as may be fair and reasonable under the circumstances.
Landlord shall, in such event, promptly restore the Facility as nearly as
feasible to the condition of such Facility immediately prior to the taking, but
Landlord shall not be required, at its option, to restore or rebuild the
Facility during the last year of the lease Term. Tenant shall not be entitled to
any part of the condemnation proceeds arising from any partial taking except
that Tenant shall be entitled to make a claim for any of Tenant's property
condemned.
15. DEFAULT: Any one or more of the following events shall at the
Landlord's option constitute an "Event of Default":
(a) Tenant's failure to make payment of Base Rent or Additional Rent
when the same is due and payable and the continuance of such failure for a
period of thirty (30) days after mailing by certified mail or delivery to Tenant
of notice in writing from Landlord specifying in detail the nature of such
failure; or
(b) Tenant's failure to perform any of the other covenants,
conditions, and agreements imposed by it under this Lease and the continuance of
such failure without the curing of same for a period of thirty (30) days after
mailing by certified mail or delivery to Tenant of notice in writing from
Landlord specifying in detail the nature of such failure and provided Tenant
shall not cure such failure as provided in paragraph (D) below; or
(c) The adjudication of Tenant as a bankrupt, or the appointment of
a receiver or trustee for Tenant's property and affairs, or the making by Tenant
of any assignment for the benefit of its creditors or the filing by or against
Tenant of a petition in bankruptcy not vacated or set aside within ten (10) days
of such filing.
(d) Tenant's failure to timely correct any deficiencies of any kind
issued by any state or federal agency having jurisdiction over the Facilities,
where such failure if not timely corrected would have a material adverse effect
on the Facilities operations or its licenses.
If an Event of Default occurs (a "Default"), the Landlord, in addition to
any other right or remedy it may have with respect to such Default, may upon ten
(10) days written notice, terminate this Lease for cause and re-enter the
Facility and take possession of the same, or, at its option, in such event
Landlord may, without declaring this Lease terminated, re-enter the Facility and
occupy or lease the whole or any part thereof, for and on account of Tenant and
on such terms and conditions for such rental as Landlord may deem proper based
on reasonable business practices, and Landlord shall in such event collect such
rent and apply the same upon the rents due from Tenant and upon the expenses of
such subletting, and any and all other damages sustained by Landlord. If a
Default occurs, Landlord shall exercise reasonable efforts to mitigate damages
hereunder and to re-let the Facility, but Landlord's failure to relet or sublet
the Facility shall not prevent or delay the exercise by Landlord, at its option,
of its right to
7
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recover as damages any Base Rents and Additional Rents due and owing for the
remainder of the Term, together with all costs and expenses of collecting the
same, subject to Landlord's obligation to repay or credit the Tenant with all
recoveries made by Landlord.
Upon the occurrence of a Default, Landlord may, at its option, give Tenant
written notice by certified mail of Landlord's election to end the term of this
Lease upon a date specified in such notice, which date shall be not less than
ten (10) days after the date of delivery or certified mailing by Landlord of
such notice, and whereupon the term and estate hereby vested in Tenant shall
cease and any and all other right, title and interest of Tenant hereunder shall
likewise cease without further notice or lapse of time as fully and with like
effect as if the entire term of this Lease had elapsed, but Tenant shall
continue to be liable to Landlord as hereinafter set forth; provided, that this
Lease shall not terminate if Tenant shall cure such Default prior to the
termination date specified in such notice.
(e) In the event Landlord gives notice of a Default of such a nature
(other than a Default which may be cured by a payment of money) that it cannot
be cured within such ten (10) day or greater period, then such Default shall not
be deemed to continue so long as Tenant, after receiving such notice, proceeds
diligently and continuously to cure the Default as soon as reasonably possible
and continues to take all steps necessary to complete the same within a period
of time which, under all prevailing circumstances, shall be reasonable. No
Default shall be deemed to continue if, and so long as, Tenant shall be
proceeding to cure the same in good faith or be delayed in or prevented from
curing the same by force majeure.
16. HOLDING OVER: If Tenant remains in possession of the Facility after
the expiration of the Term hereof, including any extensions of the term, and
without the execution of a new lease, Tenant shall occupy the Facility as a
Tenant from month to month, subject to all of the conditions of this Lease
insofar as consistent with such a tenancy and at the highest monthly Base Rent
and Additional Rent herein provided.
17. WAIVERS: Failure of Landlord or Tenant to complain of any act or
omission on the part of the other party, no matter how long the same may
continue, shall not be deemed to be a waiver by such party of any of its rights
hereunder. No waiver by Landlord or Tenant at any time, expressed or implied of
any breach of any provisions of this Lease, shall be deemed a consent to any
subsequent breach of the same or any other provision. No acceptance by Landlord
of any partial payment shall constitute an accord or satisfaction but shall only
be deemed a part payment in account.
18. SURRENDER OF FACILITY: Upon the expiration or other termination of
this Lease, Tenant covenants and agrees that it will peaceably leave and
surrender possession of the Facility to Landlord. Upon such surrender, all
improvements on the Facility shall be in good repair, damage or destruction by
fire or other casualty insured against and ordinary wear and tear, alterations,
additions and improvements herein permitted excepted.
19. NOTICES: Until notice to the contrary to the other party has been
given, all notices and payments of money if made to Landlord shall be made or
given by telephonic
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facsimile (transmission electronically confirmed), nationally recognized
overnight delivery service (freight prepaid), hand delivery, or by mail (postage
prepaid) addressed to:
LANDLORD: BROWNSBORO HILLS NURSING HOME, INC.
c/o Messrs. HAROLD V. BOMAR, JR. and HAROLD V. BOMAR III
601 Cressbrook Drive
Louisville, KY 40206
Phone: 502-896-4660
Fax: 502-897-9503
TENANT: TRANSITIONAL HEALTH SERVICES
9300 Shelbyville Road, Suite 1300
Louisville, Kentucky 40222
Attn: Randall J. Bufford
Phone: 502-425-3620
Fax: 502-425-3662
20. SHORTFORM LEASE: The parties hereto shall forthwith execute and record
with the Jefferson County Clerk a Memorandum or Short Form Lease Agreement, in
recordable form, including such provisions hereof as either party may desire to
incorporate therein.
21. NON-DISTURBANCE AND ATTORNMENT: Tenant agrees upon request of
Landlord's mortgagee to attorn to such mortgagee, subordinate this Lease to any
mortgage constituting a lien on the Facility, and to provide such other
reasonable assurance as such mortgagee may reasonably require in connection with
the financing of the Facility and the improvements thereon provided, however,
any such agreement or document shall provide, and such mortgagee shall covenant,
that Tenant's use and possession of the Facility shall not be disturbed so long
as Tenant shall not cause or suffer any material Default hereunder. In the event
Landlord shall default in any payment due in respect of such mortgage, Tenant
shall have the right under Landlord's mortgage, but not the obligation, upon ten
(10) days written notice from either Landlord or Landlord's mortgage, to pay
such amount due and thereby cure such default (and credit the amount of any such
payment against the Tenant's next succeeding Rent obligations).
22. PERFORMANCE BY LANDLORD: Landlord covenants to perform all of its
obligations to any mortgagee or other secured lender holding a lien on any
property subject to this Lease and to make timely payments on all such secured
indebtedness. In the event payment is made by Tenant for Landlord's account as
hereinabove provided in Section 21 hereof, Tenant shall be entitled to recover
such payment from Landlord with interest from the day of such payment at the
same rate applicable with respect to the secured indebtedness upon which such
payment is made, but no such payment shall be offset or otherwise relieve Tenant
from making future Rent payments as and when the same come due.
23. ENTIRE AGREEMENT: This Lease constitutes the entire agreement between
the parties hereto, and no other oral or written statement shall apply. Tenant
agrees that it is
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not relying on any representations or agreements other than those contained in
this Lease. This Lease shall not be modified or canceled except by writing
subscribed to by all parties.
24. BROKERAGE: Each of the parties covenants and represents to the other
that neither has incurred brokerage fees with respect to the transaction herein
set forth.
25. PARTIES: The covenants, conditions, obligations and agreements
contained in this Lease shall bind and inure to the benefit of Landlord and
Tenant and their respective successors and assigns. Tenant's general partners
and holding company jointly and severally endorse this Lease for the purpose of
guaranteeing all of Tenant's obligations to Landlord during the Term hereof,
including without limitation, the obligation to make timely payment of all
installments of Base Rent and/or Additional Rent becoming due during the Term.
26. RIGHT OF FIRST REFUSAL: In the event Landlord wishes during the Term
to sell the Facility or any part thereof, Landlord shall notify Tenant of its
intent to sell in writing by certified mail setting forth the amount of the
proposed sale price and all other terms and conditions of such proposed sale,
and Tenant shall have the right of first refusal to purchase the Facility upon
the same terms and conditions by giving Landlord written notice of its election
so to do within thirty (30) days after receipt of Landlord's notice. In the
event Tenant fails to notify Landlord of its election within such thirty (30)
day period, or notifies Landlord it does not wish to exercise its right to
purchase, Landlord shall have the right to sell the Facility subject to this
Lease upon terms and conditions no more favorable to a purchaser than those
contained in its notice to Tenant.
In the event Landlord wishes to relet to any person or entity the
Facility upon the expiration of the Term, Landlord shall notify Tenant of its
intent to relet in writing by certified mail, setting forth the proposed terms
of such Lease, and Tenant shall have the right of first refusal to relet the
Facility upon the same terms and conditions by giving Landlord written notice of
its election to do so within thirty (30) days after receipt of Landlord's
notice. In the event Tenant fails to notify Landlord of its election within the
thirty (30) day period or notifies Landlord it does not wish to exercise its
right to relet, Landlord shall have the right to relet the Facility upon terms
and conditions no more favorable to a Tenant than those contained in its notice
to Tenant.
Tenant's right to notice and/or exercise either of the rights of
first refusal hereinabove specified shall be subject to the condition that
Tenant not be in Default hereunder. If Tenant shall have lost its right to
purchase by reason of Default as hereinabove set forth, or if after receiving
notice Tenant shall not exercise its right to acquire the Facility and the
Facility shall be sold by Landlord to a third party, the rights of first refusal
herein granted shall be terminated as of the recordation of the deed conveying
the Facility.
27. RENT DEPOSIT: To secure its payment of Rent and performance of all its
other obligations under this Lease, Tenant shall deposit Two Hundred Fifty
Thousand Dollars ($250,000.00) (i.e., the "Rent Deposit") with Landlord on the
Effective Date. Landlord shall not be obliged to keep the Rent Deposit as a
separate fund, but may mix the Rent Deposit with its own funds. A portion of the
Rent Deposit shall be used to satisfy and pay the landlord's
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obligations under a Promissory Note dated July 5, 1995, in the principal amount
of $50,000.00, including payment of all principal and accrued interest. In the
event of an Event of Default and Landlord's termination of this Lease or any
termination of this Lease, Landlord shall apply the Rent Deposit towards Rents
or other charges in arrears, reasonable repossession costs, or upon damages for
Tenant's failure to perform. Provided Tenant is not then in default under this
Lease, Tenant shall be permitted to setoff, and Landlord agrees to apply the
balance of, the Rent Deposit towards the Tenant's Rent obligations during the
last possible months of the Term hereof, taking into account any other amounts
due Tenant from Landlord.
28. ENVIRONMENTAL MATTERS: Landlord hereby represents and warrants to, and
covenants with, Lessee, without regard to whether Lessee has or hereafter
obtains any knowledge or report of the environmental condition of the Facility,
as follows:
a. The Facility has never been used by Landlord for industrial or
manufacturing purposes, for landfill dumping or other waste disposal activities
or operations, for generation, storage, use, sale, treatment, processing,
recycling or disposal of any Hazardous Material (except for miscellaneous
cleaning supplies, diesel fuel for the Facility's emergency generator in an
above ground storage tank, and medical/infectious waste, all of which is stored
and disposed of in compliance with applicable Hazardous Materials Law), for
underground or aboveground storage tanks, or for any other use that could give
rise to the release of any Hazardous Material on the Facility; and, to the best
of Landlord's knowledge, no such use of the Facility occurred at any time prior
to the period of Landlord's ownership or use of the Facility, and to the best of
Borrower's knowledge, no such use on any adjacent Facility occurred at any time
prior to the date hereof;
b. To Landlord's knowledge, there is no Hazardous Material, storage
tank (or similar vessel) whether underground or otherwise, sump or well
currently on the Facility;
c. Landlord has no notice and any knowledge of any pending or
threatened claim or investigation concerning the presence, release, or
remediation of any Hazardous Material or other environmental condition on or
about the Facility or any adjacent property or concerning whether any condition,
use or activity on the Facility or any adjacent property is in violation of any
Hazardous Materials Law;
d. To Landlord's knowledge, the present conditions, uses and
activities on the Facility do not violate any Hazardous Materials Law, and the
use of the Facility which Landlord makes of the Facility complies and will
comply with all applicable Environmental Requirements;
e. The Facility does not appear on and to the best of Landlord's
knowledge has never been on the National Priorities List, any federal or state
"superfund" or "superlien" list, or any other list or database of properties
maintained by governmental authority showing properties which are known to
contain or which are suspected of containing Hazardous Materials;
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f. Landlord, nor to Landlord's knowledge any tenant or subtenant,
has obtained or is required to obtain any permit or authorization to construct,
occupy, operate, use or conduct any activity on any of the Facility by reason of
any Environmental Requirement.
Landlord agrees to indemnify, defend and hold Lessee harmless from
and against any and all claims, actions or damages involving Hazardous Materials
or any issues or matters discussed in paragraphs (a) through (f) above to the
extent such claims, actions or damages arose or relate to conditions on or about
the Facility or the activities of the Landlord prior to the Commencement Date,
and to the extent that the existence of such matters or issues constitute a
breach by Landlord of the representations and warranties set forth in this
Section 28. Tenant agrees to indemnify, defend and hold Landlord harmless from
and against any and all claims, actions or damages involving Hazardous Materials
and arising out of Tenant's operation of the Facilities.
As used in this paragraph, "Hazardous Material" means any substance,
whether solid, liquid or gaseous, which is listed, defined or regulated as a
"hazardous substance," "hazardous waste" or "solid waste", or otherwise
classified as hazardous or toxic, in or pursuant to Hazardous Materials Law,
including without limitation, asbestos, radon, polychlorinated biphenyls, urea
formaldehyde foam insulation, medical/infectious waste, explosive or radioactive
material, motor fuel or other petroleum hydrocarbons, chemicals known to cause
cancer or reproductive toxicity, pollutants, effluents, contaminants, emissions
or related materials, and any items included in the definition of hazardous or
toxic wastes, or any other materials or substances under any Hazardous Materials
Law; and "Hazardous Materials Law" means any law pertaining to health, safety,
Hazardous Material, or the environment, including, without limitation, the Solid
Waste Disposal Act, the Resource Conservation and Recovery Act of 1976 ("RCRA"),
the Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), as amended by the Superfund Amendments and Reauthorization Act of
1986 ("SARA"), the Hazardous Materials Transportation Act, the Federal Water
Pollution Control Act, the Clean Air Act, the Clean Water Act, the Toxic
Substances Control Act, the Safe Drinking Water Act, and all similar federal,
state and local environmental statutes, ordinances and the regulations, orders,
or decrees now or hereafter promulgated thereunder.
29. LEASEHOLD IMPROVEMENTS; LEASEHOLD FINANCING: Tenant shall have the
right at any time and with the Landlord's prior consent, which consent shall not
be unreasonably withheld, to construct, alter, repair or maintain on any part of
the Facility and such related buildings, parking areas, driveways, structures,
sidewalks and other similar and dissimilar improvements as Tenant shall desire.
Consent by the Landlord to an increase in the Facilities' beds or apartments may
be unreasonably withheld. All alterations and improvements constructed by Tenant
shall (i) comply with all applicable building codes and ordinances, (ii) be
borne and paid for by Tenant exclusively, (iii) be diligently completed once
construction has commenced, and (iv) become the property of Landlord upon the
termination of this Lease. Prior to the commencement of any such alterations,
additions, replacements or improvements, Tenant shall submit to and obtain
Landlord's written approval of the plans and specifications thereof, which
approval shall not be unreasonably withheld. Tenant agrees to indemnify Landlord
against all claims by laborers and materialmen for any improvements constructed
by Tenant, and save and hold Landlord and Facility harmless from any and all
liability of any kind on account
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of such work or improvement. Whenever Tenant shall not be subject to an Event of
Default, Tenant shall have the right to mortgage its leasehold interest and
contract rights arising under this Lease. If Tenant does so, Landlord agrees as
follows: (a) Landlord shall not agree to any modification, amendment or
termination of this Lease without first obtaining the prior written approval of
Tenant's leasehold mortgagee (the "Tenant's Mortgagee"), which approval shall
not be unreasonably withheld, provided, however, that this provision shall not
impair Lessor's right to terminate this Lease pursuant to its terms due to Event
of Default hereunder; (b) Landlord shall notify Tenant's Mortgagee in writing of
any Event of Default by Tenant under this Lease at the time notice is sent to
Tenant and Tenant's Mortgagee shall then have the right, but not the obligation,
to correct any such default within the time allotted to Tenant under this Lease,
provided, that no such notification of Tenant's Mortgagee shall be required
unless Tenant has provided Lessor with name and current address of Tenant's
Mortgagee; (c) If for any reason whatsoever, including the disaffirmance or
rejection of this Lease in a bankruptcy proceeding, this Lease shall terminate
or come to an end during the term of Tenant's Mortgagee's mortgage, Landlord
shall enter into a new lease with Tenant's Mortgagee on the same terms and
conditions as this Lease if Tenant's Mortgagee shall pay Landlord all amounts
owed by Tenant under the Lease; (d) Tenant's Mortgagee shall not be liable for
the performance of this Lease (subject to subsection (c) above) except during
such time as Tenant's Mortgagee shall be in possession due to foreclosure or
other acquisition of the leasehold estate, and upon any permitted subsequent
assignment of this Lease by Tenant's Mortgagee, Tenant's Mortgagee shall remain
liable for the performance of the obligations of any Tenant under any substitute
agreement entered into between Tenant's Mortgagee and Lessor. The rights of
Tenant pursuant to this Section 29 shall be subject to any restrictions set
forth in any mortgage on the Facility.
Landlord shall enter into an agreement in recordable form with Tenant's
Mortgagee, if so requested by Tenant;s Mortgagee, containing the foregoing terms
and conditions. In no event shall Lessor be liable to pay any such amounts due
to Tenant's Mortgagee or under any such leasehold mortgage.
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IN WITNESS WHEREOF, the parties hereto have each, pursuant to due
corporate authority, caused this Lease to be executed in its name and on its
behalf, each by its duly authorized officer, all as of this day and year first
above written.
LANDLORD: BROWNSBORO HILLS NURSING HOME, INC.
By: /s/ Harold V. Bomar, Jr.
-----------------------------------------
Harold V. Bomar, Jr., Secretary-Treasurer
Date: 8/3/95
and
By: /s/ Harold V. Bomar, III
-----------------------------------------
Harold V. Bomar, III, President
Date: 8/3/95
BROWNSBORO HILLS PLAZA
a Kentucky general partnership
By: /s/ Harold V. Bomar, Jr.
-----------------------------------------
Harold V. Bomar, Jr., General Partner
Date: 8/3/95
and
By: /s/ Harold V. Bomar, III
-----------------------------------------
Harold V. Bomar, III, General Partner
Date: 8/3/95
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TENANT: TRANSITIONAL HEALTH PARTNERS d/b/a
TRANSITIONAL HEALTH SERVICES.,
a Delaware general partnership
By THS Partners I, Inc., and
THS Partners II, Inc., General Partners
By: /s Randall J. Bufford
-----------------------------------------
Randall J. Bufford, General Manager
Date: 8/8/95
15
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EXHIBIT 10.15
<PAGE>
LEASE AGREEMENT
THIS LEASE, made as of the 10th day of March, 1993, by and between
ELDERBERRY NURSING HOME OF NORTH CAROLINA, INC., a Virginia corporation
(hereinafter referred to as "Landlord"), party of the first part; and CARDINAL
OF KENTUCKY, INC., a Kentucky corporation (hereinafter referred to as "Tenant"),
party of the second part;
W I T N E S S E T H :
In consideration of the mutual covenants and obligations herein contained,
IT IS AGREED:
1. PREMISES: Landlord does hereby demise and lease unto Tenant, and Tenant
does hereby take, hire and let from Landlord that certain tract or parcel of
real estate, together with the buildings and improvements (and including
furniture, fixtures and equipment belonging to or provided by Landlord) and
constituting a 100 bed intermediate, skilled and home for the aged nursing home
facility, and the privileges and appurtenances thereunto appertaining, situate,
lying and being at or near the Town of Hayesville, in Clay County, North
Carolina, and being more particularly described on "EXHIBIT A" hereto attached,
hereafter referred to as "Premises" or "Demised Promises".
2. COVENANT OF TITLE AND QUIET ENJOYMENT: Landlord covenants and warrants
that it alone has full right and lawful authority to enter into this Lease for
the full term hereof; that it is lawfully seized of the Premises in fee simple
and has good
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title thereto, free and clear of all tenancies, restrictions and encumbrances,
(with the exception of liens securing Lenders providing financing for the
facility which is the subject of this Lease, and other matters not adversely
affecting the intended use of the Premises or merchantability of title, or other
matters agreed to between the parties) and that at all times during the term of
this Lease and any extensions of said term, Tenant's quiet and peaceful
enjoyment of the Premises shall not be disturbed or interfered with by anyone.
3. GOVERNMENTAL AUTHORIZATIONS AND USE OF PREMISES: Landlord hereby
represents and warrants to Tenant, that the use of the Premises as an
intermediate, skilled and home for the aged nursing home facility is a permitted
use per all applicable zoning or other use restrictions or regulations. Landlord
further warrants that the character, materials, design, construction and
location of the improvements is in full compliance with all building codes,
zoning laws and all other laws and ordinances pertaining thereto.
The Tenant shall use the premises as an intermediate, skilled and home for
the aged nursing home facility which shall be operated in full compliance with
all laws and regulations applicable thereto. Tenant covenants that no part of
the Demised Premises shall be used for any unlawful purpose, nor will any
unlawful condition or nuisance be permitted to exist thereon.
Tenant shall maintain the capacity of the facility and shall not
voluntarily by direct action or by sufferance reduce the bad capacity of the
facility and further no such reduction shall in
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any event occur without the advance written approval of the U. S. Department of
Housing and Urban Development (HUD).
4. TERM: The term of this Lease shall be for Ten (10) years commencing
with the first day of the calendar month following the date (the "Availability
Date") either party exercises its right to vest the leasehold estate in Tenant
under the terms and provisions of the Option Agreement between the parties and
Tenant thereupon assumes possession of said estate under the terms hereof.
If the Availability Date is not on the first day of a month, the
prorated monthly installment of rent shall be paid by Tenant to Landlord for the
period of time from the Availability Date up to (but not including) the first
day of the next succeeding month, and thereafter the Rent shall be paid as
hereinafter set forth.
5. RENT: Tenant shall pay to Landlord at its offices in Lynchburg,
Virginia, or at such other place as it may advise in writing, for each calendar
month on the 10th day of such month, without notice, demand, offset or
deduction, in lawful money of the United States of America, during and
throughout the term of this Lease, rent which shall be payable in monthly
installments equal to:
A. If the Facility has 80 licensed beds:
(1) For the first twenty-four (24) months of the term (Lease Years 1
and 2) the sum of Twenty-Five Thousand, Five Hundred Fifty Dollars
($25,550.00).
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(2) For the next thirty-six (36) months of the term (Lease Years 3,
4 and 5) the sum of Twenty-Six Thousand, One Hundred Fifty-Eight and
33/100 Dollars ($26,158.33).
(3) For the next sixty (60) months of the term (Lease Years 6, 7, 8,
9 and 10) the sum of Twenty-Eight Thousand, Five Hundred Ninety One and
67/100 Dollars ($28,591,67). B. If the Facility has 100 licensed beds:
(4) For the first twenty-four (24) months of the term, (Lease Years
1 and 2) the sum of Thirty-One Thousand, Nine Hundred Thirty-Seven and
50/100 Dollars ($31,937,50).
(5) For the next thirty six (36) months of the term (Lease Years 3,
4 and 5) the sum of Thirty-Two Thousand, Six Hundred Ninety Seven and
92/100 Dollars ($32,697.92).
(6) For the next sixty (60) months of the term (Lease Years 6, 7, 8,
9 and 10) the sum of Thirty-Five Thousand, Seven Hundred Thirty Nine and
58/100 Dollars ($35,739.58).
Any rent adjustment resulting from a change in licensed beds
becoming effective on any day other than the first day of any month shall be
prorated on a per them basis.
If the Landlord does not receive from Tenant any monthly rental payment
within five (5) days after such payment is due, Landlord, at its option, may
charge Tenant a late charge and handling fee equal to Five Percent (5%) of the
monthly rental payment (such late charge and handling fee shall be deemed
additional rent) and such late charge and handling fee shall be due and payable
by Tenant to Landlord immediately upon delivery of written notice to Tenant. In
addition, if any check of Tenant's is
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returned to Landlord unpaid, Tenant shall reimburse Landlord for all charges
associated with such returned check and Landlord, at its option, may thereafter
require that Tenant pay the Rent and any other charges payable hereunder by a
certified or cashier's check.
All additional sums payable by Tenant to Landlord under the
provisions of this Lease Agreement shall constitute additional rent.
6. REPORTS: Tenant agrees to provide Landlord with signed annual financial
statements accurately reflecting Tenant's financial condition and the results
for its business operations for the preceding year with respect to its
operations generally, as well as its business conducted on the Demised Premises.
Such statements shall be due ninety (90) days after the close of the Tenant's
fiscal year and shall be prepared in accordance with generally accepted
accounting principles consistently applied and further shall be in such form as
required by Landlord's mortgagee. In the event of any default hereunder or any
state of facts which upon the passage of time would constitute a default, Tenant
shall provide audited statements prepared by certified public accountants
satisfactory to Landlord. Tenant agrees to provide Landlord with annual
financial statements of any Guarantor of this Lease, duly signed by such
Guarantor within ninety (90) days after the close of the Guarantor's fiscal
year.
Tenant further will provide Landlord, as the same are filed with the
State of North Carolina, copies of all Medicaid Cost Reports and further will
provide Landlord copies of all communications with the State of North Carolina
regarding
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violations or alleged violations of applicable laws, rules, codes or
regulations.
7. LEGAL FEES AND COSTS: Tenant agrees, in the event it becomes necessary
for Landlord to enforce any provision of this Lease by legal action, or to
engage attorneys for the collection of rent or other monies due under this
Lease, to pay to Landlord reasonable attorney's fees and all court costs and
other costs of such collection or enforcement proceedings incurred by Landlord
if a valid claim is established.
8. UTILITIES: Landlord covenants that all water, sewer, electric current
and telephone facilities are available, connected and working as of the
availability date. Tenant shall pay when due all charges for heat, air
conditioning, water, gas, electricity and other utilities furnished to the
Premises for occupants thereof during the term hereof when the same become due
and payable.
9. REPAIR AND MAINTENANCE OF IMPROVEMENTS: Landlord warrants that the
entire Premises and the building and improvements thereon shall be in good, safe
condition and repair on the Availability Date and for a period of One (1) year
thereafter. Landlord shall be responsible for the structural integrity of the
building and repair of the roof and exterior walls, excluding windows and glass
panels, and except for damages caused or suffered to be caused by Tenant during
the term of this Lease, Except for such responsibility undertaken by Landlord,
Tenant shall be responsible, during the term, for maintaining the Premises in
good repair, including without limitation all interior surfaces, electrical,
plumbing, heating, air conditioning, and other systems,
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as well as the exterior grounds, and shall at the end of the term, return the
same to Landlord in good repair and condition, with the exception of casualties
insured against and ordinary wear and tear. If Tenant fails to make any repairs,
and/or perform any maintenance for which it is responsible, within thirty (30)
days after written notice thereof, Landlord may, at its sole option, make the
repairs and/or perform the maintenance and the reasonable expense thereof shall
be paid by Tenant, together with interest at a rate equal to One and One Half
Percent (1-1/2%) in excess of the Prime Rate then in effect at the Bank
financing the construction of the facility if such expense is not paid within
thirty (30) days. Tenant shall have the right at any time and with the
Landlord's prior consent, which consent shall not be unreasonably withheld, to
construct, alter, repair or maintain on any part of the Premises such buildings,
parking areas, driveways, structures, sidewalks and other similar and dissimilar
improvements as Tenant shall desire. All improvements constructed by Tenant
shall comply with all applicable building codes and ordinances and shall be at
Tenant's sole cost and expense and shall become the property of Landlord at the
termination of this Lease. Tenant agrees to indemnify Landlord against all
claims by laborers and materialmen for any improvements constructed by Tenant.
Landlord, its agents and employees, shall have the right at all
reasonable times, to enter the Demised Premises or any part thereof, to inspect
and examine the same for the purpose of making any repairs to or within the
Demised Premises.
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10. DAMAGE OR DESTRUCTION OF IMPROVEMENTS: If the improvements located
upon the Premises shall be damaged or destroyed by any cause insured against,
Landlord shall, rebuild or restore the damaged or destroyed improvements, using
insurance proceeds for such purpose and this Lease shall continue in full force
and effect. In such event the rental reserved hereunder shall be paid by the
business interruption insurance hereinafter provided for. If the remaining term
is one (1) year or less, either party shall have the right to terminate this
Lease.
11. TAXES AND ASSESSMENTS: Tenant agrees to pay when due, all taxes (as
hereinafter defined) on or with respect to the Premises. Such payments &hall be
made in accordance with the terms, and payable directly to the appropriate
authority or body. Landlord will promptly send Tenant copies of all bills for
taxes to be paid by Tenant and Tenant will pay the same to the appropriate
governmental authority. Tenant shall promptly send Landlord reasonable evidence
of payment of such bill after such payment.
In the event this Lease shall commence, or shall end (by reason of
expiration of the term or earlier termination pursuant to the provisions
hereof), on any date other than the first or last day of the year, or should the
year or period of assessment of real estate taxes be changed to more or less
than one year, as the case may be, then the amount of taxes which may be payable
by Tenant as provided hereunder shall be appropriately apportioned.
12. INSURANCE INDEMNITY:
(a) Tenant shall at all times during the original term and any
extension thereof, carry and maintain, for the mutual
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benefit of Landlord, Tenant and Landlord's designated mortgagee, general public
liability insurance issued by a company or companies licensed to do business in
North Carolina and which are approved by Landlord (which approval shall not be
unreasonably withheld) against claims for personal injury, sickness, or disease,
including death and property damages in, on or about the Premises, such
insurance to afford protection to the limit of not less than $1,000,000.00 in
respect to each person, and to the limit of not less than $3,000,000.00 in
respect to any one occurrence causing bodily injury or death, and to the limit
of not less than $200,000.00 in respect to property damage. Tenant shall furnish
Landlord with a duplicate certificate or certificates of such insurance policy
or policies, and Tenant shall name Landlord as a party insured in such policy or
policies.
(b) During the term of this Lease or any extension thereof, Tenant
shall maintain for the benefit of Tenant, Landlord, and Landlord's designated
Mortgagee, business interruption insurance sufficient to pay the rent and
Tenant's other obligations hereunder.
(c) During the term of this Lease or any extension thereof, Tenant
shall keep all buildings and improvements on the premises insured in the amount
of the full replacement cost for the benefit of Tenant, Landlord, and Landlord's
designated mortgagee against loss or damage by fire, with customary extended
coverage. All proceeds payable at any time and from time to time by an insurance
company under such policies (except contents belonging to Tenant and Tenant's
relocation allowance, if any) shall be payable
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to Landlord, or its designated mortgagee. The proceeds shall be utilized by
Landlord and Tenant for the restoration of improvements in the event such
restoration is required hereunder. If no restoration is required, the proceeds
shall belong to Landlord.
(d) The insurance policies herein mentioned shall provide thirty
(30) days notice of cancellation to all parties named therein as insured.
(e) Tenants shall fully indemnify, protect and save Landlord
harmless from all expenses, claims, demands, counsel fees, costs, liabilities,
judgements and executions in any manner relating to or arising out of the use or
occupancy of the Premises for the term of this Lease or any extension thereof.
(f) Any provision in this Lease to the contrary notwithstanding,
each party, to the extent it is permitted so to do by the terms and provisions
of any such policy or policies, hereby waives any and all rights to recover from
the other, its agents, or employees, any loss or damage from risks ordinarily
insured against under such policies, but only to the extent that such loss or
damage is in fact covered by such insurance and is collectible by such insured
party. Each party further covenants and agrees that it will, upon request of the
other, request each such insurance company to attach to such policy or policies
issued by it a waiver of subrogation with respect to the other party, its agents
and employees.
13. ASSIGNMENT AND SUBLETTING: Tenant shall have the right to assign this
Lease or sublet all or any part of the Premises with the consent of Landlord,
such consent not to be unreasonably
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withheld, but Tenant shall in such event remain liable to Landlord for Tenant's
obligations hereunder. Any merger, consolidation, reorganization, or liquidation
of Tenant, or the mortgage by Tenant of the leasehold estate hereby created, or
the sale or other transfer of a controlling interest of its capital stock, or of
a majority of its assets, shall, for purposes of this Lease, constitute an
assignment thereof. So long as the facility is subject to a HUD supported
mortgage or other lien, the assignment of this Lease shall be subject to prior
written consent of HUD.
14. SIGNS: Tenant shall have the right to install, maintain and replace
in, on or over or in front of the Premises or in any part thereof such signs and
advertising matter as Tenant may desire, and Tenant shall comply with all
applicable requirements of governmental authorities having jurisdiction and
shall obtain any necessary permits for such purpose. As used in this paragraph,
the word "sign" shall be construed to include any placard, light or other
advertising symbol or object, irrespective of whether same be temporary or
permanent.
15. EMINENT DOMAIN: If the whole or substantially all of the Premises, or
all means of access thereto, be acquired by eminent domain, or by purchase in
lieu thereof, this lease shall terminate and the rent shall be abated during the
unexpired portion of the lease subsequent to the actual physical taking.
Separate awards for damages shall be made to the Landlord and the Tenant for the
taking to the end permitted by applicable law. Should, however, only a portion
of the premises be so condemned or taken, this Lease shall continue in full
force and effect provided, however, that the
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rent payable under the unexpired portion of this Lease shall be adjusted to such
extent as may be fair and reasonable under the circumstances. Landlord shall, in
such event, promptly restore the Demised Promises as nearly as feasible to the
condition of such premises immediately prior to the taking, but Landlord shall
not be required, at its option, to restore or rebuild the Demised Property
during the last year of the Lease term. Tenant shall not be entitled to any part
of the condemnation proceeds arising from any partial taking except that Tenant
shall be entitled to make a claim for any of Tenant's property condemned.
16. DEFAULT: Any one or more of the following events shall constitute
events of default:
(a) Tenant's failure to make payment of rent when the same is due
and payable and the continuance of such failure for a period of ten (10) days
after mailing by certified mail or delivery to Tenant of notice in writing from
Landlord specifying in detail the nature of such failure; or,
(b) Tenant's failure to perform any of the other covenants,
conditions, and agreements imposed by it under this Lease and the continuance of
such failure without the curing of same for a period of thirty (30) days after
mailing by certified mail or delivery to Tenant of notice in writing from
Landlord specifying in detail the nature of such failure and provided Tenant
shall not cure said failure as provided in paragraph (b) below, or,
(c) The adjudication of Tenant as a bankrupt, or the appointment of
a receiver or trustee for Tenant's property and affairs, or the making by Tenant
of any assignment for the benefit
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of its creditors or the filing by or against Tenant of a petition in bankruptcy
not vacated or set aside within ten (10) days of such filing.
In the event of default, the Landlord, in addition to any other
right or remedy it may have with respect to such default, may upon ten (10) days
written notice, terminate this Lease for cause and re-enter the Premises and
take possession of the same, or, at its option, in such event Landlord may,
without declaring this Lease terminated, reenter the Premises and occupy or
lease the whole or any part thereof, for and on account of Tenant and on such
terms and conditions for such rental as Landlord may deem proper based on
reasonable business practices, and Landlord shall in such event collect such
rent and apply the same upon the rents due from Tenant and upon the expenses of
such subletting, and any and all other damages sustained by Landlord. In the
event of default, Landlord shall exercise reasonable efforts to mitigate damages
hereunder and to re-let the Premises, but Landlord's failure to re-let or sublet
the Premises shall not prevent or delay the exercise by Landlord, at its option,
of its right to recover as damages rents due and owing for the remainder of the
term, together with all costs and expenses of collecting the same, subject to
Landlord's obligation to repay or credit the Tenant with all recoveries made by
Landlord.
Upon the occurrence of any of the above events of default, Landlord
may, at its option, give Tenant written notice by certified mail of Landlord's
election to end the term of this Lease upon a date specified in such notice,
which date shall be not less
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than thirty (30) days after the date of delivery or certified mailing by
Landlord of such notice, and whereupon the term and estate hereby vested in
Tenant shall cease and any and all other right, title and interest of Tenant
hereunder shall likewise cease without further notice or lapse of time as fully
and with like effect as if the entire term of this Lease had elapsed, but Tenant
shall continue to be liable to Landlord as hereinafter set forth; provided, that
this Lease shall not terminate if Tenant shall cure such default prior to the
termination date specified in such notice.
In the event Landlord gives notice of a default of such a nature
(other than a default which may be cured by a payment of money) that it cannot
be cured within such thirty (30) day period, then such default shall not be
deemed to continue so long as Tenant, after receiving such notice, proceeds
diligently and continuously to cure the default as soon as reasonably possible
and continues to take all steps necessary to complete the same within a period
of time which, under all prevailing circumstances shall be reasonable. No
default shall be deemed to continue if, and so long as, Tenant shall be so
proceeding to cure the same in good faith or be delayed in or prevented from
curing the same by Force Majeure.
17. HOLDING OVER: In the event Tenant remains in possession of the
Premises after the expiration of the term hereof, including any extensions of
the term, and without the execution of a new lease, Tenant shall occupy the
Premises as a Tenant from month to month, subject to all of the conditions of
this Lease insofar as
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consistent with such a tenancy and at the highest monthly rental herein
provided.
18. COMPLIANCE WITH GOVERNMENTAL PROGRAMS: Landlord covenants that the
Premises will, during the term hereof, meet all standards required for Federal
Medicare (Title 18) or Medicaid (Title 19) skilled care or intermediate care
nursing programs and that it will make any alterations necessary to maintain
compliance with same. Any alterations or changes or expansion will be negotiated
at the then current cost of construction, which cost, together with interest at
the rate of interest for which money is financed, shall be amortized in level
monthly additional rent payments over the agreed upon remaining lease period.
The parties recognize that Landlord may apply for an increase in the
number of duly licensed nursing home beds authorized on the Demised Premises.
Such application shall be at the cost and expense of the Landlord and
improvements required for such license shall be at Landlord's cost and expense.
Tenant agrees to cooperate and assist Landlord with respect to such efforts and
to pay such additional rents calculated in accordance with the provisions of
Section 5 hereof as may be applicable to such additional nursing home beds upon
their licensure by appropriate State authorities.
Landlord shall, so long as the HUD supported loan is in effect and
secured by lien upon the Property, maintain the equipment replacement reserve
required by HUD, and subject to the approval of HUD, Tenant shall have the
right, upon submission to Landlord of invoices and appropriate supporting
documentation, to
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draw against said reserve for the replacement of equipment in the ordinary
course of business subject to Landlord's written approval, such approval not
unreasonably to be withhold.
19. WAIVERS: Failure of Landlord or Tenant to complain of any act or
omission on the part of the other party, no matter how long the same may
continue, shall not be deemed to be a waiver by said party of any of its rights
hereunder. No waiver by Landlord or Tenant at any time, expressed or implied of
any breach of any provisions of this Lease, shall be deemed a consent to any
subsequent breach of the same or any other provision. No acceptance by landlord
of any partial payment shall constitute an accord or satisfaction but shall only
be deemed a part payment in account.
20. SURRENDER OF PREMISES: Upon the expiration or other termination of
this Lease, Tenant covenants and agrees that it will peaceably leave and
surrender possession of the Premises to Landlord. Upon such surrender, all
improvements on the Premises shall be in good repair, damage or destruction by
fire or other casualty insured against and ordinary wear and tear, alterations,
additions and improvements herein permitted, excepted.
21. NOTICES: Until notice to the contrary to the other party has been
given, all notices and payments of money if made to Landlord shall be made or
given by delivery or by mail (postage prepaid) addressed to Landlord at P. 0.
Box 638, 1000 Church Street, Lynchburg, Virginia, 24505-0638, with a copy to
Joseph C. Knakal, Jr., Esq., Caskie & Frost, P. 0. Box 6360, 2306 Atherholt
Road, Lynchburg, Virginia, 24505, or if made to Tenant shall be
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made by delivery or by certified mail (postage prepaid) addressed to Tenant at
Cardinal of Kentucky, Inc. of 9300 Shelbyville Road, Suite 1300, Louisville, KY
40222, Attention: Randall J. Bufford.
22. SHORT FORM LEASE: The parties hereto shall forthwith execute a
memorandum or short form lease agreement, in recordable form, including such
provisions hereof as either party may desire to incorporate therein.
23. NON-DISTURBANCE AND ATTORNMENT: Tenant agrees upon request of
Landlord's mortgagee to attorn to such mortgagee, subordinate this Lease to any
deed of trust constituting a lien on the premises, and to provide such other
reasonable assurances as such mortgagee may reasonably require in connection
with the financing of the Premises and the improvements thereon provided,
however, any such agreement or document shall provide that Tenant's use and
possession of the Promises shall not be disturbed so long as Tenant shall not
make or suffer any material default hereunder, and further that in the event
Landlord shall default in any payment due to such mortgagee, Tenant shall have
the right upon ten (10) days written notice to pay such amount due and thereby
cure such default.
Landlord agrees to seek at Tenant's request, the approval of its
mortgagee to a collateral assignment by Tenant of this Lease or its leasehold
rights arising hereunder as security for Tenant's financing.
24. ENTIRE AGREEMENT: No oral statement or prior written matter shall have
any force or effect. Tenant agrees that it is not relying on any representations
or agreements other than those
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contained in this Lease. This Lease shall not be modified or cancelled except by
writing subscribed to by all parties.
25. BROKERAGE: Each of the parties covenants and represents to the other
that neither has incurred brokerage fees with respect to the transaction herein
set forth.
26. PARTIES: The covenants, conditions, obligations and agreements
contained in this Lease shall bind and inure to the benefit of Landlord and
Tenant and their respective successors and assigns, Each member of the Cardinal
Group jointly and severally endorses this Lease for the purpose of guaranteeing
all of Tenant's obligations to Landlord during the first thirty-six (36) months
of the term, including without limitation, the obligation to make timely payment
of all installments of rent becoming due during such period.
27. RIGHT OF FIRST REFUSAL (SALE): In the event Landlord desires during
the term (including any optional term which becomes effective) to sell the
premises or any part thereof, Landlord shall notify Tenant of such desire to
sell in writing by certified mail setting forth the amount of the proposed sale
price and all other terms and conditions of such proposed sale and Tenant shall
have the right of first refusal to purchase said premises upon the same terms
and conditions by giving Landlord written notice of its election so to do within
sixty (60) days after receipt of Landlord's notice. In the event Tenant fails to
notify Landlord of its election within such sixty (60) day period, or notifies
Landlord it does not wish to exercise its right to purchase, Landlord shall have
the right to sell the premises upon terms and
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conditions no more favorable to a purchaser than those contained in said notice
to Tenant.
28. RIGHT OF FIRST REFUSAL (LEASE): In the event Landlord desires to relet
to any person or entity the premises upon the expiration of the original term,
Landlord shall notify Tenant of such desire to relet, in writing by certified
mail, setting forth the proposed terms of such Lease, and Tenant shall have the
right of first refusal to relet said premises upon the same terms and conditions
by giving Landlord written notice of its election to do so within thirty (30)
days after receipt of Landlord's notice. In the event Tenant fails to notify
Landlord of its election within the thirty (30) day period, or notifies Landlord
it does not wish to exercise its right to relet, Landlord shall have the right
to relet the premises upon terms and conditions no more favorable to a tenant
than those contained in said notice to Tenant.
29. CONDITION UPON EXERCISE OF FIRST REFUSAL: Tenant's right to notice
and/or exercise with respect to either of the rights of first refusal
hereinabove specified, shall be subject to the condition that Tenant shall not
be in default hereunder. If Tenant shall have lost its right to purchase by
reason of default as hereinabove set forth, or if after receiving notice Tenant
shall not exercise its right to acquire the premises, and the premises shall be
sold by Landlord to a third party, the rights of first refusal herein granted
shall be terminated as of the recordation of the deed conveying the premises.
IN WITNESS WHEREFORE, the parties hereto have each, pursuant to due
corporate authority, caused this Lease to be executed in its
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name and on its behalf, each by its duly authorized officer, all as of this day
and year first above written.
LANDLORD:
ELDERBERRY NURSING HOME OF NORTH
CAROLINA, INC.
By /s/ C. Lynch Christian, Jr.
------------------------------------
Its President
(SEAL)
ATTEST:
By /s/ Charles Trefzger
------------------------------------
Its Secretary
TENANT:
CARDINAL OF KENTUCKY, INC.
By /s/ Randall J. Bufford
------------------------------------
Its Vice President
(SEAL)
ATTEST:
By /s/ John G. Hundley
------------------------------------
Its Assistant Secretary
ENDORSED as provided in Paragraph 26 by the following:
CARDINAL DEVELOPMENT CO., INC.
By /s/ Randall J. Bufford
------------------------------------
Its Vice President
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CARDINAL MEDICAL CORPORATION
By /s/ Randall J. Bufford
------------------------------------
Its Vice President
CARDINAL CARE CORPORATION
By /s/ Randall J. Bufford
------------------------------------
Its Vice President
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EXHIBIT 10.16
<PAGE>
LEASE AGREEMENT
Healthcare Realty Trust Incorporated
a Maryland corporation
Lessor
AND
Cardinal Development Co., Inc., a Kentucky corporation,
Lessee
Property: Fenton Extended Care Center
512 Beach Street
Fenton, Michigan
June 8, 1993
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
LEASED PROPERTY; TERM...................................................... 1
ARTICLE II
DEFINITIONS................................................................ 2
ARTICLE III
RENT....................................................................... 9
3.1 Base Rent and Additional Rent.................................. 9
3.2 Quarterly Calculation and Payment of Additional Rent;
Annual Reconciliation ......................................... 10
3.3 Confirmation of Gross Revenues................................. 11
3.4 Additional Charges............................................. 12
3.5 Net Lease...................................................... 12
3.6 Letter of Credit............................................... 12
ARTICLE IV
IMPOSITIONS................................................................ 13
4.1 Payment of Impositions......................................... 13
4.2 Adjustment of Impositions...................................... 14
4.3 Utility Charges................................................ 14
4.4 Insurance Premiums............................................. 14
ARTICLE V
NO TERMINATION............................................................. 14
ARTICLE VI
OWNERSHIP OF LEASED PROPERTY AND PERSONAL PROPERTY......................... 15
6.1 Ownership of the Leased Property............................... 15
6.2 Lessee's Personal Property..................................... 15
ARTICLE VII
CONDITION AND USE OF LEASED PROPERTY....................................... 15
7.1 Condition of the Leased Property............................... 15
7.2 Use of the Leased Property..................................... 16
7.3 Lessor to Grant Easements...................................... 16
ARTICLE VIII
LEGAL AND INSURANCE REQUIREMENTS........................................... 17
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8.1 Compliance with Legal and Insurance Requirements............... 17
8.2 Legal Requirement Covenants.................................... 17
ARTICLE IX
REPAIRS; RESTRICTIONS...................................................... 17
9.1 Maintenance and Repair......................................... 17
9.2 Encroachments; Restrictions.................................... 18
ARTICLE X
CAPITAL ADDITIONS.......................................................... 19
10.1 Construction of Capital Additions to the Leased Property....... 19
10.2 Capital Additions Financed by Lessee........................... 20
10.3 Capital Additions Financed by Lessor........................... 21
10.4 Remodeling and Non-Capital Additions........................... 22
10.5 Salvage........................................................ 23
ARTICLE XI
LIENS...................................................................... 23
ARTICLE XII
PERMITTED CONTESTS......................................................... 23
ARTICLE XIII
INSURANCE.................................................................. 24
13.1 General Insurance Requirements................................. 24
13.2 Replacement Cost............................................... 25
13.3 Additional Insurance........................................... 26
13.4 Waiver of Subrogation.......................................... 26
13.5 Form of Insurance.............................................. 26
13.6 Increase in Limits............................................. 26
13.7 Blanket Policy................................................. 27
13.8 No Separate Insurance.......................................... 27
ARTICLE XIV
FIRE AND CASUALTY.......................................................... 27
14.1 Insurance Proceeds............................................. 27
14.2 Reconstruction in the Event of Damage or Destruction
Covered by Insurance .......................................... 27
14.3 Reconstruction in the Event of Damage or Destruction Not
Covered by Insurance .......................................... 29
14.4 Lessee's Property.............................................. 29
14.5 Restoration of Lessee's Property............................... 29
14.6 No Abatement of Rent........................................... 29
14.7 Damage Near end of Term........................................ 29
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14.8 Termination of Right of First Refusal.......................... 29
14.9 Waiver......................................................... 29
ARTICLE XV
CONDEMNATION............................................................... 30
15.1 Definitions.................................................... 30
15.2 Parties Rights and Obligations................................. 30
15.3 Total Taking................................................... 30
15.4 Partial Taking................................................. 30
15.5 Restoration.................................................... 31
15.6 Award Distribution............................................. 31
15.7 Temporary Taking............................................... 31
ARTICLE XVI
DEFAULT.................................................................... 31
16.1 Events of Default.............................................. 31
16.2 Rent and Charges Payable Following Default..................... 35
16.3 Additional Expenses............................................ 35
16.4 Lessee's Obligation to Purchase................................ 35
16.5 Waiver......................................................... 36
16.6 Application of Funds........................................... 36
16.7 Notices by Lessor.............................................. 36
16.8 Lessor's Contractual Security Interest......................... 36
ARTICLE XVII
LESSOR'S RIGHT TO CURE..................................................... 37
ARTICLE XVIII
PURCHASE OF THE LEASED PROPERTY............................................ 37
ARTICLE XIX
HOLDING OVER............................................................... 38
ARTICLE XX
ABANDONMENT................................................................ 38
20.1 Discontinuance of Operations on the Leased Property; Offer
to Purchase ................................................... 38
20.2 Acceptance of Offer............................................ 39
20.3 Rejection of Offer............................................. 39
20.4 No Rent after Purchase or Termination.......................... 39
ARTICLE XXI
SUBSTITUTION OF PROPERTY................................................... 39
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21.1 Substitution of Property for the Leased Property............... 39
21.2 Conditions to Substitution..................................... 42
21.3 Conveyance to Lessee........................................... 43
21.4 Expenses....................................................... 43
ARTICLE XXII
RISK OF LOSS............................................................... 43
ARTICLE XXIII
INDEMNIFICATION............................................................ 44
ARTICLE XXIV
SUBLETTING AND ASSIGNMENT.................................................. 44
24.1 Subletting and Assignment...................................... 44
24.2 Attornment..................................................... 45
24.3 Sublease Limitation............................................ 45
ARTICLE XXV
OFFICER'S CERTIFICATES AND FINANCIAL STATEMENTS............................ 45
ARTICLE XXVI
INSPECTION................................................................. 46
ARTICLE XXVII
NO WAIVER.................................................................. 46
ARTICLE XXVIII
REMEDIES CUMULATIVE........................................................ 46
ARTICLE XXIX
SURRENDER.................................................................. 46
ARTICLE XXX
NO MERGER OF TITLE......................................................... 47
ARTICLE XXXI
TRANSFERS BY LESSOR........................................................ 47
ARTICLE XXXII
QUIET ENJOYMENT............................................................ 47
ARTICLE XXXIII
NOTICES.................................................................... 47
ARTICLE XXXIV
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APPRAISAL.................................................................. 48
ARTICLE XXXV
PURCHASE RIGHTS............................................................ 49
35.1 First Refusal to Purchase...................................... 50
35.2 Lessor's Option to Purchase Lessee's Personal Property......... 50
ARTICLE XXXVI
DEFAULT BY LESSOR.......................................................... 50
36.1 Default by Lessor.............................................. 50
36.2 Lessee's Right to Cure......................................... 51
ARTICLE XXXVII
ARBITRATION................................................................ 51
37.1 Controversies.................................................. 51
37.2 Appointment of Arbitrators..................................... 51
37.3 Third Arbitrator............................................... 51
37.4 Arbitration Procedure.......................................... 52
37.5 Expenses....................................................... 52
ARTICLE XXXVIII
FINANCING OF THE LEASED PARTY.............................................. 52
38.1 Financing by Lessor............................................ 52
ARTICLE XXXIX
SUBORDINATION AND NON-DISTURBANCE.......................................... 52
ARTICLE XL
MISCELLANEOUS.............................................................. 53
40.1 General........................................................ 53
40.2 Transfer of Licenses........................................... 53
ARTICLE XLI
MEMORANDUM OF LEASE........................................................ 54
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LEASE
LEASE (the "Lease") is dated as of the June 8 , 1993, and is between
Healthcare Realty Trust Incorporated ("Lessor"), a Maryland corporation, having
its principal office at 3310 West End Avenue, Nashville, Tennessee 27303 and
Cardinal Development Co., Inc., a Kentucky corporation ("Lessee"), having its
principal office at 1300 Hurstbourne Place, 9300 Shelbyville Road, Louisville,
Kentucky 40222.
ARTICLE I
LEASED PROPERTY; TERM
Upon and subject to the terms and conditions hereinafter set forth, Lessor
leases to Lessee and Lessee rents from Lessor all of Lessor's rights and
interest in and to the following real property (collectively, the "Leased
Property");
(a) the real property described on Exhibit A attached hereto (the "Land");
(b) all buildings, structures, Fixtures (as hereinafter defined) and other
improvements of every kind including, but not limited to, alleyways and
connecting tunnels, sidewalks, utility pipes, conduits and lines (on-site and
off-site), parking areas and roadways appurtenant to such buildings and
structures presently or hereafter situated upon the Land, and Capital Additions
finances by Lessor (collectively, the "Leased Improvements");
(c) all easements, rights and appurtenances relating to the Land and the
Leased Improvements; and;
(d) all permanently affixed equipment, machinery, fixtures, and other
items of real and/or personal property, including all components thereof now and
hereafter located in, on or used in connection with, and permanently affixed to
or incorporated into the Leased Improvements, including, without limitation, all
furnaces, boilers, heaters, electrical equipment, heating plumbing, lighting,
ventilating, refrigerating, incineration, air and water pollution control, waste
disposal, air-cooling and air-conditioning systems and apparatus, sprinkler
systems and fire and theft protection equipment, and built-in oxygen and vacuum
systems, all of which, to the greatest permitted by law, are hereby deemed-by
the parties hereto to constitute real estate, together with all replacements,
modifications, alterations and additions thereto, but specifically excluding all
items included within the category of Lessee's Personal Property as defined in
Article II below (collectively the "Fixtures");
SUBJECT, HOWEVER, to the matters set forth on Exhibit B attached hereto (the
"Permitted Exceptions); to have and to hold for (a) a fixed term (the "Fixed
Term") commencing on the Closing Date as defined in the Purchase and Sale
Agreement defined herein (the "Commencement Date") and ending at midnight on the
last day of the two hundred and fortieth (240th) month after the Commencement
Date.
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ARTICLE II
DEFINITIONS
For all purposes of this Lease, except as otherwise expressly provided or
unless the context otherwise requires, (a) the terms defined in this Article
have the meanings assigned to them in this Article and include the plural as
well as the singular, (b) all accounting terms not otherwise defined herein have
the meanings assigned to them in accordance with generally accepted accounting
principles as at the time applicable, (c) all references in this Lease to
designated "Articles", "Sections" and other subdivisions are to the designated
Articles, Sections and other subdivisions of this Lease, and (d) the words
"herein", "hereof" and "hereunder" and other words of similar import refer to
this Lease as a whole and not to any particular Article, Section or other
subdivision:
Added Value Additional: As defined Section 10.2.
Additional Charges: As defined in Section 3.4.
Additional Rent: As defined in Section 3.1(b).
Affiliate: When used with respect to any corporation, the term "Affiliate"
shall mean any person which, directly or indirectly, controls or is controlled
by or is under common control with such corporation. For the purposes of this
definition, "control" (including the correlative meanings of the terms
"controlled by" and "under common control with"), as used with respect to any
person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such person,
through the ownership of voting securities, partnership interests or other
equity interests.
Award: As defined in Section 15.1.
Base Rent: As defined in Section 3.1(a).
Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday which
is not a day on which national banks in the City of Nashville, Tennessee are
authorized, or obligated, by law or executive order, to close.
Capital Additions: One or more new buildings or one or more additional
structures annexed to any portion of any of the Leased Improvements, which are
constructed on any parcel or portion of the Land during the Term, including the
construction of a new wing or new story, or the repair, replacement,
restoration, remodeling or rebuilding of the existing Leased Improvements or any
portion thereof which are not normal, ordinary or recurring to maintain the
Leased Property.
Capital Addition Cost: The cost of any Capital Additions proposed to be
made by Lessee whether or not paid for by Lessee or Lessor. Such cost shall
include (a) the cost of construction of the Capital Additions, including site
preparation and improvement, materials, labor,
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supervision and certain related design, engineering and architectural services,
the cost of any fixtures, the cost of construction financing and miscellaneous
costs approved by Lessor, (b) if agreed to by Lessor in writing in advance, the
cost of any land contiguous to the Leased Property purchased for the purpose of
placing thereon the Capital Additions or any portion thereof or for providing
means of access thereto, or parking facilities therefor, including the cost of
surveying the same, (c) the cost of insurance, real estate taxes, water and
sewage charges and other carrying charges for such Capital Additions during
construction, (d) the cost of title insurance, (e) reasonable fees and expenses
of legal counsel, (f) filing, registration and recording taxes and fees, (the
Tennessee indebtedness tax is excluded), (g) documentary stamp taxes, if any,
and (h) all reasonable costs and expenses of Lessor and any Lending Institution
which has committed to finance the Capital Additions, including, but not limited
to, (i) the reasonable fees and expenses of their respective legal counsel, (ii)
all printing expenses, (iii) the amount of any filing, registration and
recording taxes and fees, (iv) documentary stamp taxes, if any, (v) title
insurance charges, appraisal fees, if any, (vi) rating agency fees, if any, and
(vii) commitment fees, if any, charged by any Lending Institution advancing or
offering to advance any portion of the financing for such Capital Additions.
Cash Adjustment: As defined in Section 21.1.
Code: The Internal Revenue Code of 1986, as amended.
Commencement Date: As defined in Article I.
Condemnation, Condemnor: As defined in Section 15.1.
Consolidated Financial Statements: For any fiscal year or other accounting
period for Guarantor or Lessee and their respective consolidated subsidiaries,
statements of earnings and retained earnings and of changes in financial
position for such period and for the period from the beginning of the respective
Fiscal Year to the end of such period and the related balance sheet as at the
end of such period, together with the notes thereto, all in reasonable detail
and setting forth in comparative form the corresponding figures for the
corresponding period in the preceding fiscal year, and prepared in accordance
with generally accepted accounting principles.
Consolidated Net Worth: At any time, the sum of the following for
Guarantor or Lessee and their respective consolidated subsidiaries on a
consolidated basis determined in accordance with generally accepted accounting
principles.
(a) the amount of capital or stated capital (after deducting the cost of
any treasury shares), plus
(b) the amount of capital surplus and retained earnings (or, in the case
of a capital surplus or retained earnings deficit, minus the amount of such
deficit), minus
(c) the sum of the following (without duplication of deductions in respect
of items already deducted in arriving at surplus and retained earnings): (i)
unamortized debt discount and expense and (ii) any write-up in book value of
assets resulting from a revaluation thereof
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subsequent to the most recent Consolidated Financial Statement prior to the date
thereof, except any net write-up in value of foreign currency in accordance with
generally accepted accounting principles: any write-up resulting from reversal
of a reserve for bad debts or depreciation; and any write-up resulting from a
change in methods of accounting for inventory.
CPI: The Consumer Price Index published by the Bureau of Labor Statistics
of the United States Department of Labor, US city Average. All Items and Major
Group Figures for Urban Wage Earners and Clerical Workers (1982-84 = 100), or if
such index is not available, a comparable index selected by Lessor which is
published by a governmental institution or a national recognized publisher of
statistical information.
CPI Increase: The amount obtained by multiplying (a) the Base Rent then
payable under the Lease, by (b) the percentage increase between the CPI last
published prior to the first day of the then applicable Fiscal Year and the CPI
last published prior to the Commencement Date. The CPI Increase for each Fiscal
Year shall be calculated on and as of the first day of such Fiscal Year.
Credit Enhancements: All security deposits, security interests, letters of
credit, pledges, prepaid rent or other sums, deposits or interest held by
Lessee, if any, with respect to the Leased Property, the Tenant Leases or the
Tenants.
Date of Taking: As defined in Section 15.1.
Economic termination Purchase Date: As defined in Section 20.1.
Encumbrance: As defined in Article XXXVIII.
Event of Default: As defined in Section 16.1.
Facility: The licensed, long-term nursing facility known as Fenton
Extended Care Center to be operated on the Leased Property.
Facility Mortgage: As defined in Section 13.1.
Facility Mortgagee: As defined in section 13.1.
Fair Market Added Value: The Fair Market Value (as hereinafter defined) of
the Leased Property (including all Capital Additions) less the Fair Market Value
of the Leased Property determined as if no Capital Additions paid for by Lessee
had been constructed.
Fair Market Value: The Fair Market Value of the Leased Property or any
Substitute Property, including all Capital Additions, and (a) assuming the same
is unencumbered by this Lease, (b) determined in accordance with the appraisal
procedures set forth in Article XXXIV or in such other manner as shall be
mutually acceptable to Lessor and Lessee, and (c) not taking into account any
reduction in value resulting from any indebtedness to which the Leased property
or such Substitute Property is subject and which encumbrance Lessee or Lessor is
otherwise
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required to remove pursuant to any provision of this Lease or agrees to remove
at or prior to the closing of the transaction as to which such Fair Market Value
determination is being made. The positive or negative effect on the value of the
Leased Property or Substitute Property attributable to the interest rate,
amortization schedule, maturity date, prepayment penalty and other terms and
conditions of any Encumbrance on the Leased Property or any Substitute Property,
as the case may be, which is not so required or agreed to be removed shall be
taken into account in determining such Fair Market Value.
Fair Market Value Purchase Price: The Fair Market Value of the Leased
Property less the Fair Market Added Value.
Fiscal Year: The twelve (12) month period beginning January 1 and ending
December 31.
Fixed Term: As defined in Article I.
Gross Revenues: The term "Gross Revenues" shall mean all revenues received
or receivable from or by reason of the operation of the Facility, or any other
use of the Leased Property, including without limitation, all patient revenues
received or receivable for the use of or otherwise by reason of all rooms, beds
and other facilities provided, meals served, services performed, space or
facilities subleased or goods sold on the Leased Property, including without
limitation, and except as provided below, any consideration received under any
subletting, licensing, or other arrangements with third parties relating to the
possession or use of any portion of the Leased Property; provided, however, that
Gross Revenues shall not include professional fees or charges by physicians or
providers of ancillary services, or are accompanied by separate charges for use
of the Facility or any portion thereof, and non-operating revenues such as
interest income or gain from the sale of assets; and provided, further, that
there shall be deducted from such revenues:
(a) contractual allowances (relating to any period during the Term of this
Lease) for billings not paid by or received from the appropriate governmental
agencies or third party providers,
(b) allowances according to generally accepted accounting principles for
uncollectible accounts,
(c) all proper billing credits and adjustments according to generally
accepted accounting principles relating to health care accounting,
(d) federal, state or local excise taxes and any tax based upon or
measured by said Gross Revenues which is added to or made a part of the amount
billed to the patient or other recipient of such services or goods, whether
included in the billing or stated separately,
(e) provider discounts for hospital or other medical facility utilization
contracts, and
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(f) the cost of any federal, state or local governmental program imposed
specially to provide or finance indigent patient care.
To the extent that the Leased Property is subleased by Lessee, Gross Revenues
shall be calculated for all purposes of this Lease by including the Gross
Revenues of such sublessee with respect to the subleased property, i.e., the
Gross Revenues generated from the operations conducted on such subleased portion
of the Leased Property shall be included directly in the Gross Revenues for the
purpose of determining percentage rent payable under this Lease and the rent
received or receivable by Lessee from or under such subleases shall be excluded
from Gross Revenues for such purpose.
Guarantor: Cardinal Group Corporation, a Kentucky corporation.
Guaranty: That certain Guaranty Agreement to be dated on or about
_____________, 1993 executed and delivered by Guarantor to Lessor, pursuant to
the terms of which Guarantor has unconditionally and irrevocably guaranteed the
full, faithful and complete performance of each of Lessee's obligations under
this Lease and each of the obligations of Lessee, Guarantor or any Affiliate of
Lessee or Guarantor to Lessor.
Impositions: Collectively, all taxes (including, without limitation, all
capital stock and franchise taxes of Lessor, all ad valorem, sales and use,
single business, gross receipts, transaction privilege, rent or similar taxes),
assessments (including, without limitation, all assessments for public
improvements or benefits, whether or not commenced or completed prior to the
date hereof and whether or not to be completed within the Term), ground rents,
water, sewer or other rents and charges, excises, tax levies, fees (including,
without limitation, license, permit, inspection, authorization and similar
fees), and all other governmental charges, in each case whether general or
special, ordinary or extraordinary, or foreseen or unforeseen, of any character
in respect of the Leased Property and/or the Rent (including all interest and
penalties thereon due to any failure in payment by Lessee), which at any time
prior to, during or in respect of the Term hereof may be assessed or imposed on
or in respect of or be a lien upon (a) Lessor or Lessor's interest in the Leased
Property, (b) the Leased Property or any part thereof or any rent therefrom or
any estate, right, title or interest therein, or (c) any occupancy, operation,
use or possession of, sales from, or activity conducted on, or in connection
with, the Leased Property or the leasing or use of the Leased Property or any
part thereof; provided, however, nothing contained in this Lease shall be
construed to require Lessee to pay (1) any tax based on net income (whether
denominated as a franchise or capital stock, financial institutions or other
tax) imposed on Lessor, or (2) any transfer or net revenue tax of Lessor, or (3)
any tax imposed with respect to the sale, exchange or other disposition by
Lessor of any portion of the Leased Property or the proceeds thereof, or (4)
except as expressly provided elsewhere in this Lease, any principal or interest
on any Encumbrance on the Leased Property, except to the extent that any tax,
assessment, tax levy or charge which Lessee is obligated to pay pursuant to the
first sentence of this definition and which is in effect at any time during the
Term hereof is totally or partially repealed, and a tax, assessment, tax levy or
charge set forth in clause (1) or (2) is levied, assessed or imposed expressly
in lieu thereof.
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Insurance Requirements. All terms of any insurance policy required by this
Lease and all requirements of the issuer of any such policy.
Land: As defined in Article I.
Lease: As defined in the Preamble.
Lease Assignment: That certain Assignment of Rents and Leases to be dated
on or about _________________, 1993 executed by Lessee to Lessor, pursuant to
the terms of which Lessee has assigned to Lessor each of the Tenant Leases and
Credit Enhancements, if any, as security for the obligations of Lessee under
this Lease, the obligations of Guarantor under the Guaranty, and any other
obligations of Lessee, Guarantor or any Affiliate of Lessee or Guarantor to
Lessor.
Lease Year: A twelve (12) month period commencing on the Commencement Date
or on each anniversary date thereof, as the case may be.
Leased Improvements; Leased Property: Each as defined in Article I.
Legal Requirements: All federal, state, county, municipal and other
governmental statutes, laws, rules, orders, regulations, ordinances, judgments,
decrees and injunctions affecting either the Leased Property or the
construction, use or alteration thereof, whether now or hereafter enacted and in
force, including any which may (a) require repairs, modification, or alterations
in or to the Leased Property, or (b) in any way adversely affect the use and
enjoyment thereof, and all permits, licenses, authorizations and regulations
relating thereto, and all covenants, agreements, restrictions and encumbrances
contained in any instruments, either of record or known to Lessee (other than
encumbrances created by Lessor without the consent of Lessee), at any time in
force affecting the Leased Property.
Lending Institution: Any insurance company, federally insured commercial
or savings bank, national banking association, savings and loan association,
employees' welfare, pension or retirement fund or system, corporate
profit-sharing or pension trust, college or university, or real estate
investment trust, including any corporation qualified to be treated for federal
tax purposes as a real estate investment trust, having a net worth of at least
$50,000,000.
Lessee: Cardinal Development Co., Inc., a Kentucky corporation, and its
successors and permitted assigns.
Lessee's Personal Property: All machinery, equipment, furniture,
furnishings, movable walls or partitions, computers, trade fixtures or other
personal property, and consumable inventory and supplies, used or useful in
Lessee's business on the Leased Property, including without limitation, all
items of furniture, furnishings, equipment, supplies and inventory, and Lessee's
accounts receivable and operating licenses except items, if any, included within
the definition of Fixtures.
Lessor: Healthcare Realty Trust, a Maryland corporation, and its
successors and assigns.
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Letter of Credit: An unconditional, annually renewable, irrevocable
standby letter of credit in form and content acceptable to Lessor, in the amount
of $321,562, issued on account of Lessee to Lessor by a financial institution
satisfactory to Lessor and dated as of the Commencement Date.
Minimum Repurchase Price: The equity in the Leased Property at the time of
acquisition of the Leased Property by Lessor (i.e., the Fair Market Value of the
Leased Property at the time of such acquisition plus the unpaid principal
balance, at the time of repurchase of the Leased Property by Lessee, of all
Encumbrances against the Leased Property permitted in Article XXXVIII hereof,
less all excess proceeds received by Lessor from any refinancing of the Leased
Property permitted in Article XXXVIII hereof (net of any costs and expenses
incurred in connection with such refinancing, including without limitation, loan
points, commitment fees and commissions) and the net amount (after deduction of
all reasonable legal fees and other costs and expenses, including without
limitation, expert witness fees, incurred by Lessor in connection with obtaining
any such award) of all Awards received by Lessor from Condemnation of the Leased
Property.
Officer's Certificate: A certificate of Lessee signed by the Chairman of
the Board of Directors, the President, any Vice President or the Treasurer of
Lessee or another officer authorized to so sign by the Board of Directors or
By-Laws of Lessee, or any other person whose power and authority to act has been
authorized by delegation in writing by any of the persons holding the foregoing
offices.
Overdue Rate: On any date, a rate per annum equal to Six Percent (6%)
above the Prime Rate, but in no event greater than the maximum rate then
permitted under applicable law.
Payment Date: Any due date for the payment of the installments of Base
Rent, Additional Rent or any other sums payable under this Lease.
Primary Intended Use: As defined in Section 7.2(b).
Prime Rate: The annual rate announced by First National Bank of Boston to
be its prime rate for 90-day unsecured loans to its United States corporate
borrowers of the highest credit standing, as in effect from time to time.
Purchase and Sale Agreement: The agreement dated on or about January 25,
1993, among Lessee (or an Affiliate) and Lessor, relating to the acquisition by
Lessor from Lessee (or an Affiliate) of the Leased property and the leasing of
such property by Lessor to Lessee.
Rent: Collectively, the Base Rent, the Additional Rent and the Additional
Charges.
Security Agreement: That certain Security Agreement to be dated on or
about _______________, 1993 executed by Lessee to Lessor, pursuant to the terms
of which Lessee has granted to Lessor a first lien and security interest in and
to all of Lessee's Personal Property, including but not limited to, fixed and
movable equipment, including replacements and substitutions, as security for the
obligations of Lessee under this Lease, the obligations of Guarantor under the
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Guaranty and any and all other obligations of Lessee, Guarantor or any Affiliate
of Lessee or Guarantor to Lessor.
Substitution Date: As defined in Section 21.1.
Substitute Properties: As defined in Section 21.1.
Taking: A taking or voluntary conveyance during the Term hereof of all or
part of the Leased Property, or any interest therein or right accruing thereto
or use thereof, as the result of, or in settlement of any Condemnation or other
eminent domain proceeding affecting the Leased Property whether or not the same
shall have actually been commenced.
Tenant: The lessees or tenants under the Tenant Leases, if any.
Tenant Leases: All leases, subleases and other rental agreements (written
or verbal, now or hereafter in effect), if any, that grant a possessory interest
in and to any space in the Leased Property, or that otherwise have rights with
regard to the Leased Property, and all Credit Enchantments, if any, held in
connection therewith.
Term: The Fixed Term unless earlier terminated pursuant to the provisions
hereof.
Unavoidable Delays: Delays due to strikes, lockouts, inability to procure
materials, power failure, acts of God, governmental restrictions, enemy action,
civil commotion, fire, unavoidable casualty or other causes beyond the control
of the party responsible for performing an obligation hereunder, provided that
lack of funds shall not be deemed a cause beyond the control of either party
hereto unless such lack of funds is caused by the failure of the other party
hereto, or Guarantor, to perform any obligations of such party, under this Lease
or any guaranty of this Lease, including any obligation to provide financing
undertaken by Lessor pursuant to Article X below.
Unsuitable for Its Primary Intended Use: As used anywhere in this Lease,
the term "Unsuitable for Its Primary Intended Use" shall mean that, by reason of
damage or destruction, or a partial Taking by Condemnation, in the good faith
judgment of Lessee, reasonably exercised, the Facility cannot be operated on a
commercially practicable basis for its Primary Intended Use, taking into
account, among other relevant factors, the number of usable beds affected by
such damage or destruction or partial Taking.
ARTICLE III
RENT
3.1 Base Rent and Additional Rent. Lessee shall pay to Lessor without
notice, demand, set off or counterclaim in advance, in lawful money of the
United States of America, at Lessor's address set forth herein or at such other
place or to such other person, firms or corporations as Lessor from time to time
may designate in writing, Base Rent (as defined below) and Additional Rent (as
defined below) during the Term, as follows:
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(a) Base Rent: The annual sum of Four Hundred Twenty-eight Thousand, Seven
Hundred Fifty Dollars ($428,750.00) payable in advance in equal, consecutive
monthly installments of Thirty-Five Thousand Seven Hundred Twenty-Nine and
16/100 Dollars ($35,729.16) on the first day of each calendar month of the Term,
commencing , 1993 (prorated as to any partial month), subject to adjustment as
provided in Sections 10.3(b)(iv), and 21.1 below; and
(b) Additional Rent: An amount per Fiscal year (prorated for a partial
year) in addition to the Base Rent equal to the prior year's Additional Rent
plus the greater of (i) eight and one-half percent (8.5%) of the increase in
Gross Revenues over the prior year's Gross Revenues or (ii) the increase in the
Consumer Price Index for all Urban Consumers for the applicable region within
which the Facility is located over the preceding year multiplied by the prior
year's total rent (Base Rent plus Additional Rent). Additional Rent shall be
payable quarterly during the Term for the period ending March 31, June 30,
September 30 and December 31 and there shall be an annual reconciliation of the
Additional Rent as provided in Section 3.2 below. However, in no event will
Additional Rent exceed three percent (3%) of the prior year total rent.
3.2 Quarterly Calculation and Payment of Additional Rent; Annual
Reconciliation
(a) Lessee shall calculate and pay Additional Rent quarterly, computed on
a pro rata basis, for the applicable portion of the entire Fiscal Year, on a
cumulative basis, up to the end of the fiscal quarter then most recently ended,
less the Additional Rent paid for any preceding fiscal quarters within the then
current Fiscal Year. Lessee shall calculate the amount of Gross Revenues, as of
the end of each fiscal quarter, and shall deliver to lessor within fifteen (15)
days after the end of such quarter, an Officer's Certificate setting forth the
amount of Gross Revenues for such fiscal quarter. Lessor shall then determine
and notify Lessee, for that fiscal quarter, the amount of Additional Rent which
is due. Within fifteen (15) days after receipt of such notification from Lessor,
Lessee shall pay the Additional Rent for the fiscal quarter to Lessor.
(b) In addition, on or before March 31 of each year, commencing with March
31, 1994, Lessee shall deliver to Lessor an audited or other professionally
prepared Officer's Certificate reasonably acceptable to Lessor and certified by
an authorized officer of Lessee, setting forth the Gross Revenues for the Fiscal
Year ended on the immediately preceding December 31. Lessor shall then determine
and notify Lessee the amount of Additional Rent payable by Lessee for such
Fiscal Year. The first annual reconciliation and adjustment of Additional Rent
shall be made as of December 31, 1993.
(c) If the Additional Rent as finally determined for any Fiscal year,
exceeds the sum of the quarterly payments of Additional Rent previously paid by
Lessee with respect to said Fiscal Year, Lessee shall, within fifteen (15) days
after receipt of Lessor's notice thereof, pay such deficit to Lessor.
(d) If the Additional Rent for any Fiscal Year is less than the amount
previously paid with respect thereto by Lessee, Lessee shall notify Lessor
either (i) to pay to Lessee an amount
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equal to such difference, or (ii) to grant Lessee a credit against Additional
Rent next coming due in the amount of such difference.
(e) The obligation to pay Additional Rent shall survive the expiration or
earlier termination of the Term, and a final reconciliation, taking into
account, among other relevant adjustments, any contractual allowances which
related to Gross Revenues accrued prior to such termination date but which have
been determined to be not payable after such termination date, and Lessee's good
faith best estimate of the amount of any unresolved contractual allowances,
shall be made not later than two (2) years after said expiration or termination
date. Lessee shall advise Lessor within sixty (60) days after such expiration or
termination date of Lessee's best estimate at the time of the approximate amount
of such adjustments, which estimate shall not be binding on Lessee or have any
legal effect whatsoever.
3.3 Confirmation of Gross Revenues. Lessee shall utilize, or cause to be
utilized, an accounting system for the Leased Property in accordance with its
usual and customary practices and in accordance with generally accepted
accounting principles which will accurately record all Gross Revenues and Lessee
shall retain, for at least three (3) years after the expiration of each Fiscal
Year (and in any event until the final reconciliation described in Section 3.2
above has been made), reasonably adequate records conforming to such accounting
system showing all Gross Revenues for such Fiscal Year. Lessor, at its own
expense except as provided hereinbelow, shall have the right from time to time
to have its accountants or representatives audit the information set forth in
the Officer's Certificate referred to in Section 3.2 and in connection with such
audits to examine Lessee's records with respect thereto (including supporting
data and sales tax returns), subject to any prohibitions or limitations on
disclosure of any such data under applicable law or regulations, including
without limitation, any duly enacted "Patients' Bill of Rights" or similar
legislation, including such limitations as may be necessary to preserve the
confidentiality of the Facility-patient relationship and the physician- patient
privilege. If any such audit discloses a deficiency in the reporting of Gross
Revenues. Lessee shall forthwith pay to Lessor the amount of the deficiency in
Additional Rent which would have been payable by it had such deficiency in
reporting Gross Revenues not occurred, as finally agreed or determined, together
with interest on the Additional Rent which should have been payable by it, at
the Overdue Rate, from the date when said payment should have been made, by
Lessee to the date of payment thereof; provided, however, that as to any audit
that is commenced more than two (2) years after the date Gross Revenues for any
Fiscal Year are reported by Lessee to Lessor, the deficiency, if any, with
respect to Additional Rent shall bear interest as permitted herein only from the
date such determination of deficiency is made, unless such deficiency is the
result of gross negligence or willful misconduct on the part of Lessee. If any
such audit discloses that the Gross Revenues actually received by Lessee for any
Fiscal Year exceed those reported by Lessee by more than 10%, Lessee shall pay
the cost of such audit and examination. Any proprietary information obtained by
Lessor pursuant to the provisions of this Section shall be treated as
confidential, except that such information may be used in any litigation or
arbitration proceedings between the parties and except, further, that Lessor may
disclose such information to prospective lenders, subject in each case to
appropriate confidentiality safeguards. The obligations of Lessor and Lessee
contained in this Section shall survive the expiration or earlier termination of
this Lease.
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3.4 Additional Charges. In addition to the Base Rent and Additional Rent,
(a) Lessee will also pay and discharge as and when due and payable all other
amount, liabilities, obligations and Impositions which Lessee assumes or agrees
to pay under this Lease, and (b) in the event of any failure on the part of
Lessee to pay any of those items referred to in clause (a) above, Lessee will
also promptly pay and discharge every fine, penalty, interest and cost which may
be added for non-payment or late payment of such items (the items referred to in
clauses (a) and (b) above being referred to herein collectively as the
"Additional Charges"), and Lessor shall have all legal, equitable and
contractual rights, powers and remedies provided in this Lease, by statute or
otherwise, in the case of non-payment of the Additional Charges, as well as the
Base Rent or Additional Rent. If any installment of Base Rent, Additional Rent
or Additional Charges (but only as to those Additional Charges which are payable
directly to Lessor) shall not be paid within five (5) Business Days after its
due date, Lessee will pay Lessor on demand, as Additional Charges, a late charge
(to the extent permitted by law) computed at the Overdue Rate (or at the maximum
rate permitted by law, whichever is less) on the amount of such installment,
from the due date of such installment to the date of payment thereof. To the
extent that Lessee pays any Additional Charges to Lessor pursuant to any
requirement of this Lease, Lessee shall be relieved of its obligation to pay
such Additional Charges to the entity to which they would otherwise be due.
3.5 Net Lease. The Rent shall be paid absolutely net to Lessor, so that
this Lease shall yield to Lessor the full amount of the installments of Base
Rent, and the payments of Additional Rent and Additional Charges throughout the
Term, all as more fully set forth in Article V, but subject to any other
provisions of this Lease which expressly provide for adjustment of Rent or other
charges.
3.6 Letter of Credit. Lessee shall deposit the Letter of Credit with
Lessor upon the date of execution and delivery of this Lease by Lessee to
Lessor. Lessee shall renew and cause a new Letter of Credit to be delivered to
Lessor on or before thirty (30) days prior to the date of expiration of the
Letter of Credit which is then on deposit with Lessor. If Lessee fails to timely
deliver a renewal Letter of Credit to Lessor, Lessor shall be entitled to draw
down the entire amount of the Letter of Credit. The Letter of Credit shall be
held by Lessor as security for the performance by Lessee of Lessee's covenants
and obligations under the Lease. The Letter of Credit shall not be considered an
advance payment of rental or a measure of Lessor's damages in case of default by
Lessee. Lessor may, from time to time, without prejudice to any other remedy,
draw down upon the Letter of Credit and use the proceeds thereof to make good
any arrearages of rent, to satisfy any other covenant or obligation of Lessee
hereunder or to compensate Lessor for any other loss or damage which Lessor may
suffer by reason of any default by Lessee. Following any such draw against the
Letter of Credit, Lessee shall deliver to Lessor on demand a new letter of
credit in the amount of the original Letter of Credit or a supplemental letter
of credit in an amount sufficient to restore the aggregate letters of credit
held by Lessor to the amount of the original Letter of Credit. If Lessee is not
in default at the termination of the Lease, and has complied with all of the
provisions of this Lease to be performed by Lessee, including surrender of the
Leased Property in accordance with the provisions hereof, the Letter of Credit
shall be returned by Lessor to Lessee, subject to any draws which have
previously been made by Lessor against the Letter of Credit. Lessee will not
assign or encumber Lessee's interest in the Letter of Credit, and neither Lessor
nor Lessor's
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successors or assigns will be bound by any such attempted assignment or
encumbrance of the Letter of Credit.
ARTICLE IV
IMPOSITIONS
4.1 Payment of Impositions. Subject to Article XII relating to permitted
contests, Lessee will pay, or cause to be paid, all Impositions before any fine,
penalty, interest or cost may be added for non-payment, such payments to be made
directly to the taxing authorities where feasible, and Lessee will promptly,
upon request, furnish to Lessor copies of official receipts or other
satisfactory proof evidencing such payments. Lessee's obligation to pay such
Impositions shall be deemed absolutely fixed upon the date such Impositions
become a lien upon the Leased Property or any part thereof. If any such
Imposition may, at the option of the taxpayer, lawfully be paid in installments
(whether or not interest shall accrue on the unpaid balance of such Imposition),
Lessee may exercise the option to pay the same (and any accrued interest on the
unpaid balance of such Imposition) in installments and, in such event, shall pay
such installments during the Term hereof (subject to Lessee's right of contest
pursuant to the provisions of Article XII) as the same respectively become due
and before any fine, penalty, premium, further interest or cost may be added
thereto. Lessor, at its expense, shall, to the extent permitted by applicable
law, prepare and file all tax returns and reports as may be required by
governmental authorities in respect of Lessor's net income, gross receipts,
franchise taxes and taxes on its capital stock, and Lessee, at its expense,
shall, to the extent permitted by applicable laws and regulations, prepare and
file all other tax returns and reports in respect of any Imposition as may be
required by governmental authorities. If any refund shall be due from any taxing
authority in respect of any Imposition paid by Lessee, the same shall be paid
over to or retained by Lessee if no Event of Default shall have occurred
hereunder and be continuing. Any such funds retained by Lessor due to an Event
of Default shall be applied as provided in Article XVI. Lessor and Lessee shall,
upon request of the other, provide such data as is maintained by the party to
whom the request is made with respect to the Leased Property as may be necessary
to prepare any required returns and reports. In the event governmental
authorities classify any property covered by this Lease as personal property,
Lessee shall file all personal property tax returns in such jurisdictions where
it may legally so file. Lessor, to the extent it possesses the same, and Lessee,
to the extent it possesses the same, will provide the other party, upon request,
with cost and depreciation records necessary for filing returns for any property
so classified as personal property. Where Lessor is legally required to file
personal property tax returns, Lessee will be provided with copies of assessment
notices indicating a value in excess of the reported value in sufficient time
for Lessee to file a protest. Lessee may, upon giving notice to Lessor, at
Lessee's option and at Lessee's sole cost and expense, protest, appeal, or
institute such other proceedings as Lessee may deem appropriate to effect a
reduction of real estate or personal property assessments and Lessor, at
Lessee's expense as aforesaid, shall fully cooperate with Lessee in such
protest, appeal, or other action. Billings for reimbursement by Lessee to Lessor
of personal property taxes shall be accompanied by copies of a bill therefor and
payments thereof which identify the personal property with respect to which such
payments are made.
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4.2 Adjustment of Impositions. Impositions imposed in respect of the
tax-fiscal period during which the Term terminates shall be adjusted and
prorated between Lessor and Lessee, whether or not such Imposition is imposed
before or after such termination, and Lessee's obligation to pay its prorated
share thereof shall survive such termination.
4.3 Utility Charges. Lessee will contract for, in its own name, and will
pay or cause to be paid all charges for electricity, power, gas, oil, water and
other utilities used in the Leased property during the Term.
4.4 Insurance Premiums. Lessee will contract for in its own name and will
pay or cause to be paid all premiums for the insurance coverage required to be
maintained pursuant to Article XIII during the Term.
ARTICLE V
NO TERMINATION
Lessee shall remain bound by this Lease in accordance with its terms and
shall neither take any action without the consent of Lessor to modify, surrender
or terminate the same, nor seek nor be entitled to any abatement, deduction,
deferment or reduction of Rent, or set-off against the Rent, nor shall the
respective obligations of Lessor and Lessee be otherwise affected by reason of
(a) any damage to, or destruction of, any Leased Property or any portion thereof
from whatever cause or any Taking of the Leased Property or any portion thereof,
(b) the lawful or unlawful prohibition of, or restriction upon, Lessee's use of
the Leased Property, or any portion thereof, or the interference with such use
by any person, corporation, partnership or other entity, or by reason of
eviction by paramount title; (c) any claim which Lessee has or might have
against Lessor or by reason of any default or breach of any warranty by Lessor
under this Lease or any other agreement between Lessor and Lessee, or to which
Lessor and Lessee are parties, (d) any bankruptcy, insolvency, reorganization,
composition, readjustment, liquidation, dissolution, winding up or other
proceedings affecting Lessor or any assignee or transferee of Lessor, or (e) for
any other cause whether similar or dissimilar to any of the foregoing other than
a discharge of Lessee from any such obligations as a matter of law. Lessee
hereby specifically waives all rights, arising from any occurrence whatsoever,
which may now or hereafter be conferred upon it by law to (i) modify, surrender
or terminate this Lease or quit or surrender the Leased Property or any portion
thereof, or (ii) entitle Lessee to any abatement, reduction, suspension or
deferment of the Rent or other sums payable by Lessee hereunder, except as
otherwise specifically provided in this Lease. The obligations of Lessor and
Lessee hereunder shall be separate and independent covenants and agreements and
the Rent and all other sums payable by Lessee hereunder shall continue to be
payable in all events unless the obligations to pay the same shall be terminated
pursuant to the express provisions of this Lease or by termination of this Lease
other than by reason of an Event of Default.
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ARTICLE VI
OWNERSHIP OF LEASED PROPERTY AND PERSONAL PROPERTY
6.1 Ownership of the Leased Property. Lessee acknowledges that the Leased
Property is the property of Lessor and that Lessee has only the right to the
possession and use of the Leased Property upon the terms and conditions of this
Lease.
6.2 Lessee's Personal Property. Lessee may (and shall as provided
hereinbelow), at its expense, install, affix or assemble or place on any parcels
of the Land or in any of the Leased Improvements, any items of Lessee's Personal
Property, and Lessee may, subject to the conditions set forth below, remove the
same upon the expiration or any prior termination of the Term. Lessee shall
provide and maintain during the entire Term all such Lessee's Personal Property
as shall be necessary in order to operate the Facility in compliance with all
licensure and certification requirements, in compliance with all applicable
Legal Requirements and Insurance Requirements and otherwise in accordance with
customary practice in the industry for the Primary Intended Use. All of Lessee's
Personal Property not removed by Lessee within seven (7) days following the
expiration or earlier termination of this Lease shall be considered abandoned by
Lessee and may be appropriated, sold, destroyed or otherwise disposed of by
Lessor without first giving notice thereof to Lessee, without any payment to
Lessee and without any obligation to Lessee to account therefor. Lessee will, at
its expense, restore the Leased Property at the expiration or earlier
termination of this Lease to the condition required by Section 9.1(d), including
repair of all damage to the Leased Property caused by the removal of Lessee's
Personal Property, whether effected by Lessee or Lessor.
ARTICLE VII
CONDITION AND USE OF LEASED PROPERTY
7.1 Condition of the Leased Property. Lessee acknowledges receipt and
delivery of possession of the Leased Property and that Lessee has examined and
otherwise has acquired knowledge of the condition of the Leased Property prior
to the execution and delivery of this Lease and has found the same to be in good
order and repair and satisfactory for its purpose hereunder. Lessee is leasing
the Leased Property "as is" in its present condition. Lessee waives any claim or
action against Lessor in respect of the condition of the Leased Property. LESSOR
MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE
LEASED PROPERTY OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR USE,
SUITABILITY, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE,
AS TO QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING
AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY LESSEE. LESSEE ACKNOWLEDGES THAT
THE LEASED PROPERTY HAS BEEN INSPECTED BY LESSEE AND IS SATISFACTORY TO IT.
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7.2 Use of the Leased Property.
(a) Lessee covenants that it will obtain and maintain all approvals needed
to use and operate the Leased Property and the Facility for the Primary Intended
Use, as defined below, under applicable local, state and federal law, including
but not limited to licensure requirements and Medicare and/or Medicaid
certification.
(b) After the Commencement Date and during the entire Term, Lessee shall
use or cause to be used the Leased Property and the improvements thereon as a
long term nursing facility and for such other uses as may be necessary in
connection with or incidental to such use (the "Primary Intended Use"). Lessee
shall not use the Leased Property or any portion thereof for any other use
without the prior written consent of Lessor, which consent shall not be
unreasonably withheld or delayed. No use shall be made or permitted to be made
of the Leased Property and no acts shall be done which will cause the
cancellation of any insurance policy covering the Leased Property or any part
thereof, nor shall Lessee sell or otherwise provide to residents or patients
therein, or permit to be kept, used or sold in or about the Leased Property any
article which may be prohibited by law or by the standard form of fire insurance
policies, any other insurance policies required to be carried hereunder, or fire
underwriters regulations. Lessee shall, at its sole cost, comply with all of the
requirements pertaining to the Leased Property or other improvements of any
insurance board, association, organization or company necessary for the
maintenance of the insurance, as herein provided, covering the Leased Property
and Lessee's Personal Property.
(c) Lessee covenants and agrees that during the Term it will use its best
efforts to operate continuously the Leased Property as a provider of health care
services in accordance with its Primary Intended Use and to maintain its
certifications for reimbursement and licensure and its accreditation, if
compliance with accreditation standards is required to maintain the operations
of the Facility and if a failure to comply would adversely affect operations of
the Facility.
(d) Lessee shall not commit or suffer to be committed any waste on the
Leased Property, or in the Facility, nor shall Lessee cause or permit any
nuisance thereon.
(e) Lessee shall neither suffer nor permit the Leased Property or any
portion thereof, including any Capital Addition whether or not financed by
Lessor, or Lessee's Personal Property, to be used in such a manner as (i) might
reasonably tend to impair Lessor's (or Lessee's, as the case may be) title
thereto or to any portion thereof, or (ii) may reasonably make possible a claim
or claims of adverse usage or adverse possession by the public, as such, or of
implied dedication of the Leased Property or any portion thereof.
7.3 Lessor to Grant Easements. Lessor will, from time to time so long as
no Event of Default has occurred and is continuing, at the request of Lessee and
at Lessee's cost and expense, but subject to the approval of Lessor (a) grant
easements and other rights in the nature of easements, (b) release existing
easements or other rights in the nature of easements which are for the benefit
of the Leased Property, (c) dedicate or transfer unimproved portions of the
Leased Property for road, highway or other public purposes, (d) execute
petitions to have the
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Leased Property annexed to any municipal corporation or utility district, (e)
execute amendments to any covenants and restrictions affecting the Leased
Property, and (f) execute and deliver to any person any instrument appropriate
to confirm or effect such grants, releases, dedications and transfers (to the
extent of its interest in the Leased Property), but only upon delivery to Lessor
of an Officer's Certificate stating (and such other information as Lessor may
reasonably require confirming) that such grant, release, dedication, transfer,
petition or amendment is required for and not detrimental to the proper conduct
of the business of Lessee on the Leased Property and does not reduce its value.
ARTICLE VIII
LEGAL AND INSURANCE REQUIREMENTS
8.1 Compliance with Legal and Insurance Requirements. Subject to Article
XII relating to permitted contests, Lessee, at its expense, will promptly (a)
comply with all Legal Requirements and Insurance Requirements in respect of the
use, operation, maintenance, repair and restoration of the Leased Property,
whether or not compliance therewith shall require structural change in any of
the Leased Improvements or interfere with the use and enjoyment of the Leased
Property, and (b) procure, maintain and comply with all licenses, certificates
of need, provider agreements and other authorizations required for any use of
the Leased Property and Lessee's Personal Property then being made, and for the
proper erection, installation, operation and maintenance of the Leased Property
or any part thereof, including without limitation, any Capital Additions.
8.2 Legal Requirement Covenants. Lessee covenants and agrees that the
Leased Property and Lessee's Personal Property shall not be used for any
unlawful purpose. Lessee shall acquire and maintain all licenses, certificates,
permits, provider agreements and other authorizations and approvals needed to
operate the Leased Property in its customary manner for the Primary Intended Use
and any other use conducted on the Leased Property as may be permitted from time
to time hereunder. Lessee further covenants and agrees that Lessee's use of the
Leased Property and maintenance, alteration, and operation of the same, and all
parts thereof, shall at all times conform to all applicable local, state and
federal laws, ordinances, rules and regulations.
ARTICLE IX
REPAIRS; RESTRICTIONS
9.1 Maintenance and Repair.
(a) Lessee, at its expense, will keep the Leased Property and all private
roadways, sidewalks and curbs appurtenant thereto (and Lessee's Personal
Property) in good order and repair (whether or not the need for such repairs
occurs as a result of Lessee's use, any prior use, the elements, the age of the
Leased Property or any portion thereof) and, except as otherwise provided in
Articles XIV and XV, with reasonable promptness, will make all necessary and
appropriate repairs thereto of every kind and nature, whether interior or
exterior, structural or
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non-structural, ordinary or extraordinary, foreseen or unforeseen or arising by
reason of a condition existing prior to the commencement of the Term of this
Lease (concealed or otherwise). All repairs shall, to the extent reasonably
achievable, be at least equivalent in quality to the original work. Lessee will
not take or omit to take any action the taking or omission of which might
materially impair the value or the usefulness of the Leased Property or any part
thereof for the Primary Intended Use.
(b) Lessor shall not under any circumstances be required to build or
rebuild any improvements on the Leased Property, or to make any repairs,
replacements, alterations, restorations, or renewals of any nature or
description to the Leased Property, whether ordinary or extraordinary,
structural or non-structural, foreseen or unforeseen, or to make any expenditure
whatsoever with respect thereto in connection with this Lease, or to maintain
the Leased Property in any way.
(c) Nothing contained in this Lease and no action or inaction by Lessor
shall be construed as (i) constituting the consent or request of Lessor,
expressed or implied, to any contractor, subcontractor, laborer, materialman or
vendor to or for the performance of any labor or services or the furnishing of
any materials or other property for the construction, alteration, addition,
repair or demolition of or to the Leased Property or any part thereof, or (ii)
giving Lessee any right, power or permission to contract for or permit the
performance of any labor or services or the furnishing of any materials or other
property in such fashion as would permit the making of any claim against Lessor
in respect thereof or to make any agreement that may create, or in any way be
the basis for, any right, title, interest, lien, claim or other encumbrance upon
the estate of Lessor in the Leased Property or any portion thereof.
(d) Unless Lessor shall convey any of the Leased Property to Lessee
pursuant to the provisions of this Lease, Lessee will, upon the expiration or
prior termination of this Term, vacate and surrender the Leased Property to
Lessor in the condition in which the Leased Property was originally received
from Lessor, except as repaired, rebuilt, restored, altered or added to as
permitted or required by the provisions of this Lease and except for ordinary
wear and tear (subject to the obligations of Lessee to maintain the Leased
Property in good order and repair during the entire Term of the Lease), damage
caused by the gross negligence or willful acts of Lessor and damage or
destruction described in Article XIV or resulting from a Taking described in
Article XV which Lessee is not required by the terms of this Lease to repair or
restore.
9.2 Encroachments; Restrictions. If any of the Leased Improvements shall,
at any time, encroach upon any property, street or right-of-way adjacent to the
Leased Property, or shall violate the agreements or conditions contained in any
federal, state or local law, lawful restrictive covenant or other agreement
affecting the Leased Property, or any part thereof, or shall impair the rights
of others under any easement or right-of-way to which the Leased Property is
subject, then promptly upon the request of Lessor, Lessee shall, at its expense,
subject to its right to contest the existence of any encroachment, violation or
impairment, (a) obtain valid and effective waivers or settlements of all claims,
liabilities and damages resulting from each such encroachment, violation or
impairment, whether the same shall affect Lessor or Lessee or (b) make such
changes in the Leased Improvements, and take such other
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actions, as Lessor in the good faith exercise of its judgment deems reasonably
practicable, to remove such encroachment, or to end such violation or
impairment, including, if necessary, the alteration of any of the Leased
Improvements, and in any event take all such actions as may be necessary in
order to be able to continue the operation of the Facility for the Primary
Intended Use substantially in the manner and to the extent the Facility was
operated prior to the assertion of such violation or encroachment. Any such
alteration shall be made in conformity with the applicable requirements of
Article X. Lessee's obligations under this Section 9.2 shall be in addition to
and shall in no way discharge or diminish any obligation of any insurer under
any policy of title or other insurance and Lessee shall be entitled to a credit
for any sums recovered by Lessor under any such policy of title or other
insurance.
ARTICLE X
CAPITAL ADDITIONS
10.1 Construction of Capital Additions to the Leased Property.
(a) If no Event of Default shall have occurred or be continuing, Lessee
shall have the right, upon and subject to the terms and conditions set forth
below, to construct or install Capital Additions on the Leased Property without
the prior written consent of Lessor, provided, however, that Lessee shall not be
permitted to create any Encumbrance on the Leased Property, as defined in
Article XXXVIII, in connection with such Capital Addition. Prior to commencing
construction of any Capital Addition, Lessee shall submit to Lessor in writing a
proposal setting forth in reasonable detail any proposed Capital Addition and
shall provide to Lessor such plans and specifications, permits, licenses,
contracts and other information concerning the proposed Capital Addition as
Lessor may reasonably request. Without limiting the generality of the foregoing,
such proposal shall indicate the approximate projected cost of constructing such
Capital Addition, the use or use to which it will be put and a good faith
estimate of the change, if any, in the Gross Revenues that Lessee anticipates
will result from the construction of such Capital Addition to the Leased
Property.
(b) Prior to commencing construction of any Capital Addition, Lessee shall
first request Lessor to provide funds to pay for such Capital Addition in
accordance with the provisions of Section 10.3. If Lessor declines or is unable
to provide such financing on terms acceptable to Lessee, the provisions of
Section 10.2 shall apply. Notwithstanding any other provision of this Article X
to the contrary, no Capital Additions made by Lessee, would exceed twenty-five
percent (25%) of the then Fair Market Value of the Leased Property or would
diminish the value of the Leased Property. Furthermore, no Capital Addition
shall be made which would tie in or connect any Leased Improvements on the
Leased Property with any other improvements on property adjacent to the Leased
Property (and not part of the Land covered by this Lease) including, without
limitation, tie-ins of buildings or other structures or utilities, unless Lessee
shall have obtained the prior written approval of Lessor, which approval in
Lessor's sole discretion may be granted or withheld. All proposed Capital
Additions shall be architecturally integrated and consistent with the Leased
Property.
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10.2 Capital Additions Financed by Lessee. If Lessee provides or arranges
to finance any Capital Addition, this Lease shall be and hereby is amended to
provide as follows:
(a) Upon completion of any Capital Addition, Gross Revenues attributable
to any and all Capital Additions paid for by the Lessee shall be excluded from
the Gross Revenues of the Leased Property for purposes of calculating Additional
Rent. The Gross Revenues attributable to such Capital Addition and all other
Capital Additions, if any, financed or paid for by Lessee, shall be deemed to be
an amount which bears the same proportion to the total Gross Revenues from the
entire Leased Property (including all Capital Additions) as the then Fair Market
Added Value of all said Capital Additions paid for by Lessee during the Term
bears to the then Fair Market Value to the entire Leased Property (including all
Capital Additions) immediately after completion of said Capital Addition. The
above-referenced proportion of the Fair Market Added Value of Capital Additions
paid for by the Lessee to the Fair Market Value of the entire Leased Property
expressed as a percentage is referred to herein as the "Added Value Additional".
The Added Value Additional determined as provided above for each Capital
Addition financed or paid for by Lessee shall remain in effect until any
subsequent Capital Addition.
(b) There shall be no adjustment in the Base Rent by reason of any such
Capital Addition.
(c) Upon the expiration or earlier termination of this Lease, except by
reason of the default by Lessee hereunder Lessor shall compensate Lessee for all
Capital Additions paid for or financed by Lessee in any of the following ways,
determined in the sole discretion of Lessor:
(i) By purchasing all Capital Additions paid for by Lessee from
Lessee for cash in the amount of the Fair Market Added Value of all such
Capital Additions paid for or financed by Lessee; or
(ii) By purchasing such Capital Additions from Lessee by delivering
to Lessee Lessor's purchase money promissory note in the amount of said
Fair Market Added Value, due and payable not later than eighteen (18)
months after the date of expiration or other termination of this Lease,
bearing interest at the test rate applicable under Section 1272 of the
Code or any successor section thereto ("Test Rate") or, if no such Test
Rate exists, at the Prime Rate, which interest shall be payable monthly,
and which note shall be secured by a mortgage on the Leased Property,
subject to all mortgages and encumbrances on the Leased Property at the
time of such purchase; or
(iii) By Lessor assigning to Lessee under appropriate written
instruments the right to receive an amount equal to the Added Value
Additional (determined as of the expiration or earlier termination of this
Lease) of all rent and other consideration receivable by Lessor under any
re-letting or other disposition of the Leased Property and all costs and
expenses of operating and maintaining the Leased Property during any such
new lease which are not borne by the Tenant thereunder, with the
provisions of this Section 10.2 to remain in effect until the sale or
other final disposition of the Leased Property; or
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(iv) Such other arrangement regarding such compensation as shall be
mutually acceptable to Lessor and Lessee.
(d) Lessor and Lessee agree that Lessee's construction lender shall have
the right to secure its loan by a mortgage upon the Leased Property provided
such mortgage (i) shall not exceed the cost of the Capital Additions, (ii) shall
be subordinate to Lessor's acquisition cost of the Leased Property, (iii) shall
be subordinate to any mortgage or encumbrance now existing or hereinafter
created, and (iv) shall be limited solely to Lessor's interest in the Leased
Property.
10.3 Capital Additions Financed by Lessor.
(a) Lessee shall request that Lessor provide or arrange financing for a
Capital Addition by providing to Lessor such information about the Capital
Addition as Lessor may request (a "Request"), including without limitation, all
information referred to in Section 10.1 above. Lessor may, but shall be under no
obligation to, obtain the funds necessary to meet the Request. Within thirty
(30) days of receipt of a Request, Lessor shall notify Lessee as to whether it
will finance the proposed Capital Addition and, if so, the terms and conditions
upon which it would do so, including the terms of any amendment to this Lease.
In no event shall the portion of the projected Capital Addition Cost comprised
of land, if any, materials, labor charges and fixtures be less than ninety
percent (90%) of the total amount of such cost. Lessee may withdraw its Request
by notice to Lessor at any time before or after receipt of Lessor's terms and
conditions.
(b) If Lessor agrees to finance the proposed Capital Addition, Lessee
shall provide Lessor with the following prior to any advance of funds:
(i) all customary or other required loan documentation;
(ii) any information, certificates, licenses, permits or documents
requested by either Lessor or any lender with whom Lessor has agreed or
may agree to provide financing which are necessary to confirm that Lessee
will be able to use the Capital Addition upon completion thereof in
accordance with the Primary Intended Use, including all required federal,
state or local government licenses and approvals.
(iii) an Officer's Certificate and, if requested, a certificate from
Lessee's architect, setting forth in reasonable detail the projected (or
actual, if available) cost of the proposed Capital Addition;
(iv) an amendment to this Lease, duly executed and acknowledged, in
form and substance satisfactory to Lessor (the "Lease Amendment"), and
containing such provisions as may be necessary or appropriate, including
without limitation, any appropriate changes in the legal description of
the Land, the Minimum Repurchase Price and the Rent, which shall be
increased in an amount at least equal to the principal and interest on the
debt incurred by Lessor to finance the Capital Addition;
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(v) a deed conveying title to Lessor to any land acquired for the
purpose of constructing the Capital Addition, free and clear of any liens
or encumbrances except those approved by Lessor and, both prior to and
following completion of the Capital Addition, an as-built survey thereof
satisfactory to Lessor;
(vi) endorsements to any outstanding policy of title insurance
covering the Leased Property or a supplemental policy of title insurance
covering the Leased Property satisfactory in form and substance to Lessor
(A) updating the same without any additional exceptions except as may be
permitted by Lessor; and (B) increasing the coverage thereof by an amount
equal to the Fair Market Value of the Capital Addition (except to the
extent covered by the owner's policy of the title insurance referred to in
subparagraph (vii) below);
(vii) if required by Lessor, (A) an owner's policy of title
insurance insuring fee simple title to any land conveyed to Lessor
pursuant to subparagraph (v), free and clear of all liens and encumbrances
except those approved by Lessor and (B) a lender's policy of title
insurance satisfactory in form and substance to Lessor and the Lending
Institution advancing any portion of the Capital Addition Cost;
(viii) If required by Lessor, upon completion of the Capital
Addition, an M.A.I. appraisal of the Leased Property indicating that the
value of the Leased Property upon completion of the Capital Addition
exceeds the Fair Market Value of the Leased Property prior thereto by an
amount not less than ninety-five percent (95%) of the Capital Addition
Cost; and
(ix) such other certificates (including, but not limited to,
endorsements increasing the insurance coverage, if any, at the time
required by Section 13.1), documents, opinions of counsel, appraisals,
surveys, certified copies of duly adopted resolutions of the Board of
Directors of Lessee authorizing the execution and delivery of the Lease
Amendment and any other instruments as may be reasonably required by
Lessor and any Lending Institution advancing or reimbursing Lessee for any
portion of the Capital Addition Cost.
(c) Upon making a Request to finance a Capital Addition, whether or not
such financing is actually consummated, Lessee shall pay or agree to pay, upon
demand, all reasonable costs and expenses of Lessor and any Lending Institution
which has committed to finance such Capital Addition which have been paid or
incurred by them in connection with the financing of the Capital Addition,
including, but not limited to, (i) the fees and expenses of their respective
counsel, (ii) all printing expenses, (iii) the amount of any filing,
registration and recording taxes and fees, (iv) documentary stamp taxes, if any,
(v) title insurance charges, appraisal fees, if any, rating agency fees, if any,
and (vi) commitment fees, if any.
10.4 Remodeling and Non-Capital Additions. Lessee shall have the right and
obligation to make additions, modifications or improvements to the Leased
Property which are not Capital Additions from time to time as it, in its
discretion, may deem to be desirable for its uses and purposes and to permit the
Lessee to comply fully with its obligations set forth in this Lease,
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provided that such action will be undertaken expeditiously, in a workmanlike
manner and will not significantly alter the character or purpose or detract from
the value or operating efficiency of the Leased Property and will not
significantly impair the revenue producing capability of the Leased Property or
adversely affect the ability of the Lessee to comply with the provisions of this
Lease. The cost of non-Capital Additions, modifications and improvements shall,
without payment by Lessor at any time, be included under the terms of this Lease
and, upon expiration or earlier termination of this Lease, shall pass to and
become the property of Lessor.
10.5 Salvage. All materials which are scrapped or removed in connection
with the making of either Capital Additions permitted by Section 10.1 or repairs
required by Article IX shall be or become the property of Lessor.
ARTICLE XI
LIENS
Subject to the provisions of Article XII relating to permitted contests,
Lessee will not directly or indirectly create or allow to remain and will
promptly discharge at its expense any lien, encumbrance, attachment, title
retention agreement or claim upon the Leased Property or any attachment, levy,
claim or encumbrance in respect of the Rent, not including, however, (a) this
Lease, (b) the matters, if any, set forth in Exhibit B, (c) restrictions, liens
and other encumbrances which are consented to in writing by Lessor which consent
shall not be unreasonably withheld, or any easements granted pursuant to the
provisions of Section 7.3 of this Lease, (d) liens for those taxes of Lessor
which Lessee is not required to pay hereunder, (e) subleases permitted by
Article XXIV, (f) liens for Impositions or for sums resulting from noncompliance
with Legal Requirements so long as (1) the same are not yet payable without the
addition of any fine or penalty or (2) such liens are in the process of being
contested as permitted by Article XII, (g) liens of mechanics, laborers,
materialmen, suppliers or vendors for sums either disputed or not yet due,
provided that (1) the payment of such sums shall not be postponed for more than
sixty (60) days after the completion of the action giving rise to such lien and
such reserve or other appropriate provision as shall be required by law or
generally accepted accounting principles shall have been made therefor or (2)
any such liens are in the process of being contested as permitted by Article
XII, and (h) any liens which are the responsibility of Lessor pursuant to the
provisions of Article XXXVIII of this Lease.
ARTICLE XII
PERMITTED CONTESTS
Lessee, on its own or on Lessor's behalf (or in Lessor's name), but at
Lessee's expense, may contest, by appropriate legal proceedings conducted in
good faith and with due diligence, validity or application, in whole or in part,
of any Imposition, Legal Requirement, Insurance Requirement, lien, attachment,
levy, encumbrance, charge or claim not otherwise permitted by Article XI,
provided that (a) in the case of an unpaid Imposition, lien, attachment, levy,
encumbrance, charge or claim, the commencement and continuation of such
proceedings shall suspend the collection thereof from Lessor and from the Leased
Property, (b) neither the Leased
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Property nor any Rent therefrom nor any part thereof or interest therein would
be in any immediate danger of being sold, forfeited, attached or lost, (c) in
the case of a Legal Requirement, Lessor would not be in any immediate danger of
civil or criminal liability for failure to comply therewith pending the outcome
of such proceedings, (d) in the event that any such contest shall involve a sum
of money or potential loss in excess of Fifty Thousand Dollars ($50,000), then,
in any such event, (i) provided the Consolidated Net Worth of Lessee and/or
Guarantor is then in excess of Fifty Million Dollars ($50,000,000), Lessee shall
deliver to Lessor an Officer's Certificate to the effect set forth in clauses
(a), (b) and (c), to the extent applicable, or (ii) in the event the
Consolidated Net Work of Lessee and/or Guarantor is not then in excess of Fifty
Million Dollars ($50,000,000), then Lessee shall deliver to Lessor and its
counsel an opinion of lessee's counsel to the effect set forth in clauses (a),
(b) and (c), to the extent applicable, (e) in the case of a Legal Requirement
and/or an Imposition, lien, encumbrance or charge, Lessee shall give such
reasonable security as may be demanded by Lessor to insure ultimate payment of
the same and prevent any sale or forfeiture of the affected portion of the
Leased Property or the Rent by reason of such non-payment or non-compliance;
provided, however, the provisions of this Article XII shall not be construed to
permit Lessee to contest the payment of Rent (except as to contests concerning
the method of computation or the basis of levy of any Imposition or the basis
for the assertion of any other claim) or any other sums payable by Lessee to
Lessor hereunder, (f) in the case of an Insurance Requirement, the coverage
required by Article XIII shall be maintained, and (g) if such contest be finally
resolved against Lessor or Lessee, Lessee shall, as Additional Charges due
hereunder, promptly pay the amount required to be paid, together with all
interest and penalties accrued thereon, or comply with the applicable Legal
Requirement or Insurance Requirement. Lessor, at Lessee's expense, shall execute
and deliver to Lessee such authorizations and other documents as may reasonably
be required in any such contest and, if reasonably requested by Lessee or if
Lessor so desires, Lessor shall join as a party therein. Lessee shall indemnify
and save Lessor harmless against any liability, cost or expense of any kind that
may be imposed upon Lessor in connection with any such contest and any loss
resulting therefrom.
ARTICLE XIII
INSURANCE
13.1 General Insurance Requirements. During the Term of this Lease, Lessee
shall at all times keep the Leased Property, and all property located in or on
the Leased Property, including Lessee's Personal Property, insured with the
kinds and amounts of insurance described below. This insurance shall be written
by companies authorized to do insurance business in the state in which the
Leased Property is located. The policies must name Lessor as an additional
insured and losses shall be payable to Lessor and/or Lessee as provided in
Article XIV. In addition, the policies shall name as an additional insured the
holder ("Facility Mortgagee") of any mortgage, deed of trust or other security
agreement securing any Encumbrance placed on the Leased Property in accordance
with the provisions of Article XXXVIII ("Facility Mortgage"), if any, by way of
a standard form of mortgagee's loss payable endorsement. Any loss adjustment
shall require the written consent of Lessor and each affected Facility
Mortgagee. Evidence of insurance shall be deposited with Lessor and, if
requested, with any Facility Mortgagee(s). If any provision of any Facility
Mortgagee, Lessee shall either pay to Lessor
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monthly the amounts required and Lessor shall transfer such amounts to such
Facility Mortgagee or, pursuant to written direction by Lessor, Lessee shall
make such deposits directly with such Facility Mortgagee. The policies on the
Leased Property, including the Leased Improvements, the Fixtures and Lessee's
Personal Property, shall insure against the following risks:
(a) Loss or damage by fire, vandalism and malicious mischief, extended
coverage perils commonly known all "All Risk" and all physical loss perils,
including but not limited, to sprinkler leakage in an amount not less than one
hundred percent (100%) of the then Full Replacement Cost thereof (as defined
below in Section 13.2) with a replacement cost endorsement sufficient to prevent
Lessee from becoming a co-insurer together with an agreed value endorsement;
(b) Loss or damage by explosion of steam boilers, pressure vessels or
similar apparatus, now or hereafter installed in the Facility, in such limits
with respect to any one accident as may be reasonably requested by Lessor from
time to time;
(c) Loss of rental under a rental value insurance policy covering risk of
loss during the first twelve (12) months of reconstruction necessitated by the
occurrence of any of the hazards described in Sections 13.1(a) or 13.1(b), in an
amount sufficient to prevent Lessor from becoming a co-insurer;
(d) Claims for personal injury or property damage under a policy of
comprehensive general public liability insurance including but not limited to
insurance against assumed or contractual liability including any indemnities
under this Lease with amounts not less than Five Million Dollars ($5,000,000)
per occurrence in respect of bodily injury and death and Ten Million Dollars
($10,000,000) for property damage;
(e) Claims arising out of malpractice in an amount not less than Five
Million Dollars ($5,000,000) for each person and Ten Million Dollars
($10,000,000) for each occurrence; and
(f) Flood (when the Leased Property is located in whole or in part within
a designated flood plain area) and such other hazards and in such amounts as may
be customary for comparable properties in the area and if available from
insurance companies authorized to do business in the state in which the Leased
Property are located at rates which are economically practicable in relation to
the risks covered.
(g) If Lessee shall engage or cause to be engaged any contractor to
perform work on the Leased Property, Lessee shall require such contractor to
carry and maintain, at no expense to Lessor, non-deductible comprehensive
general liability insurance, including but not limited to contractor's liability
coverage, completed operations coverage, broad form property damage endorsement
and contractor's protection liability coverage in such amounts and with such
companies as Lessor shall approve.
13.2 Replacement Cost. The term "Full Replacement cost" as used herein,
shall mean the actual replacement cost thereof from time to time, including
increased cost of construction endorsement, less exclusions provided in the
normal fire insurance policy. In the event either
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Lessor or Lessee believes that the Full Replacement Cost has increased or
decreased at any time during the Term, it shall have the right to have such Full
Replacement Cost redetermined by the fire insurance company which is then
providing the largest amount of fire insurance carried on the Leased Property,
hereinafter referred to as the "impartial appraiser". The party desiring to have
the Full Replacement Cost so redetermined shall forthwith, on receipt of such
determination by such impartial appraiser, give written notice thereof to the
other party hereto. The determination of such impartial appraiser shall be final
and binding on the parties hereto, and Lessee shall forthwith increase, or may
decrease, the amount of the insurance carried pursuant to this Article, as the
case may be, to the amount so determined by the impartial appraiser.
Lessee shall pay the fee, if any, of the impartial appraiser.
13.3 Additional Insurance. In addition to the insurance described above,
Lessee shall maintain such additional insurance as may be required from time to
time by any Facility Mortgagee and shall further at all times maintain adequate
worker's compensation insurance coverage for all persons employed by Lessee on
the Leased Property, in accordance with the requirements of applicable local,
state and federal law.
13.4 Waiver of Subrogation. All insurance policies carried by either party
covering the Leased Property, the Fixtures, the Facility and/or Lessee's
Personal Property, including without limitation, contents, fire and casualty
insurance, shall expressly waive any right of subrogation on the part of the
insurer against the other party. The parties hereto agree that their policies
will include such a waiver clause or endorsement so long as the same is
obtainable without extra cost, and in the event of such an extra charge the
other party, at its election, may pay the same, but shall not be obligated to do
so.
13.5 Form of Insurance. All of the policies of insurance referred to in
this Section shall be written in form satisfactory to Lessor and by insurance
companies satisfactory to Lessor. Lessee shall pay all of the premiums therefor,
and deliver such policies or certificates thereof to Lessor prior to their
effective date (and, with respect to any renewal policy, at least fifteen (15)
days prior to the expiration of the existing policy) and in the event of the
failure of Lessee either to effect such insurance in the names herein called for
or to pay the premiums therefor, or to deliver such policies or certificates
thereof to Lessor at the times required, Lessor shall be entitled, but shall
have no obligation, to enact such insurance and pay the premiums therefor, which
premiums shall be repayable to Lessor upon written demand therefor, and failure
to repay the same shall constitute an Event of Default within the meaning of
Section 16.1(c). Each insurer mentioned in this Section shall agree, by
endorsement on the policy or policies issued by it, or by independent instrument
furnished to Lessor, that it will give to Lessor thirty (30) days' written
notice before the policy or policies in question shall be altered, allowed to
expire or canceled.
13.6 Increase in Limits. In the event that Lessor shall at any time deem
the limits of the personal injury, property damage or general public liability
insurance then carried to be insufficient, the parties shall endeavor to agree
on the proper and reasonable limits for such insurance to be carried and such
insurance shall thereafter be carried with the limits thus agreed on until
further change pursuant to the provisions of this Section. If the parties shall
be unable to agree thereon, the proper and reasonable limits for such insurance
to be carried shall be
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determined by an impartial third party selected by the parties. Nothing herein
shall permit the amount of insurance to be reduced below the amount or amounts
required by any of the Facility Mortgages.
13.7 Blanket Policy. Notwithstanding anything to the contrary contained in
this Section, Lessee's obligations to carry the insurance provided for herein
may be brought within the coverage of a so-called blanket policy or policies of
insurance carried and maintained by Lessee; provided, however, that the coverage
afforded Lessor will not be reduced or diminished or otherwise be different from
that which would exist under a separate policy meeting all other requirements of
this Lease by reason of the use of such blanket policy of insurance, and
provided further that the requirements of this Article XIII are otherwise
satisfied.
13.8 No Separate Insurance. Lessee shall not, on Lessee's own initiative
or pursuant to the request or requirement of any third party, take out separate
insurance concurrent in form or contributing in the event of loss with that
required in this Article to be furnished by, or which may reasonably be required
to be furnished by, Lessee, or increase the amounts of any then existing
insurance by securing an additional policy or additional policies, unless all
parties having an insurable interest in the subject matter of the insurance,
including in all cases Lessor and all Facility Mortgagees, are included therein
as additional insureds and the loss is payable under said insurance in the same
manner as losses are required to be payable under this Lease. Lessee shall
immediately notify lessor of the taking out of any such separate insurance or of
the increasing of any of the amounts of the then existing insurance by securing
an additional policy or additional policies.
ARTICLE XIV
FIRE AND CASUALTY
14.1 Insurance Proceeds. All proceeds payable by reason of any loss or
damage to the Leased Property, or any portion thereof, and insured under any
policy of insurance required by Article XIII of this Lease shall be paid to
Lessor and held by Lessor in trust (subject to the provisions of Section 14.7)
and shall be made available for reconstruction or repair, as the case may be, of
any damage to or destruction of the Leased Property, or any portion thereof, and
shall be paid out by Lessor from time to time for the reasonable cost of such
reconstruction or repair. Any excess proceeds of insurance remaining after the
completion of the restoration or reconstruction of the Leased Property (or in
the event neither Lessor nor Lessee is required or elects to repair and restore,
all such insurance proceeds) shall be retained by Lessor free and clear upon
completion of any such repair and restoration except as otherwise specifically
provided below in this Article XIV. All salvage resulting from any risk covered
by insurance shall belong to Lessor except that any salvage relating to Capital
Additions paid for by Lessee or to Lessee's Personal Property shall belong to
Lessee.
14.2 Reconstruction in the Event of Damage or Destruction Covered by
Insurance.
(a) Except as provided in Section 14.7, if during the Term, the Leased
Property is totally or partially destroyed from a risk covered by the insurance
described in Article XIII and
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the Facility thereby is rendered Unsuitable for Its Primary Intended Use, Lessee
shall have the option, by giving notice to Lessor within sixty (60) days
following the date of such destruction, to (i) restore the Facility to
substantially the same condition as existed immediately before the damage or
destruction, or (ii) offer (A) to acquire the Leased Property from Lessor for a
purchase price equal to the Fair Market Value Purchase Price of the Leased
Property immediately prior to such damage or destruction or (B) to substitute a
new property pursuant to and in accordance with the provisions of Article XXI.
In the event Lessor does not accept Lessee's offer to so purchase or substitute
for the Leased Property, within thirty (30) days after the date of such offer,
Lessee may, by giving notice to Lessor within thirty (30) days after receipt of
Lessor's notice, either withdraw its offer to purchase or substitute for the
Leased Property and proceed to restore the Facility to substantially the same
condition as existed immediately before the damage or destruction or, unless
Lessor is excused or otherwise not required to accept such Substitute Property
pursuant to the provisions of Article XXI below, terminate this Lease and, in
the latter event, Lessor shall be entitled to retain the insurance proceeds, and
Lessee shall pay to Lessor on demand, the amount of any deductible or uninsured
loss arising in connection therewith.
(b) Except as provided in Section 14.7, if during the Term, the Leased
Improvements and/or the Fixtures are totally or partially destroyed from a risk
covered by the insurance described from a risk covered by the insurance
described in Article XIII, but the Facility is not thereby rendered Unsuitable
for its Primary Intended Use, Lessee shall restore the Facility to substantially
the same condition as existed immediately before the damage or destruction. Such
damage or destruction shall not terminate this Lease; provided, however, if
Lessee cannot within a reasonable time obtain all necessary governmental
approvals, including building permits, licenses, conditional use permits and any
certificates of need, after diligent efforts to do so, in order to be able to
perform all required repair and restoration work and to operate the Facility for
its Primary Intended Use in substantially the same manner as immediately prior
to such damage or destruction, Lessee may either (i) offer pursuant to Article
XXII to substitute a new property, substantially equivalent to the Leased
Property immediately before such damage or destruction, or (ii) offer to
purchase the Leased Property for a purchase price equal to the greater of the
Minimum Repurchase Price or the Fair Market Value Purchase Price of the Leased
Property immediately prior to such damage or destruction.
(c) If the cost of the repair or restoration exceeds the amount of
proceeds received by Lessor from the insurance required under Article XIII,
Lessee shall be obligated to contribute any excess amount needed to restore the
Facility. Such amount shall be paid by Lessee to Lessor to be held in trust
together with any other insurance proceeds for application to the cost of repair
and restoration.
(d) In the event Lessor accepts Lessee's offer to purchase the Leased
Property or to provide a Substitute Property, this Lease shall terminate upon
payment of the purchase price or execution and delivery of all documents
required in connection with a Substitute Property under Article XXI and Lessor
shall remit to Lessee all insurance proceeds being held in trust by Lessor.
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14.3 Reconstruction in the Event of Damage or Destruction Not Covered by
Insurance. Except as provided in Section 14.7 below, if during the Term, the
Facility is totally or materially destroyed from a risk (including earthquake)
not covered by the insurance described in Article XIII, whether or not such
damage or destruction shall not terminate this Lease, or (b) if all of the
criteria for such substitution are satisfied, offer to substitute a new property
substantially equivalent to the Leased Property immediately before such damage
or destruction pursuant to the provisions of Article XXII. If such damage or
destruction is not material, Lessee shall restore the Leased Property.
14.4 Lessee's Property. All insurance proceeds payable by reason of any
loss of or damage to any of Lessee's Personal Property or Capital Additions
financed by Lessee shall be paid to Lessor and Lessor shall hold such insurance
proceeds in trust to pay the cost of repairing or replacing the damage to
Lessee's Personal Property or the Capital Additions financed by Lessee.
14.5 Restoration of Lessee's Property. If Lessee is required or elects to
restore the Facility as provided in Sections 14.2 or 14.3, Lessee shall also
restore all alterations and improvements made by Lessee, Lessee's Personal
Property and all Capital Additions paid for by Lessee.
14.6 No Abatement of Rent. This Lease shall remain in full force and
effect and Lessee's obligation to make rental payments and to pay all other
charges required by this Lease shall remain unabated during any period required
for repair and restoration.
14.7 Damage Near end of Term. Notwithstanding any provisions of Sections
14.2 or 14.3 to the contrary, if damage to or destruction of the Facility occurs
during the last twenty-four (24) months of the Term, and if such damage or
destruction cannot be fully repaired and restored within six (6) months
immediately following the date of loss, either party shall have the right to
terminate this Lease by giving notice to the other within thirty (30) days after
the date of damage or destruction, in which event Lessor shall be entitled to
retain the insurance proceeds and Lessee shall pay to Lessor on demand the
amount of any deductible or uninsured loss arising in connection therewith;
provided, however, that any such notice given by Lessor shall be void and of no
force and effect if Lessee exercises an available option to extend the Term for
one Extended Term within thirty (30) days following receipt of such termination
notice.
14.8 Termination of Right of First Refusal. Any termination of this Lease
pursuant to this Article XIV shall cause any right of first refusal granted to
Lessee under Section 35.1 of this Lease to be terminated and to be without
further force or effect.
14.9 Waiver. Lessee hereby waives any statutory or common law rights of
termination which may arise by reason of any damage or destruction of the
Facility.
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ARTICLE XV
CONDEMNATION
15.1 Definitions.
(a) "Condemnation" means (i) the exercise of any governmental power,
whether by legal proceedings or otherwise, by a Condemnor or (ii) a voluntary
sale or transfer by Lessor to any Condemnor, either under threat of Condemnation
or while legal proceedings for Condemnation are pending.
(b) "Date of Taking" means the date the Condemnor has the right to
possession of the property being condemned.
(c) "Award" means all compensation, sums or anything of value awarded,
paid or received on a total or partial Condemnation.
(d) "Condemnor" means any public or quasi-public authority, or private
corporation or individual, having the power of Condemnation.
15.2 Parties Rights and Obligations. If during the Term there is any
Taking of all or any part of the Leased Property or any interest in this Lease
by Condemnation, the rights and obligations of the parties shall be determined
by this Article XV.
15.3 Total Taking. It there is a Taking of all of the Leased Property by
Condemnation, this Lease shall terminate on the Date of Taking.
15.4 Partial Taking. If there is a Taking of a portion of the Leased
Property by Condemnation, this Lease shall remain in effect if the Facility is
not thereby rendered Unsuitable for Its Primary Intended Use. If, however, the
Facility is thereby rendered Unsuitable for Its Primary Intended Use, Lessee
shall have the right (a) to restore the Facility, at its own expense, to the
extent possible, to substantially the same condition as existed immediately
before the partial Taking, or (b) to offer (i) to acquire the Leased Property
from Lessor for a purchase price equal to the Fair Market Value Purchase Price
of the Leased Property immediately prior to such partial Taking, in which event
this Lease shall terminate upon payment of the purchase price, or (ii) to
substitute a new property pursuant to and in accordance with the provisions of
Article XXI. Lessee shall exercise its option by giving Lessor notice thereof
within sixty (60) days after Lessee receives notice of the Taking. In the event
Lessor does not accept Lessee's offer to so purchase or substitute for the
Leased Property within thirty (30) days after receipt of the notice described in
the preceding sentence, Lessee may either (a) withdraw its offer to purchase or
substitute for the Leased Property and proceed to restore the Facility, to the
extent possible, to substantially the same condition as existed immediately
before the partial Taking or (b) terminate this Lease by written notice to
Lessor.
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15.5 Restoration. If there is a partial Taking of the Leased Property and
the Lease remains in full force and effect pursuant to Section 15.4, Lessee
shall accomplish all necessary restoration.
15.6 Award Distribution. In the event Lessor accepts Lessee's offer to
purchase the Leased Property, or to substitute a new property for the Leased
Property, as described in clause (b) of Section 15.4, the entire Award shall
belong to Lessee and Lessor agrees to assign to Lessee all of its rights
thereto. In any other event, the entire Award shall belong to and be paid to
Lessor, except that, if this Lease is terminated, and subject to the rights of
the Facility Mortgagee, Lessee shall be entitled to receive from the Award, if
and to the extent such Award specifically includes such items, the following:
(a) A sum attributable to the Capital Additions for which Lessee would be
entitled to reimbursement at the end of the Term pursuant to the provisions of
Section 10.2(c) and the value, if any, of the leasehold interest of Lessee under
this Lease; and
(b) A sum attributable to Lessee's Personal Property and any reasonable
removal and relocation costs included in the Award.
If Lessee is required or elects to restore the Facility, Lessor agrees that,
subject to the rights of the Facility Mortgagees, its portion of the Award shall
be used for such restoration and it shall hold such portion of the Award in
trust, for application to the cost of the restoration.
15.7 Temporary Taking. The Taking of the Leased Property, or any part
thereof, by military or other public authority shall constitute a Taking by
Condemnation only when the use and occupancy by the Taking authority has
continued for longer than six (6) months. During any such six (6) month period
all the provisions of this Lease shall remain in full force and effect except
that the Base Rent and the Additional Rent shall not be abated or reduced during
such period of Taking.
ARTICLE XVI
DEFAULT
16.1 Events of Default. The occurrence of any one or more of the following
events (individually, an "Event of Default") shall constitute Events of Default
hereunder:
(a) a default or event of default shall occur under any other lease
between Lessor and Lessee or Guarantor, or any Affiliate of Lessee or Guarantor,
or
(b) if Lessee shall fail to make a payment of the Rent payable by Lessee
under this Lease when the same becomes due and payable and such failure is not
cured by Lessee or Guarantor within a period of twenty (20) days after receipt
by Lessee of notice thereof from Lessor, or
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(c) if Lessee shall fail to observe or perform any other term, covenant or
condition of this Lease and such failure is not cured by Lessee or Guarantor
within a period of thirty (30) days after receipt by Lessee of notice thereof
from Lessor, unless such failure cannot with due diligence by cured within a
period of thirty (30) days, in which case such failure shall not be deemed to
continue if Lessee or Guarantor proceeds promptly and with due diligence to cure
the failure and diligently completes the curing thereof within sixty (60) days
after receipt by Lessee of Lessor's notice of default, or
(d) if Lessee or Guarantor shall:
(i) admit in writing its inability to pay its debts generally as
they become due,
(ii) file a petition in bankruptcy or a petition to take advantage
of any insolvency act,
(iii) make an assignment for the benefit of its creditors,
(iv) consent to the appointment of a receiver of itself or of the
whole or any substantial part of its property, or
(v) file a petition or answer seeking reorganization or arrangement
under the Federal bankruptcy laws or any other applicable law or statute
of the United States of America or any state thereof, or
(e) if the Lessee or Guarantor shall, after a petition in bankruptcy is
filed against it, be adjudicated a bankrupt or if a court of competent
jurisdiction shall enter an order or decree appointing, without the consent of
Lessee or Guarantor, as the case may be, a receiver of Lessee or Guarantor or of
the whole or substantially all of its property, or approving a petition filed
against it seeking reorganization or arrangement of Lessee or Guarantor under
the federal bankruptcy laws or any other applicable law or statute of the United
States of America or any state thereof, and such judgment, order or decree shall
not be vacated or set aside or stayed within ninety (90) days from the date of
the entry thereof, or
(f) if Lessee or Guarantor shall be liquidated or dissolved, or shall
begin proceedings toward such liquidation or dissolution, or shall, in any
manner, permit the sale or divestiture of substantially all of its assets other
than in connection with a merger or consolidation of Lessee or Guarantor into,
or a sale of substantially all of Lessee's or Guarantor's assets to, another
corporation, provided that if the survivor of such merger or the purchaser of
such assets shall assume all of Lessee's obligations under this Lease by a
written instrument, in form and substance reasonably satisfactory to Lessor,
accompanied by an opinion of counsel, reasonably satisfactory to Lessor and
addressed to Lessor stating that such instrument of assumption is valid, binding
and enforceable against the parties thereto in accordance with its terms
(subject to usual bankruptcy and other creditors' rights exceptions), and
provided, further, that if, immediately after giving effect to any such merger,
consolidation or sale, Lessee or such other corporation (if not the Lessee)
surviving the same, together with Guarantor, shall have a Consolidated Net Worth
not less than the Consolidated Net Worth of Guarantor immediately
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prior to such merger, consolidation or sale, all as to be set forth in an
Officer's Certificate delivered to Lessor within thirty (30) days of such
merger, consolidation or sale, an Event of Default shall not be deemed to have
occurred, or
(g) if the estate or interest of Lessee in the Leased Property or any part
thereof shall be levied upon or attached in any proceeding and the same shall
not be vacated or discharged within the later of ninety (90) days after
commencement thereof or thirty (30) days after receipt by Lessee of notice
thereof from Lessor (unless Lessee shall be contesting such lien or attachment
in good faith in accordance with Article XII hereof), or
(h) if, except as a result of damage, destruction or a partial or complete
Condemnation, Lessee voluntarily ceases operations on the Leased Property for a
period in excess of ninety (90) days, or
(i) if any of the representations or warranties (except for
representations and warranties relating to matters of title) made by Lessee in
the Purchase and Sale Agreement or in the certificates delivered in connection
therewith are or become untrue in any material respect, and which is not cured
within twenty (20) days after receipt by Lessee of notice from Lessor thereof,
or
(j) a default shall occur under the Guaranty executed by Guarantor
concurrently herewith, or
(k) a default or event of default shall occur under the Lease Assignment,
Security Agreement or any other agreement between Lessor and Lessee or Guarantor
or any Affiliate of Lessee or Guarantor.
If an event of Default shall have occurred, Lessor shall have the right at its
election, then or at any time thereafter, to pursue any one or more of the
following remedies, in addition to any remedies which may be permitted by law or
by other provisions of this Lease, without notice or demand, except as
hereinafter provided:
A. Without any notice or demand whatsoever, Lessor may take any one
or more of the actions permissible at law to insure performance by Lessee
of Lessee's covenants and obligations under this Lease. In this regard, it
is agreed that if Lessee deserts or vacates the Leased Property, Lessor
may enter upon and take possession of such Leased Property in order to
protect it from deterioration and continue to demand from Lessee the
monthly rentals and other charges provided in this Lease, without any
obligation to relet; but that if Lessor does, at its sole discretion,
elect to relet the Leased Property, such action by Lessor shall not be
deemed as an acceptance of Lessee's surrender of the Leased Property
unless Lessor expressly notifies Lessee of such acceptance in writing
pursuant to subsection B of this Section 16.1., Lessee hereby
acknowledging that Lessor shall otherwise be reletting as Lessee's agent
and Lessee furthermore hereby agreeing to pay to Lessor on demand any
deficiency that may arise between the monthly rentals and other charges
provided in this Lease and that actually collected by Lessor. It is
further agreed in this regard that in the event of any default
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described in this Section 16.1., Lessor shall have the right to enter upon
the Leased Property by force, if necessary, without being liable for
prosecution or any claim for damages therefor, and do whatever Lessee is
obligated to do under the terms of this Lease; and Lessee agrees to
reimburse Lessor on demand for any expenses which Lessor may incur in thus
effecting compliance with Lessee's obligations under this Lease, and
Lessee further agrees that Lessor shall not be liable for any damages
resulting to the Lessee from such action.
B. Lessor may terminate this Lease by written notice to Lessee, in
which event Lessee shall immediately surrender the Leased Property to
Lessor, and if Lessee fails to do so, Lessor may, without prejudice to any
other remedy which Lessor may have for possession or arrearages in rent
(including any interest which may have accrued pursuant to Section 3.4 of
this Lease), enter upon and take possession of the Leased Property and
expel or remove Lessee and any other person who may be occupying said
premises or any part thereof, by force, if necessary, without being liable
of prosecution or any claim for damages therefor. Lessee hereby waives any
statutory requirement of prior written notice for filing eviction or
damage suits for nonpayment of rent. In addition, Lessee agrees to pay to
Lessor on demand the amount of all loss and damage which Lessor may suffer
by reason of any termination effected pursuant to this subsection B, said
loss and damage to be determined, at Lessor's option, by either of the
following alternative measures of damages:
(i) Until Lessor is able, although Lessor shall be under no
obligation to attempt to relet the Leased Property, Lessee shall pay
to Lessor on or before the first day of each calendar month, the
monthly rentals and other charges provided in this Lease. After the
Leased Property have been relet by Lessor, Lessee shall pay to
Lessor on the 10th day of each calendar month the difference between
the monthly rentals and other charges provided in this Lease for the
preceding calendar month and that actually collected by Lessor for
such month. If it is necessary for Lessor to bring suit in order to
collect any deficiency, Lessor shall have a right to allow such
deficiencies to accumulate and to bring an action on several or all
of the accrued deficiencies at one time. Any such suit shall not
prejudice in any way the right of Lessor to bring a similar action
for any subsequent deficiency or deficiencies. Any amount collected
by Lessor from subsequent tenants for any calendar month, in excess
of the monthly rentals and other charges provided in this Lease,
shall be credited to Lessee in reduction of Lessee's liability for
any calendar month for which the amount collected by Lessor will be
less than the monthly rentals and other charges provided in this
Lease; but Lessee shall have no right to such excess other than the
above-described credit.
(ii) When Lessor desires, Lessor may demand a final
settlement. Upon demand for a final settlement, Lessor shall have a
right to, and Lessee hereby agrees to pay, the difference between
the total of all monthly rentals and other charges provided in this
Lease for the remainder of the Lease Term and the reasonable rental
value of the Leased Property for such period, such difference
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to be discounted to present value at a rate equal to the lowest rate
of capitalization (highest present worth) reasonably applicable at
the time of such determination and allowed by applicable law.
If Lessor elects to exercise the remedy prescribed in subsection A above,
this election shall in no way prejudice Lessor's right at any time thereafter to
cancel said election in favor of the remedy prescribed in subsection B above.
Similarly, if Lessor elects to compute damages in the manner prescribed by
subsection B(i) above, this election shall in no way prejudice Lessor's right at
any time thereafter to demand a final settlement in accordance with subsection
B(ii) above. Pursuit of any of the above remedies shall not preclude pursuit of
any other remedies prescribed in other sections of this Lease and any other
remedies provided by law or equity. Forbearance by Lessor to enforce one or more
of the remedies herein provided upon an event of default shall not be deemed or
construed to constitute a waiver of such default.
16.2 Rent and Charges Payable Following Default. It is expressly agreed
that in determining "the monthly rentals and other charges provided in this
Lease," as that term is used throughout subsections A and B of Section 16.1.
above, there shall be added to the Base Rent a sum equal to one twenty-fourth of
the total of all Additional Rent required to be paid by Lessee because of Gross
Revenues during the two full calendar years immediately preceding the date
Lessor initiated action pursuant to said subsections (or, if two full calendar
years have not then elapsed, to the corresponding fraction of all Additional
Rent required to be paid because of Gross Sales during the period commencing
with the Commencement Date of this Lease and concluding with the date on which
Lessor initiated such action).
16.3 Additional Expenses. It is further agreed that, in addition to
payments required pursuant to subsections A and B of Section 16.1. above, Lessee
shall compensate Lessor for all expenses incurred by Lessor in repossessing the
Leased Property (including among other expenses, any increase in insurance
premiums caused by the vacancy of the Leased Property), all expenses incurred by
Lessor in reletting (including among other expenses, repairs, remodeling,
replacements, advertisements and brokerage fees), all concessions granted to a
new tenant upon reletting (including among other concessions, renewal options),
all losses incurred by Lessor as a direct or indirect result of Lessee's default
(including among other losses any adverse reaction by Lessor's mortgagee) and a
reasonable allowance for Lessor's administrative efforts, salaries and overhead
attributable directly or indirectly to Lessee's default and Lessor's pursuing
the rights and remedies provided herein and under applicable law.
16.4 Lessee's Obligation to Purchase. If any Event of Default shall have
occurred and be continuing, by so providing by separate notice given by Lessor
to Lessee at any time thereafter prior to the time such Event of Default shall
be cured, Lessor may require Lessee to purchase the Leased Property on the first
Base Rent Payment Date occurring not less than thirty (30) days after the date
of receipt of, or such later date that is specified in, said notice requiring
such purchase for an amount equal to the higher of the then current Fair Market
Value Purchase Price or the Minimum Repurchase Price of the Leased Property plus
all Rent then due and payable (excluding the installment of Base Rent due on the
purchase date) as of the date of purchase. If Lessor exercises such right,
Lessor shall convey the Leased Property to Lessee on the date fixed therefor in
accordance with the provisions of Article XVIII upon receipt of the
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purchase price therefor and this Lease shall thereupon terminate. Any purchase
by Lessee of the Leased Property pursuant to this Section shall be in lieu of
the damages specified in Section 16.1.
16.5 Waiver. If this Lease is terminated pursuant to Section 16.1, Lessee
waives, to the extent permitted by applicable law, (a) any right of redemption
re-entry or repossession, (b) any right to a trial by jury in the event of
summary proceedings to enforce the remedies set forth in this Article XVI,and
(c) the benefit of any laws now or hereafter in force exempting property from
liability for rent or for debt.
16.6 Application of Funds. Any payments otherwise payable to Lessee which
are received by Lessor under any of the provisions of this Lease during the
existence or continuance of any Event of Default shall be applied to Lessee's
obligations in the order which Lessor may reasonably determine or as may be
prescribed by the laws of the state in which the Facility is located.
16.7 Notices by Lessor. The provisions of this Article XVI concerning
notices shall be liberally construed insofar as the contents of such notices are
concerned, and any such notice shall be sufficient if reasonably designed to
apprise Lessee of the nature and approximate extent of any default, it being
agreed that Lessee is in good or better position than Lessor to ascertain the
exact extent of any default by Lessee hereunder.
16.8 Lessor's Contractual Security Interest. Lessor shall have at all
times a valid security interest to secure payment of all rentals and other sums
of money becoming due hereunder from Lessee, and to secure payment of any
damages or loss which Lessor may suffer by reason of the breach by Lessee of any
covenant, agreement or condition contained herein, upon all inventory,
merchandise, goods, wares, equipment, fixtures, furniture, improvements and
other tangible personal property of Lessee presently, or which may hereafter be,
situated in or about the Leased Property, and all proceeds therefrom and
accessions thereto and, except as a result of sales made in the ordinary course
of Lessee's business, such property shall not be removed without the consent of
Lessor until all arrearages in rent as well as any and all other sums of money
then due to Lessor or to become due to lessor hereunder shall first have been
paid and discharged and all the covenants, agreements and conditions hereof have
been fully complied with and performed by Lessee. Upon the occurrence of an
event of default by Lessee, Lessor may, in addition to any other remedies
provided herein, enter upon the Leased Property and take possession of any and
all inventory, merchandise, goods, wares, equipment, fixtures, furniture,
improvements and other personal property of Lessee situated in or about the
Leased Property, without liability for trespass or conversion, and sell the same
at public or private sale, with or without having such property at the sale,
after giving Lessee reasonable notice of the time and place of any public sale
of the time after which any private sale is to be made, at which sale the Lessor
or its assigns may purchase unless otherwise prohibited by law. Unless otherwise
provided by law, and without intending to exclude any other manner of giving
Lessee reasonable notice, the requirement of reasonable notice shall be met, if
such notice is given in the manner prescribed in this Lease at least seven days
before the time of sale. Any sale made pursuant to the provision of this
paragraph shall be deemed to have been a public sale conducted in commercially
reasonable manner if held in the above-described premises or where the
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property is located after the time, place and method of sale and a general
description of the types of property to be sold have been advertised in a daily
newspaper published in the county in which the property is located, for five
consecutive days before the date of the sale. The proceeds from any such
disposition, less any and all expenses connected with the taking of possession,
holding and selling of the property (including reasonable attorney's fees and
legal expenses), shall be applied as a credit against the indebtedness secured
by the security interest granted in this paragraph. Any surplus shall be paid to
Lessee or as otherwise required by law; the Lessee shall pay any deficiencies
forthwith. Upon request by Lessor, Lessee agrees to execute and deliver to
Lessor a financing statement in form sufficient to perfect the security interest
of Lessor in the aforementioned property and proceeds thereof under the
provision of the Uniform Commercial Code (or corresponding state statute or
statutes) in force in the state in which the Leased Property is located, as well
as any other state the laws of which Lessor may at any time consider to be
applicable.
ARTICLE XVII
LESSOR'S RIGHT TO CURE
If Lessee shall fail to make any payment, or to perform any act required
to be made or performed under this Lease and to cure the same within the
relevant time periods provided in Section 16.1, Lessor, without waiving or
releasing any obligation or Event of Default, may (but shall be under no
obligation to) at any time thereafter make such payment or perform such act for
the account and at the expense of Lessee, and may, to the extent permitted by
law, enter upon the Leased Property for such purpose and take all such action
thereon as, in Lessor's opinion, may be necessary or appropriate therefor. No
such entry shall be deemed an eviction of Lessee. All sums so paid by Lessor and
all costs and expenses (including, without limitation, reasonable attorneys'
fees and expense, in each case, to the extent permitted by law) so incurred,
together with a late charge thereon (to the extent permitted by law) at the
Overdue Rate from the date on which such sums or expenses are paid or incurred
by Lessor, shall be paid by Lessee to Lessor on demand. The obligations of
Lessee and rights of Lessor contained in this Article shall survive the
expiration or earlier termination of this Lease.
ARTICLE XVIII
PURCHASE OF THE LEASED PROPERTY
In the event Lessee purchases the Leased Property from Lessor pursuant to
any of the terms of this Lease, Lessor shall, upon receipt from Lessee of the
applicable purchase price, together with full payment of any unpaid Rent due and
payable with respect to any period ending on or before the date of the purchase,
deliver to Lessee an appropriate special warranty deed or other instrument of
conveyance conveying the entire interest of Lessor in and to the Leased Property
to Lessee in the condition as received from Lessee, free and clear of all
encumbrances other than (a) those that Lessee has agreed hereunder to pay or
discharge, (b) those mortgage liens, if any, which Lessee has agreed in writing
to accept and to take title subject to, (c) any other Encumbrances permitted to
be imposed on the Leased Property under the provisions of
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Article XXXVIII which are assumable at no cost to Lessee or to which Lessee may
take subject without cost to Lessee, and (d) any matters affecting the Leased
Property on or as of the Commencement Date. The difference between the
applicable purchase price and the total of the encumbrances assigned or taken
subject to shall be paid in cash to Lessor, or as Lessee may direct, in federal
or other immediately available funds except as otherwise mutually agreed by
Lessor and Lessee. The closing of any such sale shall be contingent upon and
subject to Lessee obtaining all required governmental consents and approvals for
such transfer and if such sale shall fail to be consummated by reason of the
inability of Lessee to obtain all such approvals and consents, any options to
extend the Term of this Lease which otherwise would have expired during the
period from the date when Lessee elected or became obligated to purchase the
Leased Property until Lessee's inability to obtain the approvals and consents is
confirmed shall be deemed to remain in effect for thirty (30) days after the end
of such period. All expenses of such conveyance, including, without limitation,
the cost of title examination or standard coverage title insurance, attorneys'
fees incurred by Lessor in connection with such conveyance, and transfer taxes,
shall be paid by Lessor, except that such charges shall be paid by Lessee in
case of a sale pursuant to Section 16.4. Recording fees and similar charges
shall be paid for by Lessee.
ARTICLE XIX
HOLDING OVER
If Lessee shall for any reason remain in possession of the Leased Property
after the expiration of the Term or any earlier termination of the Term hereof,
such possession shall be as a tenancy at will during which time Lessee shall pay
as rental each month, one and one-half times the aggregate of (a) one-twelfth of
the aggregate Base Rent and Additional Rent payable with respect to the last
complete Lease Year prior to the expiration of the Term; (b) all Additional
Charges accruing during the month and (c) all other sums, if any, payable by
Lessee pursuant to the provisions of this Lease with respect to the Leased
Property. During such period of tenancy, Lessee shall be obligated to perform
and observe all of the terms, covenants and conditions of this Lease, but shall
have no rights hereunder other than the right, to the extent given by law to
month-to-month tenancies, to continue its occupancy and use of the Leased
Property. Nothing contained herein shall constitute the consent, express or
implied, of Lessor to the holding over of Lessee after the expiration or earlier
termination of this Lease.
ARTICLE XX
ABANDONMENT
20.1 Discontinuance of Operations on the Leased Property; Offer to
Purchase. If, in the good faith judgment of Lessee, the Leased Property becomes
uneconomic or Unsuitable for Its Primary Intended Use, or Lessee has
discontinued use of the Leased Property in its business operations or will
discontinue such use within a period of one (1) year after the date of the
Officer's Certificate hereinafter referred to and will not use the Leased
Property for any of the purposes described in Section 7.2 within one year
thereafter, all as set forth in an Officer's Certificate delivered to Lessor,
Lessee, if Lessor has not terminated this Lease as provided in
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Section 16.1 may, at any time after the expiration of the tenth (10th) Lease
Year, give Lessor notice of termination of this Lease as to the Leased Property
accompanied by an offer to purchase the Leased Property on the first Base Rent
Payment Date (the "Economic Termination Purchase Date") occurring not less than
one hundred twenty (120) days after the date of such offer, for a purchase price
equal to the greater of (a) the Fair Market Value Purchase Price or (b) the
Minimum Repurchase Price.
20.2 Acceptance of Offer. If Lessor accepts such offer, or fails to reject
the same by written notice given not less than thirty (30) days prior to the
Economic Termination Purchase Date, Lessor shall, upon receipt from Lessee of
the purchase price provided for above and any Rent due and payable under this
Lease (excluding the installment of Base Rent due on the Economic Termination
Purchase Date), convey the Leased Property to Lessee on the Economic Termination
Purchase Date in accordance with the provisions of Article XVIII and this Lease
shall thereupon terminate as to the Leased Property.
20.3 Rejection of Offer. If Lessor rejects Lessee's offer to purchase the
Leased Property, by written notice given not less than thirty (30) days prior to
the Economic Termination Purchase Date, and Lessee does not withdraw its offer
to purchase the Leased Property within ten (10) days after Lessor so rejects
Lessee's said offer, this Lease shall terminate as to the Leased Property on the
Economic Termination Date, provided no Event of Default shall have occurred and
be continuing.
20.4 No Rent after Purchase or Termination. Except as otherwise expressly
provided herein, upon completion of the purchase of the Leased Property or the
termination of this Lease, as the case may be, no Rent shall thereafter accrue
under this Lease with respect to the Leased Property.
ARTICLE XXI
SUBSTITUTION OF PROPERTY
21.1 Substitution of Property for the Leased Property.
(a) If, in the good faith judgment of Lessee, the Leased Property becomes
uneconomic or Unsuitable for Its Primary Intended Use, or by reason of eviction
or other material interference caused by any claim of paramount title, or for
other prudent business reasons, Lessee desires to terminate this Lease, Lessee
desires to terminate this Lease, Lessee, if no Event of Default shall have
occurred and be continuing, at any time prior to the expiration of the Term,
shall have the right, subject to the conditions set forth below in this Article
XXI, upon notice to Lessor, to substitute one or more properties (collectively
referred to as "Substitute Properties" or individually as a "Substitute
Property") on a monthly Base Rent Payment Date specified in such notice (the
"Substitution Date") occurring not less than ninety (90) days after receipt by
Lessor of such notice, except if Lessee is required by court order or
administrative action to divest or otherwise dispose of the Leased Property
within a shorter time period, in which case if Lessee shall have informed Lessor
of the filing of such court order or administrative action and kept Lessor
reasonably appraised of the status thereof, the time period
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shall be shortened appropriately to meet the reasonable needs of Lessee, but in
no event less than fifteen (15) Business Days after the receipt by Lessor of
such notice. The notice shall be in the form of an Officer's Certificate and
shall specify the reason(s) for the substitution and the proposed Substitution
Date. For purposes of this paragraph, the desire to reduce the payment of Rent
with respect to the Leased Property whose operation (considering the Rent) is
uneconomic to Lessee shall not be deemed to be a reason for substitution.
(b) If Lessee voluntarily or involuntarily, for any reason, has
discontinued use of the Leased Property in its business operations for a period
in excess of one year, and Lessor has not exercised its right to terminate this
Lease pursuant to Section 16.1(h) hereof, Lessee shall have the obligation, upon
notice given as set forth in paragraph (a) above, to substitute a Substitute
Property, or, if applicable, invoke the procedure set forth in Article XXI.
(c) If Lessee gives the notice referred to in Section 21.1(a) or (b)
above, Lessee shall present to Lessor three properties (or groups of properties)
each of which property (or groups of properties) shall provide Lessor with a
yield (i.e., an annual return on its equity in such property) substantially
equivalent to Lessor's yield from the Leased Property at the time of such
proposed substitution (or in the case of substitution because of damage or
destruction, the yield immediately prior to such damage or destruction) and as
reasonably projected over the remaining Term of this Lease. Lessor shall have a
period of ninety (90) days within which to review such information and either
accept or reject the Substitute Properties so presented unless Lessee is
required by a court order or administrative action to divest or otherwise
dispose of the Leased Property within a shorter time period, in which case the
time period shall be shortened appropriately to meet the reasonable needs of
Lessee, but in no event shall said period be less than fifteen (15) Business
Days after Lessor's receipt of said notice (subject to further extension for any
period of time in which Lessor is not timely provided with the information
provided for in Section 21.2 and Section 21.3 below) provided, however, that if
Lessor shall contend that the Substitute Properties fail to meet all the
conditions for substitution set forth in this Article XXI, including without
limitation the provisions of Sections 21.1(d), (e) and (f) below, the matter
shall be submitted to arbitration in accordance with Article XXXVII and the time
periods for Lessor's approval or rejection shall be tolled during the period of
such arbitration.
In the event that, on or before the expiration of the applicable time
period for Lessor's review, Lessor has rejected all of the Substitute Properties
so presented, then Lessee shall, for a period of sixty (60) days after the
expiration of such period, have the right to terminate this Lease as to the
Leased Property upon notice to Lessor accompanied by an offer to purchase the
Leased Property on the first Base Rent Payment Date occurring at least ninety
(90) days after the date of such notice, as specified in such notice, for a
purchase price equal to the greater of the Fair Market Value Purchase Price or
the Minimum Repurchase Price, and this Lease shall terminate on the purchase
date provided no Event of Default shall have occurred and be continuing.
If Lessor accepts such offer, or fails to reject the same by written
notification within the applicable time period for Lessor's review, Lessor
shall, upon receipt from Lessee of the purchase price provided for above and any
Rent due and payable hereunder (excluding the installment of Base Rent due on
the purchase date), convey the Leased Property to Lessee on
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the purchase date, in accordance with the provision of Article XVIII and this
Lease shall thereupon terminate as to the Leased Property. Upon completion of
the purchase of the Leased Property, no Rent shall thereafter accrue with
respect thereto.
(d) Lessee's right (and obligation) to offer substitution as set forth in
this Article is subject to the conditions set forth in Section 21.2 below, and
to the delivery of an opinion of counsel for Lessor confirming that (i) the
substitution of the Substitute Property for the Leased Property will qualify as
an exchange solely of property of a like-kind under Section 1031 of the Code, in
which, generally, except for "boot" such as cash needed to equalize exchange
values or discharge indebtedness, no gain or loss is recognized to the Lessor,
(ii) the substitution or sale will not result in ordinary recapture income to
the Lessor pursuant to Code Section 1245 or 1250 or any other Code provision,
(iii) the substitution or sale will result in income, if any, to the Lessor of a
type described in Code Section 856(c)(2) or (3) and will not result in income of
the types described in Code Section 856(c)(4) or result in the tax imposed under
Code Section 857(b)(6), and (iv) the substitution or sale, together with all
other substitutions and sales made or requested by Lessee or any Affiliate
pursuant to any other leases with Lessor of the properties described in Exhibit
C hereto or any other transfers of the Leased Property or the properties leased
under other such operating leases, during the relevant time period, will not
jeopardize the qualification of Lessor as a real estate investment trust under
Code Sections 856-860.
(e) In the event that the equity value of the Substitute Property or group
of Substitute Properties (i.e., the Fair Market Value of the Substitute Property
or group of Substitute Properties minus the encumbrances to which the Lessor
will take the Substitute Property or group of Substitute Properties subject) as
of the Substitution Date is greater than the equity value of the Leased Property
(i.e., the Fair Market Value of the Leased Property minus the encumbrances to
which the Lessee will take the Leased Property subject) as of the Substitution
Date (or in the case of damage or destruction, the Fair Market Value immediately
prior to such damage or destruction), Lessor shall pay an amount equal to the
difference, subject to the limitation set forth below, to Lessee; in the event
that said equity value of the Substitute Property or group of Substitute
Properties is less than said equity value of the Leased Property, Lessee shall
pay an amount equal to the difference, subject to the limitation set forth
below, to Lessor; provided, however, that neither Lessor nor Lessee shall be
obligated to consummate such substitution if such party would be required to
make a payment to the other in excess of an amount equal to ten percent (10%) of
said Fair Market Value of the Leased Property (the amount of cash paid by one
party to the other being hereinafter referred to as the "Cash Adjustment").
Without limiting the generality or effect of the preceding sentence, in the
event that, on the Substitution Date, Lessor is obligated to pay a Cash
Adjustment to Lessee and Lessor does not have sufficient funds available, or
elects not to make such payment in cash. Lessor shall provide Lessee with (and
Lessee shall accrue) a purchase money note and mortgage for a term not to exceed
eighteen (18) months from the Substitution Date and bearing interest, payable
monthly, at the rate per annum described in Section 10.2 as the test rate, or if
no such test rate exists, then at the Prime Rate.
(f) The Rent for such Substitute Property in all respects shall provide
Lessor with a substantially equivalent yield at the time of such substitution
(i.e., annual return on its equity in such Substitute Property) to that received
(and reasonably expected to be received thereafter)
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from the Leased Property, taking into account the Cash Adjustment paid or
received by Lessor and any other relevant factors.
(g) The Minimum Repurchase Price of the Substitute Property shall be an
amount equal to the Minimum Repurchase Price of the Leased Property (i)
increased by any Cash Adjustment paid by Lessor pursuant to paragraph (e) above,
or (ii) decreased by any Cash Adjustment paid by Lessee pursuant to paragraph
(e) above.
21.2 Conditions to Substitution. On the Substitution Date, the Substitute
Property will become the Leased Property hereunder upon delivery by Lessee to
Lessor of the following:
(a) an Officer's Certificate certifying that (i) the Substitute Property
has been accepted by Lessee for all purposes of this Lease and there has been no
material damage to the improvements located on the Substitute Property nor is
any condemnation or eminent domain proceeding pending with respect thereto; (ii)
all permits, licenses and certificates (including, but not limited to, a
permanent, unconditional certificate of occupancy and all certificates of need,
licenses and provider agreements) which are necessary to permit the use of the
Substitute Property in accordance with the provisions of this Lease have been
obtained and are in full force and effect; (iii) under applicable zoning and use
laws, ordinances, rules and regulations the Substitute Property may be used for
the purposes contemplated by Lessee and all necessary subdivision approvals have
been obtained; (iv) there are no mechanics' or materialmen's liens outstanding
or threatened to the knowledge of Lessee against the Substitute Property arising
out of or in connection with the construction of the improvements thereon, other
than those being contested by Lessee pursuant to Article XII; (v) any mechanics'
or materialmen's liens being contested by Lessee will be promptly paid by Lessee
if such contest is resolved in favor of the mechanic or materialman; (vi) to the
best knowledge of Lessee, there exists no Event of Default under this Lease, and
no defense, offset or claim exists with respect to any sums to be paid by Lessee
hereunder; and (vii) any exceptions to Lessor's title to the Substitute Property
do not materially interfere with the intended use of the Substitute Property by
Lessee;
(b) a deed with full warranties conveying to Lessor title to the
Substitute Property free and clear of any liens and encumbrances except those
approved or assumed by Lessor.
(c) a lease duly executed, acknowledged and delivered by Lessee,
containing the same terms and conditions as are contained herein except that (i)
the legal description of the land shall refer to the Substitute Property, (ii)
the Minimum Repurchase Price, Rent and any Additional Charges for the Substitute
Property shall be consistent with the requirements of Section 21.1 and (iii)
such other charges therein as may be necessary or appropriate under the
circumstances shall be made;
(d) counterparts of a standard owner's or lessee's (as applicable) policy
of title insurance covering the Substitute Property (or a valid, binding,
unconditional commitment therefor), dated the Substitution Date, in current form
and including mechanics' and materialmen's lien coverage, issued to Lessor by a
title insurance company satisfactory to Lessor. Such policy shall (i) insure (A)
Lessor's fee title to the Substitute Property, subject to no liens or
encumbrances except those approved or assumed by Lessor, and (B) that any
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restrictions affecting the Substitute Property have not been violated and that a
fixture violation thereof will not result in a forfeiture or reversion of title,
(ii) be in an amount at least equal to the Fair Market Value of the Substitute
Property, and (iii) contain such endorsements as may be reasonably requested by
Lessor;
(e) certificates of insurance with respect to the Substitute Property
fulfilling the requirements of Article XIII;
(f) current appraisals or other evidence satisfactory to Lessor, in its
sole discretion, as to the current Fair Market Values of such Substitute
Property and the Leased Property;
(g) all available revenue data relating to the Substitute Property for the
period from the date of opening for business of the facility on such Substitute
Property to the date of Lessee's most recent fiscal year end, or for the most
recent three (3) years, whichever is less; and
(h) such other certificates, documents, opinions of counsel, and other
instruments as may be reasonably required by Lessor.
21.3 Conveyance to Lessee. On the Substitution Date or the date specified
in the notice given pursuant to Section 21.1. Lessor will convey the Leased
Property to Lessee in accordance with the provisions of Article XVIII (except as
to payment of any expenses in connection therewith which shall be governed by
Section 21.4 below) upon either (a) payment in cash therefor or (b) conveyance
to Lessor of the Substitute Property, as appropriate.
21.4 Expenses. Lessee shall pay or cause to be paid, on demand, all
reasonable costs and expenses of Lessor paid or incurred by it in connection
with the substitution and conveyance of the Leased Property and the Substitute
Property, including but not limited to (a) fees and expenses of its counsel, (b)
all printing expenses, (c) the amount of any filing, registration and recording
taxes and fees, (d) fees and expenses, if any, incurred in qualifying and
maintaining Lessor as a foreign partnership authorized to do business in the
state of which the Substitute Property is located, (e) the cost of preparing and
recording, if appropriate, a release of the Leased Property from the lien of any
mortgage, (f) broker's fees and commissions, if any, (g) documentary stamp and
transfer taxes (excluding any Tennessee tax on indebtedness), if any, (h) title
insurance charges, and (ix) escrow fees.
ARTICLE XXII
RISK OF LOSS
During the Term of this Lease, the risk of loss or of decrease in the
enjoyment and beneficial use of the Leased Property in consequence of the damage
or destruction thereof by fire, the elements, casualties, thefts, riots, wars or
otherwise, or in consequence of foreclosures, attachments, levies or executions
(other than by Lessor and those claiming from, through or under Lessor) is
assumed by Lessee and, Lessor shall in no event be answerable or accountable
therefor nor shall any of the events mentioned in this Section entitle Lessee to
any abatement of Rent except as specifically provided in this Lease.
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ARTICLE XXIII
INDEMNIFICATION
Notwithstanding the existence of any insurance or self insurance provided
for in Article XIII, and without regard to the policy limits of any such
insurance or self insurance, Lessee will protect, indemnify, save harmless and
defend Lessor from and against all liabilities, obligations, claims, damages,
penalties, causes of action, costs and expenses (including, without limitation,
reasonable attorneys' fees and expenses), to the extent permitted by law,
imposed upon or incurred by or asserted against Lessor by reason of: (a) any
accident, injury to or death of persons or loss of percentage to property
occurring on or about the Leased Property or adjoining sidewalks, including
without limitation any claims of malpractice, (b) any use, misuse, no use,
condition, maintenance or repair by Lessee of the Leased Property, (c) any
Impositions (which are the obligations of Lessee to pay pursuant to the
applicable provisions of this Lease), (d) any failure on the part of Lessee to
perform or comply with any of the terms of this Lease, and (e) the
non-performance of any of the terms and provisions of any and all existing and
future subleases of the Leased Property to be performed by the landlord (Lessee)
thereunder. Any amounts which become payable by Lessee under this Section shall
be paid within ten (10) days after liability therefor on the part of Lessor is
determined by litigation or otherwise and, if not timely paid, shall bear a late
charge (to the extent permitted by law) at the Overdue Rate from the date of
such determination to the date of payment. Lessee, at its expense, shall
contest, resist and defend any such claim, action or proceeding asserted or
instituted against Lessor or may compromise or otherwise dispose of the same as
Lessee sees fit. Nothing herein shall be construed as indemnifying Lessor
against its own negligent acts or omissions or willful misconduct. Lessee's
liability for a breach of the provisions of this Article shall survive any
termination of this Lease.
ARTICLE XXIV
SUBLETTING AND ASSIGNMENT
24.1 Subletting and Assignment. Subject to the provisions of Section 24.3
below and any other express conditions or limitations set forth herein, Lessee
may, without the consent of Lessor, (a) assign this Lease or sublet all or any
part of the Leased Property to any Affiliate of Lessee, or (b) sublet all or any
part of the Leased Property (i) in the normal course of the Primary Intended Use
such as, but not limited to, leasing of space for major moveable equipment or
functional departments such as pathology, pharmacy and radiology, or (ii) as to
less than an aggregate or twenty percent (20%) of the rentable square footage of
the Facility, to concessionaires or other third party users or operators of
portions of the Leased Property, provided that any subletting to any party other
than an Affiliate of Lessee shall not individually, as to any one such
subletting, or in the aggregate, materially diminish the actual or potential
Additional Rent payable under this Lease. Lessor shall not unreasonably withhold
its consent to any other or further subletting or assignment, provided that (a)
in the case of a subletting, the sublessee shall comply with the provisions of
Section 24.2, (b) in the case of an assignment, the assignee shall assume in
writing and agree to keep and perform all of the terms of this Lease on the part
of Lessee to be kept and performed and shall be and become jointly and severally
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liable with Lessee for the performance thereof, (c) an original counterpart of
each such sublease and assignment and assumption, duly executed by Lessee and
such sublessee or assignee, as the case may be, in form and substance
satisfactory to Lessor, shall be delivered promptly to Lessor, and (d) in case
of either an assignment or subletting, Lessee shall remain primarily liable, as
principal rather than as surety, for the prompt payment of Rent and for the
performance and observance of all of the covenants and conditions to be
performed by Lessee hereunder.
24.2 Attornment. Lessee shall insert in each sublease permitted under
Section 24.1 provisions to the effect that (a) such sublease is subject and
subordinate to all of the terms and provisions of this Lease and to the rights
of Lessor hereunder, (b) in the event this Lease shall terminate before the
expiration of such sublease, the sublessee thereunder will, at Lessor's option,
attorn to Lessor and waive any right the sublessee may have to terminate the
sublease or to surrender possession thereunder, as a result of the termination
of this Lease and (c) in the event the sublessee receives a written notice from
Lessor or Lessor's assignee, if any, stating that Lessee is in default under
this Lease, the sublessee shall thereafter be obligated to pay all rentals
accruing under said sublease directly to the party giving such notice, or as
such party may direct. All rentals received from the sublessee by Lessor or
Lessor's assignees, if any, as the case may be, shall be credited against the
amounts owing by Lessee under this Lease.
24.3 Sublease Limitation. Anything contained in this Lease to the contrary
notwithstanding, Lessee shall not sublet the Leased Property on any basis such
that the rental to be paid by the sublessee thereunder would be based, in whole
or in part, on either (a) the income or profits derived by the business
activities of the sublessee, or (b) any other formula such that any portion of
the sublease rental received by Lessor would fail to qualify as "rents from real
property" within the meaning of Section 856(d) of the Code, or any similar or
successor provision thereto.
ARTICLE XXV
OFFICER'S CERTIFICATES AND FINANCIAL STATEMENTS
(a) At any time and from time to time within twenty (20) days following
written request by Lessor, Lessee will furnish to Lessor an Officer's
Certificate certifying that this Lease is unmodified and in full force and
effect (or that this Lease is in full force and effect as modified and setting
forth the modifications) and the dates to which the Rent has been paid. Any such
Officer's Certificate furnished pursuant to this Article may be relied upon by
Lessor and any prospective purchaser of the Leased Property.
(b) Lessee will furnish or cause Guarantor to furnish the following
statements to Lessor:
(i) within one hundred twenty (120) days after the end of each of
Lessee's fiscal years, together with the annual audit report furnished in
accordance with Section 3.2, a copy of the Consolidated Financial
Statements for the preceding fiscal year and an Officer's Certificate
stating that to the best of the signer's knowledge and belief after making
due inquiry, Lessee is not in default in the performance or observance of
any of
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the terms of this Lease or, if Lessee shall be in default to its
knowledge, specifying all such defaults, the nature thereof and the steps
being taken to remedy the same, and
(ii) with reasonable promptness, such other information, respecting
the financial condition and affairs of Lessee as Lessor may reasonably
request from time to time.
ARTICLE XXVI
INSPECTION
Lessee shall permit Lessor and its authorized representatives to inspect
the Leased Property during usual business hours subject to any security, health,
safety or confidentiality requirements of Lessee, any governmental agency, any
Insurance Requirements relating to the Leased Property, or imposed by law or
applicable regulations.
ARTICLE XXVII
NO WAIVER
No failure by Lessor or Lessee to insist upon the strict performance of
any term hereof or to exercise any right, power or remedy consequent upon a
breach thereof, and no acceptance of full or partial payment of Rent during the
continuance of any such breach, shall constitute a waiver of any such breach or
any such term. To the extent permitted by law, no waiver of any breach shall
affect or alter this Lease, which shall continue in full force and effect with
respect to any other then existing or subsequent breach.
ARTICLE XXVIII
REMEDIES CUMULATIVE
To the extent permitted by law, each legal, equitable or contractual
right, power and remedy of Lessor or Lessee now or hereafter provided either in
this Lease or by statute or otherwise shall be cumulative and concurrent and
shall be in addition to every other right, power and remedy and the exercise or
beginning of the exercise by Lessor or Lessee of any one or more of such rights,
powers and remedies shall not preclude the simultaneous or subsequent exercise
by Lessor or Lessee of any or all of such other rights, powers and remedies.
ARTICLE XXIX
SURRENDER
No surrender to Lessor of this Lease or of the Leased Property or any part
of any thereof, or of any interest therein, shall be valid or effective unless
agreed to and accepted in writing by Lessor and no act by Lessor or any
representative or agent of Lessor, other than such a written acceptance by
Lessor, shall constitute an acceptance of any such surrender.
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ARTICLE XXX
NO MERGER OF TITLE
There shall be no merger of this Lease or of the leasehold estate created
hereby by reason of the fact that the same person, firm, corporation or other
entity may acquire, own or hold, directly or indirectly, (a) this Lease or the
leasehold estate created hereby or any interest in this Lease or such leasehold
estate and (b) the fee estate in the Leased Property.
ARTICLE XXXI
TRANSFERS BY LESSOR
If Lessor or any successor owner of the Leased Property shall convey the
Leased Property in accordance with the terms hereof, other than security for a
debt, and the grantee or transferee of the Leased Property shall expressly
assume all obligations of Lessor hereunder arising or accruing from and after
the date of such conveyance or transfer, and shall be reasonably capable of
performing the obligations of Lessor hereunder, Lessor or such successor owner,
as the case may be, shall thereupon be released from all future liabilities and
obligations of the Lessor under this Lease arising or accruing from and after
the date of such conveyance or other transfer as to the Leased Property and all
such future liabilities and obligations shall thereupon be binding upon the new
owner.
ARTICLE XXXII
QUIET ENJOYMENT
So long as Lessee shall pay all Rent as the same becomes due and shall
fully comply with all of the terms of this Lease and fully perform its
obligations hereunder, Lessee shall peaceably and quietly have, hold and enjoy
the Leased Property for the Term hereof, free of any claim or other action by
Lessor or anyone claiming by, through or under Lessor, but subject to all liens
and encumbrances of record as of the date hereof or hereafter consented to by
Lessee. No failure by Lessor to comply with the foregoing covenant shall give
Lessee any right to cancel or terminate this Lease, or to fail to perform any
other sum payable under this Lease, or to fail to perform any other obligation
of Lessee hereunder. Notwithstanding the foregoing, Lessee shall have the right
by separate and independent action to pursue any claim it may have against
Lessor as a result of a breach by Lessor of the covenant of quiet enjoyment
contained in this Article.
ARTICLE XXXIII
NOTICES
All notices, demands, requests, consents, approvals and other
communications hereunder shall be in writing and delivered or mailed (by
registered or certified mail, return receipt requested and postage prepaid
addressed to the respective parties, as follows:
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(a) if to Lessee: Randall J. Bufford
Cardinal Group Corporation
1300 Hurstbourne Place,
9300 Shelbyville Road,
Louisville, Kentucky 40222
Phone: 1-800-735-3620 and 502-425-3620
Fax: 502-425-3662
with a copy to: C. Edward Glasscock, Esq.
Brown, Todd & Heyburn
1600 Citizens Plaza
Louisville, Kentucky 40202
Phone: 502-589-5400
Fax: 502-589-6475
(b) if to Lessor: Healthcare Realty Trust Incorporated
3310 West End Avenue
Nashville, Tennessee 37203
attn: David R. Emery, President
Phone: (615) 269-8290
Fax: (615) 269-8122
with a copy to: Roger O. West, Esq.
Geary, Porter & West, P.C.
16475 Dallas Parkway, Suite 550
Dallas, Texas 75248
Phone (214) 931-9901
Fax: (214) 931-9208
Richard D. Bird, Esq.
Heiskell, Donelson, Bearman, et al.
511 Union Street, Suite 600
Nashville, TN 37219-1745
Phone: (615) 256-0815
Fax: (615) 726-7378
or to such other address as either party may hereafter designate, and shall be
effective upon receipt.
ARTICLE XXXIV
APPRAISAL
In the event that it becomes necessary to determine the Fair Market Value,
Fair Market Value Purchase Price or Fair Market Rental value of the Leased
Property or a Substitute Property for any purpose of this Lease, the party
required or permitted to give notice of such
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required determination shall include in the notice the name of a person selected
to act as an appraiser on its behalf. Within ten (10) days after receipt of any
such notice, Lessor (or Lessee, as the case may be) shall by notice to Lessee
(or Lessor, as the case may be) appoint a second person as an appraiser on its
behalf. The appraisers thus appointed (each of whom must be a member of the
American Institute of Real Estate Appraisers or any successor organization
thereto) shall, within forty-five (45) days after the date of the notice
appointing the first appraiser, proceed to appraise the Leased Property or
Substitute Property, as the case may be, to determine the Fair Market Value.
Fair Market Value Purchase Price or Fair Market Rental value thereof as of the
relevant date (giving effect to the impact, if any, of inflation from the date
of their decision to the relevant date); provided, however, that if only one
appraiser shall have been so appointed, or if two appraisers shall have been so
appointed but only one such appraiser shall have made such determination within
fifty (50) days after the making of Lessee's or Lessor's request, then the
determination of such appraiser shall be final and binding upon the parties. If
two appraisers shall have been appointed and shall have made their
determinations within the respective requisite periods set forth above and if
the difference between the amounts so determined shall not exceed ten percent
(10%) of the lesser of such amounts, then the Fair Market Value, Fair Market
Value Purchase Price or Fair Market Rental value shall be an amount equal to
fifty percent (50%) of the sum of the amounts so determined. If the difference
between the amounts so determined shall exceed ten percent (10%) of the lesser
of such amounts, then such two appraisers shall have twenty (20) days to appoint
a third appraiser, but if such appraisers fail to do so, then either party may
request the American Arbitration Association or any successor organization
thereto to appoint an appraiser within twenty (20) days of such request, and
both parties shall be bound by any appointment so made within such 20-day
period. If no such appraiser shall have been appointed within such twenty (20)
days or within ninety (90) days of the original request for a determination of
Fair Market Value, Fair Market Value Purchase Price or Fair Market Rental value,
whichever is earlier, either Lessor or Lessee may apply to any court having
jurisdiction to have appointment made by such court. Any appraiser appointed, by
the American Arbitrator Association or by such court shall be instructed to
determine the Fair Market Value, Fair Market Value Purchase Price or Fair Market
Rental value within thirty (30) days after appointment of such appraiser. The
determination of the appraiser which differs most in terms of dollar amount from
the determinations of the other two appraisers shall be excluded, and fifty
percent (50%) of the sum of the remaining two determinations shall be final and
binding upon Lessor and Lessee as the Fair Market Value, Fair Market Value
Purchase Price or Fair Market Rental value for such interest. This provision for
determination by appraisal shall be specifically enforceable to the extent such
remedy is available under applicable law, and any determination hereunder shall
be final and binding upon the parties except as otherwise provided by applicable
law. Lessor and Lessee shall each pay the fees and expenses of the appraiser
appointed by it and each shall pay one-half of the fees and expenses of the
third appraiser and one-half of all other costs and expenses incurred in
connection with each appraisal.
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ARTICLE XXXV
PURCHASE RIGHTS
35.1 First Refusal to Purchase. During the Term and for ninety (90) days
after the expiration of the Term hereof, provided that Lessee is not in default
at such time or at the expiration of this Lease, Lessee shall have a first
refusal option to purchase the Leased Property upon the same terms and
conditions as Lessor, or its successors and assigns, shall propose to sell the
Leased Property, or shall have received an offer from a third party to purchase
the Leased Property, which Lessor intends to accept (or has accepted subject to
Lessee's right of first refusal herein). If, during the Term and such ninety
(90) day period after the expiration of the Term, Lessor reaches such agreement
with a third party or proposes to offer the Leased Property for sale, Lessor
shall promptly notify Lessee of the purchase price and all other material terms
and conditions of such agreement or proposed sale, and Lessee shall have thirty
(30) days after receipt of such notice from Lessor within which time to exercise
Lessee's option to purchase. If Lessee exercises its option, then such
transaction shall be consummated within sixty (60) days after the date of
receipt by Lessor of notice of such exercise in accordance with the terms and
conditions set forth therein and in accordance with the provisions of Article
XVIII hereof to the extent not inconsistent herewith, on the first day of the
first month after all permits for owning or operating the Facility on the Leased
Property have been obtained by Lessee, but in no event later than one hundred
twenty (120) days after the date of receipt by Lessor of notice of the exercise
by Lessee of this option. If Lessee shall not exercise Lessee's option to
purchase within said thirty (30) day period after receipt of said notice from
Lessor, Lessor shall be free for a period of one year after the expiration of
said thirty (30) day period to sell the Leased Property to any third party at a
price and upon terms no less favorable to Lessor than those so offered to
Lessee. Whether or not such sale is consummated, Lessee shall be entitled to
exercise its right of first refusal as provided in this section, as to any
subsequent sale of the Leased Property during the Term of this Lease or such
ninety (90) day period.
35.2 Lessor's Option to Purchase Lessee's Personal Property. Effective on
not less than ninety (90) days' prior written notice given at any time within
one hundred eighty (180) days prior to the expiration of the Term or this Lease,
but not later than ninety (90) days prior to such expiration, or such shorter
notice as shall be appropriate if this Lease is terminated prior to its
expiration date, Lessor shall have the option to purchase all (but not less than
all) of Lessee's Personal Property, if any, at the expiration or termination of
this Lease, for an amount equal to the net sound insurable value thereof
(current replacement cost less accumulated depreciation on the books of Lessee
pertaining thereto), subject to, and with appropriate price adjustments for, all
equipment leases, conditional sale contracts, security interests and other
encumbrances to which Lessee's Personal Property is subject.
ARTICLE XXXVI
DEFAULT BY LESSOR
36.1 Default by Lessor. Lessor shall be in default of its obligations
under this Lease if Lessor shall fail to observe or perform any term, covenant
or condition of this Lease on its
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part to be performed and such failure shall continue for a period of thirty (30)
days after notice thereof from Lessee, unless such failure cannot with due
diligence be cured within a period of thirty (30) days, in which case such
failure shall not be deemed to continue if Lessor, within said thirty (30) day
period, proceeds promptly and with due diligence to cure the failure and
diligently completes the curing thereof. The time within which Lessor shall be
obligated to cure any such failure shall also be subject to extension of time
due to the occurrence of any Unavoidable Delay. In the event Lessor fails to
cure any such default within the grace period described above, Lessee, without
waiving or releasing any obligations hereunder, and in addition to all other
remedies available to Lessee hereunder or at law or in equity, may purchase the
Leased Property from Lessor for a purchase price equal to the Fair Market Value
Purchase Price of the Leased Property. In the event Lessee elects to purchase
the Leased Property, it shall deliver a notice thereof to Lessor specifying a
Payment Date occurring no less than ninety (90) days subsequent to the date of
such notice on which it shall purchase the Leased Property, and the same shall
be thereupon conveyed in accordance with the provisions of Article XVIII.
36.2 Lessee's Right to Cure. Subject to the provisions of Section 36.1, if
Lessor shall breach any covenant to be performed by it under this Lease, Lessee,
after notice to and demand upon Lessor in accordance with Section 36.1, without
waiving or releasing any obligation of Lessor hereunder, and in addition to all
other remedies available hereunder and at law or in equity to Lessee, may (but
shall be under no obligation at any time thereafter to) make such payment or
perform such act for the account and at the expense of Lessor. All sums so paid
by Lessee and all costs and expenses (including without limitation, reasonable
attorneys' fees) so incurred, together with interest thereon at the Overdue Rate
from the date on which such sums or expenses are paid or incurred by Lessee,
shall be paid by Lessor to Lessee on demand. The rights of Lessee hereunder to
cure and to secure payment from Lessor in accordance with this Section 36.2
shall survive the termination of this Lease.
ARTICLE XXXVII
ARBITRATION
37.1 Controversies. Except with respect to the payment of Base Rent
hereunder, in case any controversy shall arise between the parties hereto as to
any of the requirements of this Lease or the performance thereof, which the
parties shall be unable to settle by agreement or as otherwise provided herein,
such controversy shall be determined by arbitration to be initiated and
conducted as provided in this Article XXXVII.
37.2 Appointment of Arbitrators. The party or parties requesting
arbitration shall serve upon the other a demand therefor, in writing, specifying
the matter to be submitted to arbitration, and nominating some competent
disinterested person to act as an arbitrator. Within twenty (20) days after
receipt of such written demand and notification, the other party shall, in
writing, nominate a competent disinterested person and the two (2) arbitrators
so designated shall, within ten (10) days thereafter, select a third arbitrator
and give immediate written notice of such selection to the parties and shall fix
in said notice a time and place for the first meeting of the arbitrators, which
meeting shall be held as soon as conveniently possible after the
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selection of all arbitrators, at which time and place the parties to the
controversy may appear and be heard.
37.3 Third Arbitrator. In case the notified party or parties shall fail to
make a selection upon notice, as aforesaid, or in case the first two (2)
arbitrators selected shall fail to agree upon a third arbitrator within ten (10)
days after their selection, then such arbitrator or arbitrators may, upon
application made by either of the parties to the controversy, after twenty (20)
days' written notice thereof to the other party or parties, be appointed by any
judge of any United States court of record having jurisdiction in the state in
which the Leased Property is located or, if such office shall not then exist, by
a judge holding an office most nearly corresponding thereto.
37.4 Arbitration Procedure. Said arbitrators shall give each of the
parties not less than ten (10) days' written notice of the time and place of
each meeting at which the parties or any of them may appear and be heard and
after hearing the parties in regard to the matter in dispute and taking such
other testimony and making such other examinations and investigations as justice
shall require and as the arbitrators may deem necessary, they shall decide the
questions submitted to them. The decision of said arbitrators in writing signed
by a majority of them shall be final and binding upon the parties to such
controversy. In rendering such decisions and award, the arbitrators shall not
add to, subtract from or otherwise modify the provisions of this Lease.
37.5 Expenses. The expenses of such arbitration shall be divided between
Lessor and Lessee unless otherwise specified in the award. Each party in
interest shall pay the fees and expenses of its own counsel.
ARTICLE XXXVIII
FINANCING OF THE LEASED PARTY
38.1 Financing by Lessor. Lessor agrees that, if it grants or creates any
mortgage, lien, encumbrance or other title retention agreement ("Encumbrances")
upon the Leased Property, the holder of each such Encumbrance shall
simultaneously agree (a) to give Lessee the same notice, if any, given to Lessor
of any default or acceleration of any obligation underlying any such Encumbrance
or any sale in foreclosure of such Encumbrance, (b) to permit Lessee to cure any
such default on Lessor's behalf within any applicable cure period, in which
event Lessor agrees to reimburse Lessee for any and all out-of-pocket costs and
expenses incurred to effect any such cure (including reasonable attorneys'
fees), (c) to permit Lessee to appear with its representatives and to bid at any
foreclosure sale with respect to any such Encumbrance, (d) to enter into an
agreement with Lessee containing the provisions described in Article XXXIX of
this Lease, and (e) Lessor and Lessor's successor and assigns, further agrees
that no such Encumbrance shall in any way prohibit, derogate from, or interfere
with Lessee's right and privilege to collaterally assign its leasehold and
contract rights hereunder provided such collateral assignment and rights granted
to the assignee thereunder shall be subordinate to the rights of the holder of
an Encumbrance as provided in Article XXXIX hereof.
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ARTICLE XXXIX
SUBORDINATION AND NON-DISTURBANCE
At the request from time to time by one or more institutional holders of a
mortgage or deed of trust that may hereafter be placed upon the Leased Property
or any part thereof, and any and all renewals, replacements, modifications,
consolidations, spreaders and extensions thereof, Lessee will subordinate this
Lease and all of Lessee's rights and estate hereunder to each such mortgage or
deed of trust and agree with each such institutional holder that Lessee will
attorn to and recognize such holder or the purchaser at any foreclosure sale or
any sale under a power of sale contained in any such mortgage or deed of trust,
as the case may be, as Lessor under this Lease for the balance of the Term then
remaining, subject to all of the terms and provisions of this Lease; provided,
however, that each such institutional holder simultaneously executes, delivers
and records a written agreement (a) consenting to this Lease and agreeing that,
notwithstanding any such other lease, mortgage, deed of trust, right, title or
interest, or any default, expiration, termination, foreclosure, sale, entry or
other act or omission under, pursuant to or affecting any of the foregoing,
Lessee shall not be disturbed in peaceful enjoyment of the Leased property nor
shall this Lease be teriminated or canceled at any time, except in the event
Lessor shall have the right to terminate this Lease under the terms and
provisions expressly set forth herein; (b) agreeing that for any period while it
is Lessor hereunder, it will perform, fulfill and observe all of Lessor's
representations, warranties and agreements set forth herein; and (c) agreeing
that all proceeds of the casualty insurance described in Article XIV of this
Lease and all Awards described in Article XV will be made available to Lessor
for restoration of the Leased Property as and to the extent required by this
Lease, subject only to reasonable regulation regarding the disbursement and
application thereof.
ARTICLE XL
MISCELLANEOUS
40.1 General. Anything contained in this Lease to the contrary
notwithstanding, all claims against, and liabilities of, Lessee or Lessor
arising prior to any date of termination of this Lease shall survive such
termination. If any term or provision or this Lease or any application thereof
shall be invalid or unenforceable, the remainder of this Lease and any other
application of such term or provision shall not be affected thereby. If any late
charges provided for in any provision of this Lease are based upon a rate in
excess of the maximum rate permitted by applicable law, the parties agree that
such charges shall be fixed at the maximum permissible rate. Neither this Lease
nor any provision hereof may be changed, waived, discharged or terminated except
by an instrument in writing and in recordable form signed by Lessor and Lessee.
All the terms and provisions of this Lease shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns.
The headings in this Lease are for convenience of reference only and shall not
limit or otherwise affect the meaning hereof. This Lease shall be governed by
and construed in accordance with the laws of Tennessee but not including its
conflict of laws rules.
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40.2 Transfer of Licenses. Upon the expiration or earlier termination of
the Term, Lessee shall use its best efforts to transfer to Lessor or Lessor's
nominee all licenses (except Lessee's operating licenses), operating permits and
other governmental authorizations and all contracts, including contracts with
governmental or quasi-governmental entities which may be necessary or useful in
the operation of the Facility.
ARTICLE XLI
MEMORANDUM OF LEASE
Lessor and Lessee shall, promptly upon the request of either, enter into a
short form memorandum of this Lease, in form suitable for recording under the
laws of the state in which the Leased Property is located in which reference to
this Lease, and all options contained herein, shall be made.
IN WITNESS WHEREOF, the parties have caused this Lease to be executed and
their respective corporate seals to be hereunto affixed and attested by their
respective officers thereunto duly authorized.
LESSOR:
Healthcare Realty Trust Incorporated
By: /s/ David R. Emery
-------------------------------------
David R. Emery
President
LESSEE:
Cardinal Development Co., Inc.
By: /s/ Randall J. Bufford
-------------------------------------
Randall J. Bufford
Vice President
54
<PAGE>
AMENDMENT NUMBER ONE TO LEASE AGREEMENT
THIS AGREEMENT, dated as of the 1st day of November , 1993, by and between
HEALTHCARE REALTY TRUST INC., Maryland corporation, having its principal offices
at 3310 West End Avenue, Nashville, Tennessee 37203 ("Lessor") and CARDINAL
DEVELOPMENT CO., INC., a Kentucky corporation, having its principal offices at
1300 Hurstbourne Place, 9300 Shelbyville Road, Louisville, Kentucky 40222
("Lessee").
W I T N E S S E T H:
WHEREAS, Lessor entered into a certain Lease Agreement with Lessee dated
June 8, 19983, for the lease of certain property known as The Fenton Extended
Care Center, located at 512 Beach Street, Fenton, Michigan, more particularly
described on Exhibit A attached to the Lease Agreement (the "Lease"); and
WHEREAS, certain terms of the Lease are defined in inconsistent manners
and the parties hereto are desirous of modifying the Lease to correct such
inconsistencies.
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Lessor and Lessee do hereby covenant and agree as follows:
1. Modifications. (a) In Article II of the Lease, the definitions of "CPI"
and "CPI Increase" are hereby delete in their entirety and replaced with the
following:
CPI: The Consumer Price Index published by the Bureau of Labor
Statistics of the United States Department of Labor, for all Urban
Consumers for the applicable region within which the Facility is
located (1982 - 1984 = 100), or if such Index is not available, a
comparable index selected by Lessor which is published by an
governmental institution or a nationally recognized publisher of
statistical information.
CPI Increase: The amount obtained by multiplying (a) the prior
year's total rent (Base Rent + Additional Rent), by (b) the
percentage increase between the CPI last published prior to the
first day of the then applicable Fiscal Year and the CPI last
published prior to the first day of the preceding Fiscal Year. The
CPI Increase for each Fiscal Year shall be calculated on and as of
the first day of such Fiscal Year.
(b) Article XXXIII is amended to provide that a copy of all notices,
demands, requests, consents and other communications sent to Lessee shall
also be sent to:
2. Lease in Full Force and Effort. Except as hereby modified and amended,
the parties hereto do hereby ratify and confirm the terms, covenants, provisions
and conditions of the Lease and this Agreement. The Lease is hereby incorporated
by reference into this
55
<PAGE>
Agreement and made a part hereof as if fully repeated herein, except as
otherwise specifically provided for pursuant to this Agreement.
IN WITNESS WHEREOF, the parties have caused this Amendment to Lease to be
executed and their respective corporate seals to be hereunto affixed and
attested by their respective officers thereunto duly authorized.
LESSOR:
HEALTHCARE REALTY TRUST INC.
By: /s/ David R. Emery
-------------------------------------
David R. Emery, President
LESSEE:
CARDINAL DEVELOPMENT CO., INC.
By: /s/ Randall J. Bufford
-------------------------------------
Randall J. Bufford, Vice President
56
<PAGE>
LEASE ASSIGNMENT, CONSENT AND RELEASE
This is a LEASE ASSIGNMENT, CONSENT AND RELEASE (the "Assignment") dated
and effective as of March 1, 1994 (the "Effective Date"), among
CARDINAL DEVELOPMENT CO., INC.
a Kentucky corporation
1300 Hurstbourne Place
9300 Shelbyville Road
Louisville, Kentucky 40222 ("Assignor")
TRANSITIONAL HEALTH PARTNERS
d/b/a TRANSITIONAL HEALTH
SERVICES, a Delaware general partnership
1300 Hurstbourne
Place 9300 Shelbyville Road
Louisville, Kentucky 40222 ("Assignee")
and
HEALTHCARE REALTY TRUST INCORPORATED
3310 West End Avenue
Nashville, Tennessee 37203 ("Lessor")
A. On June 8, 1993, Assignor entered into a Lease (the "Lease") with
Lessor, whereby Assignor agreed to lease from Lessor certain premises suitable
for the operation of a 121-bed nursing care facility located at 512 Beach
Street, City of Fenton, County of Genessee, Michigan known commonly as Fenton
Extended Care Center (the "Premises"), a short form of which is recorded in
Liber 2513, Page 353-56, with the Register of Deeds of Genessee County,
Michigan.
B. Assignor wishes to vacate the Premises and assign its interest in the
Lease to Assignee, and Lessor wishes to consent to such assignment and
Assignee's assumption of the Lease, all as more particularly set forth below.
57
<PAGE>
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are acknowledged, the parties hereto agree to the following
terms and conditions:
1. Assignment. Assignor assigns, transfers and sets over its entire right,
title and interest in and to the Lease and the Premises to Assignee effective as
of the Effective Date, such Effective Date to be determined by Assignee but in
no event later than December 31, 1993.
2. Assumption. Assignee accepts such assignment of the entire right, title
and interest of Assignor in and to the Lease, and assumes all of the duties,
obligations and liabilities of Assignor under the Lease arising on or after the
Effective Date. Assignee covenants to and with Assignor and Lessor that
Assignee, from and after the Effective Date, will promptly comply with and
perform all obligations and duties of Assignor under the Lease, including the
payment of rental and all other sums thereunder, in accordance with the terms
and conditions of the Lease.
3. Indemnification.
(a) Assignor agrees to indemnify and hold Assignee and Lessor
harmless from any and all losses, costs, expenses, claims, damages and
liabilities, including, without limitation, attorneys fees and legal expenses,
incurred by Assignee or Lessor by reason of the Premises or Assignor's operation
and possession thereof or the breach by Assignor of or default under the Lease
arising on or before the Effective Date. (b) Assignee agrees to indemnify and
hold Assignor and Lessor harmless from any and all losses, costs, expenses,
claims, damages and liabilities, including, without limitation, attorneys fees
and legal expenses, incurred by Assignor or Lessor by reason of the breach by
Assignee of or default under the Lease arising on or after the Effective Date.
58
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4. Joint Representations and Warranties. Assignor and Lessor jointly and
severally represent and warrant to Assignee that (a) attached hereto as Exhibit
A and made a part hereof is a true and complete copy of the Lease and all
amendments thereto, (b) the Lease is in full force and effect on the date
hereof, and since the date of the Lease, no amendments, changes or modifications
have occurred thereto, except for a certain Amendment to Operating Lease dated
November 1, 1993, (c) the Base Rent under the Lease has been paid through the
Effective Date, and (d) Lessor has issued no notice of default under the Lease
and to Assignor's and Lessor's knowledge, but without independent investigation,
no event has occurred and is continuing which would constitute a default under
the Lease, but for the giving of notice, the passage of time, or both.
5. Assignor's Representations and Warranties. Assignor represents and
warrants to Assignee (a) that the Lease is in full force and effect, (b) that
the Lease and this Assignment have been duly executed by the respective parties
thereto, (c) that there are no present defaults existing under the Lease, and
(d) that all rental and other sums due to Lessor under the Lease have been paid
when due.
6. Lessor's Representations and Warranties. Lessor represents, warrants,
and covenants to Assignee (a) that the Lease is in full force and effect, (b)
that the Lease and this Assignment have been duly executed by Lessor and is
binding and legally enforceable against Lessor, (c) that copies of all notices,
demands and other communications (including without limitation all notices of
default) permitted or required to be given in writing under the Lease to
Assignee shall be made with a duplicate thereof being addressed to Mr. Andrew M.
Paul c/o Welsh, Carson, Anderson & Stowe, One World Financial Center, Suite
3601, New York, New York 10281 (hereinafter referred to as "WCAS"), and (d) that
following any event of default
59
<PAGE>
under the Lease and the delivery of such written notice to WCAS, if Assignee
fails to cure such default within the appropriate cure period, then WCAS shall
at its discretion have an additional fifteen (15) days to cure unless such
default can be cured by the payment of money, in which event WCAS shall have
only five (5) additional days to cure.
7. Consent and Release. Pursuant to Article XXIV of the Lease, Lessor
consents to this Assignment, the assignment of the Lease and the delegation by
Assignor to Assignor of all obligations and duties of Assignor under the Lease.
Assignee agrees Lessor's consent shall not constitute a consent by Lessor to any
subsequent or further assignment of the Lease or subletting thereunder. Lessor
agrees to look exclusively to Assignee for the performance of all duties,
obligations and liabilities under the Lease arising from and after the Effective
Date. In addition, Lessor fully releases Assignor from any and all duties,
obligations and liabilities of Assignor under the Lease, and any Guarantors
thereof, arising from and after the Effective Date.
IN WITNESS WHEREOF, Assignor, Assignee and Lessor have executed this Lease
Assignment, Consent and Release as of the date first set forth above, but
actually on the dates set forth below.
ASSIGNOR: CARDINAL DEVELOPMENT CO., INC.
Witness:
By: /s/ David V. Hall
-------------------------------------
/s/ Joyce McCubbin David V. Hall
- -------------------------- President
Joyce McCubbin [Printed Name]
Executive Assistant [Title]
Date: 3-2-94
60
<PAGE>
ASSIGNEE: TRANSITIONAL HEALTH PARTNERS
a Delaware general partnership
By THS PARTNERS I, INC.
General Partner
Witness:
By: /s/ James B. hoover
-------------------------------------
/s/ John G. Hundley James B. Hoover
- -------------------------- President
John G. Hundley [Printed Name]
VP-Dir. of Legal Affairs [Title]
Date: 3-1-94
LESSOR: HEALTHCARE REALTY TRUST INCORPORATED
Witness:
By: /s/ David R. Emery
/s/ Katrina S. Coomer David Emery, President
- -------------------------- -------------------------------------
Katrina S. Coomer [Printed Name]
Paralegal [Title]
Date: 2-23-94
COMMONWEALTH OF KENTUCKY )
) ss
COUNTY OF JEFFERSON )
Acknowledged before me this 2nd day of March, 1994, on behalf of Cardinal
Development Co., Inc. (the "Corporation") by David V. Hall, President of the
Corporation.
[SEAL] /s/ Stacey R. McCubbin
-----------------------------------------
Notary Public, State at Large
Printed Name: Stacey R. McCubbin
County of Residence: Jefferson
Commission Expires: 1-3-95
61
<PAGE>
STATE OF KENTUCKY )
) ss
COUNTY OF JEFFERSON )
Acknowledge before me this 1st day of March, 1994, by James B. Hoover
President of the THS Partners I, Inc., a Delaware corporation and general
partner of Transitional Health Partners, a Delaware general partnership (the
"Partnership"), on behalf of the Partnership.
[SEAL] /s/ Stacey R. McCubbin
-----------------------------------------
Notary Public, State at Large
Printed Name: Stacey R. McCubbin
County of Residence: Jefferson
Commission Expires: 1-3-95
62
<PAGE>
STATE OF TENNESSEE )
) ss
COUNTY OF DAVIDSON )
Acknowledge before me this 23rd day of February, 1994, on behalf of
Healthcare Realty Trust Incorporated, a Maryland corporation and real estate
investment trust (the "Corporation"), by David Emery, President of the
Corporation, on behalf of the Corporation.
[SEAL] /s/ Cyndy Hinton
-----------------------------------------
Notary Public, State at Large
Printed Name: Cindy Hinton
County of Residence: Williamson
Commission Expires: 11-26-94
This Lease Assignment and Consent
prepared by:
/s/ John G. Hundley
- ---------------------------------
John G. Hundley, Esq.
1300 Hurstbourne Place
9300 Shelbyville Road
Louisville, KY 40222
KY License No. 81520
IN License No. 15327-22
63
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SCHEDULE 10.16
THP has entered or will enter into agreements with Healthcare Realty
Trust Incorporated substantially identical to Exhibit 10.16 as follows:
1. Lease Agreement dated June 8, 1993 for Wayne, Michigan facility, as
amended by that certain Amendment Number One to Lease Agreement dated
November 1, 1993, as assigned to THP pursuant to that certain Lease
Assignment, Consent and Release dated March 1, 1994. Material details in
which this agreement differs from Exhibit 10.16 are that the amount of the
required "Letter of Credit" is $91,875 and the amount of "Base Rent" per year
is $122,500.
2. Lease Agreement dated June 8, 1993 for New Harmony, Indiana
facility, as amended by that certain Amendment Number One to Lease Agreement
dated November 1, 1993, as assigned to THP pursuant to that certain Lease
Assignment, Consent and Release dated November 1, 1993. Material details in
which this agreement differs from Exhibit 10.16 are that the amount of the
required "Letter of Credit" is $330,750 and the amount of "Base Rent" per
year is $441,000.
3. Lease Agreement dated June 8, 1993 for Fremont, Michigan facility,
as amended by that certain Amendment Number One to Lease Agreement dated
November 1, 1993, as assigned to THP pursuant to that certain Lease
Assignment, Consent and Release dated March 1, 1994. Material details in
which this agreement differs from Exhibit 10.16 are that the amount of the
required "Letter of Credit" is $298,594 and the amount of "Base Rent" per
year is $398,125.
4. Lease Agreement dated June 8, 1993 for St. Louis, Michigan facility,
as amended by that certain Amendment Number One to Lease Agreement dated
November 1, 1993, as assigned to THP pursuant to that certain Lease
Assignment, Consent and Release dated March 1, 1994. Material details in
which this agreement differs from Exhibit 10.16 are that the amount of the
required "Letter of Credit" is $151,594 and the amount of "Base Rent" per
year is $202,125.
5. Lease Agreement dated June 8, 1993 for Ovid, Michigan facility, as
amended by that certain Amendment Number One to Lease Agreement dated
November 1, 1993. Material details in which this agreement differs from
Exhibit 10.16 are that the amount of the required "Letter of Credit" is
$114,844, the amount of "Base Rent" per year is $153,125, and this agreement
has not yet been assigned to THP.
<PAGE>
EXHIBIT 10.17
<PAGE>
LEASE
ARTICLE I.
PARTIES
Section 1.01 Parties. This lease agreement entered into in duplicate by and
between: Auerbach-Conner, a Kentucky general partnership (hereinafter
referred to as "Landlord"), and Cardinal of Kentucky, Inc. (hereinafter
referred to as "Tenant")
ARTICLE II.
PREMISES
Section 2.01 Premises. WITNESSETH That for and in consideration of the mutual
covenants and agreements herein contained the Landlord hereby leases to Tenant,
and the Tenant hereby leases from Landlord, in accordance with the terms and
conditions set forth herein, the following described premises in Jefferson
County, State of Kentucky, to-wit:
As legally described on Exhibit "A" attached hereto and incorporated
herein, including all improvements located thereon and all rights,
privileges and easements appertaining thereto (the "Premises").
Section 2.02 Assumed Name. The Tenant shall have the right to use and to
register as the assumed business name for the premises the name "The Autumn Care
Convalescent Center" after the commencement date of this lease and thereafter
while this lease is in effect.
ARTICLE III.
TERM AND EXTENSION
Section 3.01 Term. The term of this lease shall commence upon the effective date
of the license to be obtained by Landlord for
<PAGE>
the premises from the Division for Licensing and Regulation or 30 days after the
Commission for Health Economics Control in Kentucky receives notice from Tenant
of Tenant's intent to acquire the premises by lease from Landlord, whichever
occurs last. Provided, however, that if the Commission requires Tenant to obtain
a certificate of need to perform the acquisition, the effective date shall be
the date Tenant receives a final and unappealable decision allowing Tenant to
acquire the premises by lease from Landlord pursuant to KRS Chapter 216B.
Notwithstanding any of the foregoing, the term shall not commence until Landlord
delivers possession of the improvements and leased equipment to Tenant in
accordance with the provisions of this lease and a conditional use permit is
issued by the appropriate zoning authorities allowing the use of the premises
for a health care facility. The term of this lease shall terminate fifteen (15)
years from said date, unless sooner terminated or extended.
Section 3.02 Extension of Term. if this lease is still in effect and if Tenant
shall not then be in default, Tenant is hereby granted an option to extend the
initial term of this lease for an additional ten (10) years, all under the same
terms and conditions, except as herein stated, and any such extension of lease
shall be deemed automatically made without notice unless Tenant shall have given
one hundred eighty (180) days notice in writing before the expiration of the
term that Tenant will not extend said lease.
ARTICLE IV.
RENTAL
2
<PAGE>
Section 4.01 Base Rental. Rent shall commence on the commencement date of this
lease as stated in Section 3.01 of this lease. The rent payment provided for
herein shall be paid by Tenant in advance, without notice of demand, on the 1st
day of each month, and the rent for the calendar month during which rent shall
begin to accrue and for the last calendar month of the term of this lease shall
be apportioned, if necessary. All rental payments shall be made to Landlord at
the address stated in this lease or to such other person, firm or corporation at
such other address as Landlord may designate by notice in writing to Tenant.
Tenant shall pay interest at the rate of Eighteen percent (18%) per annum on all
amounts hereunder which are not paid within ten (10) days of their due date,
together with costs of collection and reasonable attorneys fees, all without
relief from valuation or appraisement laws.
Tenant agrees to pay Landlord as rent the sum of Six Hundred Twenty Five
Thousand Dollars ($625,000.00) each lease year. For Tenant's convenience, said
rent shall be paid in equal monthly installments of $52,083.33 payable in
advance without demand. (Said monthly rent payments hereinafter referred to as
the "base rental".)
Section 4.02 Adjustments to Base Rental. "Lease Year" shall commence as provided
in Article 3.01 and shall end at the close of the twelfth month thereafter. Each
"lease year" subsequent shall consist of twelve calendar months.
At the beginning of the second lease year and at the beginning of each
lease year thereafter (including the extension term) (i.e.
3
<PAGE>
each year) the monthly base rental shall be adjusted upward in the same
percentage amount as the percentage increase in the Consumer Price index for the
Louisville, Kentucky, metro statistical area, over the base period i.e., index
figure for the month the rental begins. The Consumer Price Index shall mean the
average for "all items" shown on the Louisville metro statistical area average
for urban wage earners and clerical workers, all items, groups, sub groups and
special groups of items as published quarterly by the Bureau of Labor Statistics
of the United States Department of Labor (1982 - 1984 = 100).
If the Louisville, Kentucky, Metro Statistical Index of the United States
Bureau of Labor Statistics is discontinued, Landlord and Tenant shall select
comparable statistics on the purchasing power of the consumer dollar in the
Louisville, Kentucky, metro area, which are then available and published in some
responsible financial periodical of recognized authority, governmental or
otherwise.
In the event of a decrease in the Consumer Price Index at any adjustment
period date, the rental shall not decrease, but shall remain the same as the
immediate preceding period.
Section 4.03. Rent Abatement. The rental payments provided for in Section 4.01
of this lease shall abate during the first six (6) months of the lease term;
provided, however, if Tenant is in default at the beginning of the abatement
period or becomes in default during the abatement period, the abatement shall
not begin or shall end, accordingly.
4
<PAGE>
In addition, the adjustment to base rental provided for in Section 4.02 of
this lease shall not occur in any lease year following a lease year in which
Tenant's profit for the lease year before all taxes and after deduction only for
direct and on site (leased premises) "out of pocket" expenses, including the
cost of an administrator (on site) is less that $175,000.00. In the event that
the rental adjustment of Section 4.02 of this lease is abated in accordance with
this paragraph, then the next adjustment in accordance with Section 4.02 shall
not occur until the beginning of the lease year following a lease year in which
Tenant's profit for the lease year (before all taxes and after deduction only
for direct and on site "out of pocket" expenses, including an on site
administrator) equals or exceeds $250,000.00. Reinstatement of the Section 4.02
adjustment to base rental shall not be cumulative (i.e., the percentage increase
in the CPI during any lease year in which the adjustment is abated shall not be
included in a later adjustment calculation). If Tenant is in default at the
beginning of the abatement period or becomes in default during the abatement
period, the abatement shall not begin or shall end, accordingly. Notwithstanding
any of the foregoing, there shall be a CPI adjustment as to base rental for the
second lease year regardless of the Tenant's profit during the first lease year.
ARTICLE V.
TITLE AND POSSESSION
Section 5.01 Title. Landlord represents and warrants to Tenant that Landlord
owns the fee simple title to the premises, has the right and authority to enter
into this lease on the terms and
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conditions and for the use stated and that Landlord has no knowledge of any
liens, encumbrances, easements or restrictions affecting the premises other than
as shown on Commonwealth Title Policy No. 442-309356 previously supplied to
Tenant.
Section 5.02 Construction of Facility and Possession To Tenant. Landlord agrees
to deliver to the Tenant physical possession of the improvements and leased
equipment no later than the 1st day of August, 1991. Landlord's architect shall
notify Tenant in writing at least Thirty (30) days prior to the estimated date
of the issuance of an "authority to occupy", however, such notice shall not
amend the dates or terms of this lease. Tenant shall not have any right to
cancel this lease, reform this lease, or demand damages of any nature from
Landlord if possession is given after such date so long as Landlord is
diligently pursuing the completion of construction and licensure of the
improvements or in the event possession was delayed due to the acts or omissions
of Tenant. If possession has not been delivered by August 1, 1992, through no
fault of Tenant, then Tenant's sole remedy shall be a cancellation of this
lease.
Landlord is now erecting on the demised premises a one story building
suitable for use as a long term health facility for 35 skilled, 80 intermediate
and 25 personal care beds and with administration offices. At such time as
Landlord delivers possession of the improvements to Tenant, the improvements
shall be in compliance with licensure requirements of the State of Kentucky,
state and local building codes and zoning laws and regulations. Landlord shall
erect the improvements at its own expense, including
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all architects, engineering and other fees incurred by Landlord at its request
and the improvements shall at all times belong to it.
Section 5.03 Leased Equipment. Landlord shall, at its expense, furnish and
install as "leased equipment" in the facility to be constructed on the premises
the equipment and furnishings in accordance with the list attached hereto as
Exhibit "B" and incorporated herein (the "Leased Equipment") and such leased
equipment shall be leased to Tenant and be controlled by the terms of this lease
as a part of the rental provided for herein. The parties may, by mutual written
agreement, delete or add items to such list. In no event shall the aggregate
purchase cost to Landlord, of all items of leased. equipment exceed Four Hundred
Thousand Dollars ($400,000.00). Any additional items added thereto from time to
time by written agreement of the Landlord and Tenant shall also be considered
"leased equipment". Tenant shall keep all of the leased equipment in good
working order and condition at Tenant's sole cost and expense. Tenant shall have
the right to also utilize its own equipment on the premises in addition to the
leased equipment. Tenant shall be responsible for furnishing and maintaining all
other equipment, personal property and supplies required at the facility.
If necessary for the proper operation of the Facility, Tenant shall,
during the Lease Term, replace part or all of the items of Leased Equipment
which have been damaged, destroyed or that need replacement through no fault or
neglect of Landlord; and such replacement shall be at the sole cost of Tenant,
but any such replaced equipment shall be and remain the property of Landlord.
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Section 5.04 Surrender of Possession. At the end of the lease term or any
renewal term or upon the earlier termination of this lease, Tenant, at its
expense, shall surrender the leased premises, leased equipment (including
additions, replacements and accessories thereto), and fixtures to Landlord in
the same good condition and state of repair as they were at the beginning of the
original lease term, ordinary wear and tear excepted, and broom clean.
Section 5.05 Holding Over. If Tenant remains in possession of the premises after
the expiration of either the original term of this lease, or any extended term,
except pursuant to an exercise of an option to extend, such possession shall be
as a month-to-month tenant. During such month-to-month tenancy, rent shall be
payable at the same rate as that in effect during the last month of the
preceding term (including the CPI adjustment) and the provisions of this lease
shall be applicable and continue in full force and effect.
Section 5.06 Additional Personal Property. Landlord shall purchase, in addition
to the leased equipment, any other equipment or personal property approved in
writing by Tenant and necessary for Landlord to obtain an "Authority to Occupy"
and initial licensure from the State of Kentucky with regards the operation of
the premises.
Section 5.07 Quiet Enjoyment. At all times prior to the expiration or other
termination of this lease when Tenant is not in default hereunder, Landlord
covenants that the peaceable and quiet enjoyment of the premises by the Tenant
shall not be disturbed by
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anyone, claiming by, under or through Landlord or at Landlord's direction.
Section 5.08 Zoning and Restrictions. Landlord represents and warrants to Tenant
that the Landlord has received all building and zoning permits necessary to
construct the health care facility now being constructed on the premises and
that Landlord, at its expense and prior to the commencement date of this Lease,
shall secure all necessary zoning permits to allow the use of the premises as a
health care facility and that there are no deed or other restrictions affecting
the premises that would prohibit the use of the premises as contemplated by the
terms of this lease.
ARTICLE VI.
TAXES, ASSESSMENTS AND UTILITIES
Section 6.01 Real Estate Taxes. Tenant, at its expense, shall pay when due all
real estate taxes becoming due and payable against the premises beginning with
the date that possession of the premises is delivered to Tenant and all taxes
thereafter becoming due and payable during the term of this lease. Tenant shall
have the right, at its expense and in good faith, to contest the amount or
validity of any such tax payable by Tenant under the terms of this lease. The
terms of Section 7.02 of this lease shall apply to any such action by Tenant. In
addition, if at any time payment of any such tax shall become necessary to
prevent the tax sale of the leased property or any portion thereof because of
nonpayment, then Tenant shall pay the same in sufficient time to prevent such
sale. Any real estate taxes which become due and payable for the year in which
possession is given to Tenant shall be prorated for the
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calendar year between Landlord and Tenant and such proration shall also occur at
the end of the term of this lease for the calendar year of termination. Landlord
shall be responsible for all taxes due and payable in 1990.
Section 6.02 Personal Property Taxes. Tenant, at its expense, shall pay when due
all personal property taxes assessed against any of Tenant's tangible or
intangible personal property or leased equipment beginning on the date Tenant is
given possession,and during the term of this lease.
Section 6.03 Sewer Use Fees. Tenant, at its expense, shall pay when due all
sewer use fees assessed against the premises during this lease commencing with
the date of possession.
Section 6.04 Utilities. Tenant, at its expense, shall obtain in its name and pay
when due all charges for gas, water, electricity, cable television, trash,
telephone, communication services, and all other utilities used on or supplied
to the premises commencing with the date Tenant is given possession.
ARTICLE VII.
USE OF PREMISES
Section 7.01 Use by Tenant. Tenant shall use the premises only for the business
purpose of a health care facility (the "facility") (i.e., nursing home or
retirement home providing some care for its residents) and for no other purpose.
Tenant covenants and agrees that during the term of the Lease, it will use its
best efforts to operate the Facility as a provider of health care services and
to maintain its certifications for reimbursement and licensure, and its
accreditation, if compliance with accreditation standards is
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required to maintain the operations of the Facility and a failure to comply
would adversely affect operations of the Facility.
Section 7.02 Compliance with Laws. Tenant, in operating the improvements on the
premises, at its expense, shall comply with all city, county, state and federal
building codes, ordinances, rules, regulations and laws applicable to the
premises, including but not limited to any and all guidelines relating to
alzheimer facilities adopted, and as amended from time to time, by the
University of Kentucky Sanders - Brown Center on Aging, unless same relates to
the original construction of the improvements or structural alterations required
by law which shall be the responsibility of the Landlord, (Landlord shall not be
liable for any changes necessary to comply with any law or regulation amended or
commencing after the commencement date of this lease except for any structural
changes to the premises required by law). If, at any time, the Sanders-Brown
Guidelines directly conflict with state regulations, then state regulations
shall take precedence to the extent of the conflict. Tenant, at its expense
shall have the right, after notice to Landlord, to contest by appropriate legal
proceedings the validity of or application to the premises of any building code,
ordinance, rule, regulation, tax or law and to delay compliance therewith
pending the prosecution of such proceedings; provided, however, that the Tenant,
at its expense, shall defend, hold harmless and indemnify Landlord against all
encumbrances or civil liability and reasonable attorney fees incurred by the
Landlord or imposed upon the premises by reason of any delay caused
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by Tenant in compliance with any city, county, state or federal building code,
ordinance, rule, regulation or law.
Section 7.03 Waste. Tenant shall neither commit, nor permit the commission of
waste upon or against the leased premises and leased equipment, ordinary wear
and tear excepted.
Section 7.04 Condition of Premises and Equipment. The taking of possession by
Tenant shall be conclusive evidence that Landlord has complied in every respect
with its obligations under Section 5.02 of this lease. Landlord makes no
warranty and Tenant waives any warranty, express or implied, relative to the
premises, any area common thereto, or leased equipment, except as expressly
stated in this lease. Tenant shall, however, have the full benefit of any and
all warranties of any architect connected with the construction of the leased
premises or of any manufacturer or seller of equipment or fixtures constituting
a part of the premises or items of leased equipment. Landlord and Daniel G.
Conner, as the general contractor, warrant outside walls, roof and foundation
for the period of this lease as to defects arising from unworkmanlike
construction, In addition, the Landlord shall, at its expense, correct any
defects in construction of the premises by it arising from unworkmanlike
construction which occur within one (1) year after the commencement date of this
lease. Tenant waives any claims against the general contractor and any express
or implied warranties of the general contractor, except as set forth in this
lease.
Landlord represents and warrants to Tenant that to the best of Landlord's
knowledge there are no "hazardous substances" located
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on, in, at or under the premises. Landlord makes no other representations or
warranties with regards to "hazardous substances". Landlord has hereof ore given
Tenant a copy of an environmental site assessment dated November 26, 1990, from
Greenbaum Associates, Inc. For purposes of the foregoing "hazardous substance"
means any hazardous or toxic substance, material or waste regulated or listed
pursuant to any federal, state or local environmental law, including without
limitation, the Toxic Substances Control Act, the Comprehensive Environmental
Response Compensation and Liability Act and the Clean Water Act.
Section 7.05 License and Permits. Tenant, at its expense, shall acquire and
maintain all licenses and permits needed to operate a long term health care
facility on the premises. Tenant shall reimburse Landlord its costs for the
Tenant's pro rata share of the cost for the remaining period of the first one
(1) year license of the facility initially obtained by Landlord. Such costs
shall not include the cost of Landlord's obtaining the Certificate of Need as
the costs referenced in this section refer to operational licenses only. Tenant
shall not be released or excused from the term of this lease, by reason of or as
a result of, a failure to obtain or retain any such licenses and permits
provided the facility as constructed meets all applicable requirements for
initial licensure. Landlord, at Tenant's expense, shall diligently assist and
cooperate with Tenant in obtaining any such licenses and/or permits. However,
Landlord shall not be required to institute litigation for such purposes.
Section 7.06. Right of Entry for Inspection and Repairs. Landlord, in the event
of Tenant's default
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under this lease, shall have the right to enter upon the premises for the
purpose of inspection or making of such improvements, repairs and alterations of
the premises as Landlord may deem reasonably necessary or advisable. At all
reasonable times and with the least disturbance reasonably necessary, Landlord
may inspect the premises or view with existing or prospective mortgagees,
prospective purchasers or prospective tenants (as to tenants if the termination
of the lease will occur within six (6) months or Tenant has defaulted). The
consent of Tenant (not to be unreasonably withheld) shall be obtained prior to
commencement of major repairs, improvements or alterations, to the premises by
Landlord and, if reasonably possible, such work shall be done at such time or
times as will not interfere with the operations of Tenant, provided further,
that if such work prevents the use of any part of the facility by Tenant for a
substantial and material period of time, then rent shall abate based upon the
same formula as contained in Article Thirteen (13) herein. The exercise of any
right reserved hereunder by Landlord shall not operate as a constructive
eviction or disturbance of Tenant's use and possession of the premises and shall
not render Landlord liable to Tenant or any other person.
ARTICLE VIII.
EMINENT DOMAIN
Section 8.01 Permanent or Temporary Taking. In the event the improvements, any
part thereof, or complete access to the premises is acquired on a permanent or
temporary basis by any Federal, State, or local governmental agency, by means of
condemnation or
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threat of condemnation, or by reason of mutual agreement between Landlord and
said governmental agency, this article shall control.
Section 8.02 Compensation. All compensation awarded for any taking (including
loss of leasehold) shall belong to and be the property of the Landlord,
provided, however, that Tenant shall be entitled to any portion of the award
made to the Tenant for its loss of business, depreciation to or for the cost of
removal of stock, fixtures, equipment other than the leased equipment or signs,
moving expenses, relocation costs or any other allowances to which Tenant may be
legally entitled, and this lease shall not preclude the right of Tenant to
pursue an independent action for damages against any governmental agency for
said taking. In any event, Landlord shall not be liable to Tenant for any
damages.
Section 8.03 Effect on Lease for Permanent Taking. In the event that the whole
of the improvements are taken permanently by any method then this lease shall
terminate as of the date title to the premises vests in the government agency.
Such date of vesting shall operate as though it were the date originally
intended by the parties for expiration of this lease and Tenant shall pay rent
accrued to the date of such vesting.
In the event a substantial and material portion of the improvements are
taken permanently, then either party to this lease shall have the option to
terminate this lease by giving the other party to this lease sixty (60) days
written notice. If neither party elects to terminate this lease or if less than
a substantial and material portion of the premises are taken then the lease
shall terminate as to the part taken and base rent shall be reduced for
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the remainder of the term and extensions, if any, on the basis and in the
proportion that the square footage of the facility taken bears to the total
premises leased herein. In the event that a substantial and material part of the
premises is temporarily taken in excess of ninety (90) consecutive days, then
such taking shall be deemed a permanent taking for purposes of this lease (it
shall be presumed that the taking is "substantial and material" if the Division
of Licensure and Regulation, Cabinet for Human Resources, closes the leased
premises because of such taking).
In the event that the leased premises is landlocked by such taking, then
either party to this lease shall have the right to terminate this lease by
written notice to the other party to this lease, which shall terminate this
lease sixty (60) days after notice.
Section 8.04 Effect on Lease of Temporary Taking. In the event that all or part
of the improvements are taken for a temporary use, the base rental shall be
abated by the greater of : (a) the proportion the square footage of the facility
taken bears to the total square footage of the entire leased premises herein or
(b) the proportion that the number of beds available f or use after the taking
bears to the number of beds available for use prior to the taking. Tenant shall
continue to perform all other conditions of this lease as though the taking or
condemnation had not occurred, except to the extent that Tenant shall be
prevented from doing so by reason of the taking or condemnation and except for
the abatement of base rental as provided. Neither party shall have any right to
terminate this lease by reason of a temporary taking of
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improvements or the demised premises, except as stated in Section 8.03 herein.
ARTICLE IX.
ALTERATIONS, REPAIRS AND TRADE FIXTURES
Section 9.01 Repairs by Tenant Generally. Except for those situations set forth
in Article Thirteen of this lease, Tenant, at its expense, shall inspect,
maintain and repair the improvements constructed by Landlord on the premises so
as to keep the improvements and interior decorations in good repair and in a
safe condition, free from dirt, water, snow, ice, refuse, trash and obstruction.
This obligation to repair shall include, but not be limited to, Tenant's signs,
glass, air conditioning, heating, electrical, parking areas and driveways,
plumbing systems, roof, walls and all interior repairs. Tenant shall not alter
any part of the structure of the leased premises or change or alter any
permanent improvement in or on the leased premises or make additions thereto
without the prior written consent of Landlord which consent shall not be
unreasonably withheld. However, Tenant may make alterations without Landlord's
consent that do not result in a substantial modification of the floor plan or
exterior appearance of the facility and otherwise have an aggregate cost of no
more than 10% of the annual rent then in effect so long as Tenant gives a copy
of the plans to Landlord at least ten (10) days prior to the alterations. Tenant
shall not do anything or permit anything to be done upon the premises which will
increase the rate of fire or casualty insurance upon the building or its
contents, without Landlord's written consent, or to cause structural damage
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to any improvements. Except for trade fixtures, any improvements made to the
premises shall become the property of the Landlord, free of charge, if affixed
to the realty.
Section 9.02 Quality and Promptness of Repairs. All ordinary repairs made by
Tenant shall be made promptly when necessary; shall be at least equal to the
original construction in the quality of materials and workmanship and shall be
done in full compliance with all applicable building codes, ordinances, rules,
regulations and statutes of the city, county, state and federal governments.
Section 9.03 Liability of Landlord. Landlord shall not liable to Tenant or any
other person or corporation, including employees and invitees, for death or
injury to the person or for loss or damage to property caused by theft,
vandalism, water, rain, snow, frost, fire, storm or accident, or by breakage,
stoppage, or leakage of water, gas, heating or sewer pipes or plumbing, upon,
about or adjacent to the premises or by any other cause, except damages caused
by Landlord's breach of this lease, gross negligence or willful misconduct.
Section 9.04 Removal of Personal Property. Upon the expiration of or termination
of this lease, Tenant, at its expense, shall remove from the premises all of the
personal property and equipment described in Section 5.06 of this lease (not
leased equipment). If any disfigurement or damage results from such removal,
repairs shall be made by Tenant at its expense.
If upon surrender to Landlord of possession of the premises and
improvements, Tenant, at its expense, does not within ten (10) days after the
Landlord's demand remove Tenant's personal
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property and equipment, Landlord, at Landlord's election, shall have the right
either to treat Tenant's property as having been abandoned by Tenant to Landlord
without any payment or offset or, at Tenant's risk and expense, to remove
Tenant's property from the premises and improvements and store them. Tenant, at
its expense, shall defend, hold harmless and indemnify Landlord from and against
any and all costs, expenses, losses, demands and damages, including reasonable
attorney fees, caused by the removal of Tenant's property from the premises and
improvements, regardless of whether caused by Tenant or Landlord.
Section 9.05 Future Construction. That with the written consent of both parties
to this lease, the Landlord may construct an addition to the premises
contemplated by this lease for rental by the Tenant on the same terms as this
lease with rent proportionately higher based pro rata with the rent due under
this lease and determined by the additional number of beds added as a result of
the addition.
ARTICLE X.
SIGNS
Section 10.01 Tenant's Signs. Tenant shall have the right to place upon the
leased premises such sign or signs as it may desire for advertising purposes at
its own expense, but the placement and the height of such sign shall be with the
approval of Landlord, such approval by Landlord shall not be unreasonably
withheld. All signs shall comply with all applicable state and local statutes,
rules, regulations and ordinances. Tenant shall maintain such signs in a good
state of repair and shall repair any damage to the demised premises by the
erection, maintenance or removal of such
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signs at the termination of this lease. Upon the termination of this lease, all
signs of Tenant (except any sign attached to a building on the premises) shall
be removed in accordance with the Article relating to trade fixtures.
ARTICLE XI.
ASSIGNMENT, SUBLETTING AND SUBORDINATION
Section 11.01 Assignment or Subletting by Tenant. Tenant shall not assign this
lease or any interest herein, or sublet the leased premises or any part thereof
or any right or privilege appurtenant thereto, or allow any person other than
Tenant and its agents, employees, patients and medical staff to occupy or use
the premises or any part thereof without Landlord's written consent (and the
consent of any mortgagee of the premises). This section shall not prohibit
assignment to affiliated entities of Tenant so long as the assignee complies
with subdivisions (a) and (e) of this section. Any unauthorized assignment or
sublease shall be voidable and shall constitute a breach of this lease at
Landlord's option.
Landlord and any mortgagee shall not unreasonably withhold its consent to
assignment or subletting of this lease. The Landlord (and any mortgagee) may
withhold its consent if any of the following facts do not exist:
(a) Assignee or sublessee agrees in writing to be bound by all terms,
conditions and obligations under this lease and the Agreement between the
parties of even date herewith.
(b) In landlord's reasonable opinion the proposed assignee or sublessee
has assets sufficient to operate the premises and to meet the obligations of
Tenant.
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(c) Assignee or sublessee has both the reputation and the experience in
rendering long term care similar to Tenant's reputation and experience.
(d) Assignee's or sublessee's proposed use is permitted by the use
provision of this lease.
(e) The proposed assignee or sublessee promptly obtains licensure approval
after the assignment or sublease and in any event in accordance with applicable
Kentucky statutes and regulations.
(f) Any other reasonable factor as determined by Landlord or Landlord's
mortgagee. In the event Landlord or a mortgagee refuses to grant such consent
and if Tenant wishes to contest Landlord's or mortgagee's decision, then
Tenant's sole remedy shall be for injunctive relief and not for any form of
damages or costs. It shall not be unreasonable to withhold said consent if
Tenant is in default of this lease at such time. Any such assignment or sublease
shall be subject to the terms of this lease and Tenant and guarantors shall
remain primarily liable to Landlord for the full performance of duties and
obligations under this lease.
Section 11.02 Subordination and Attornment. This lease shall be subject and
subordinate to the lien of any mortgage now secured by or hereafter to be
secured by the leased premises at the election of any owner of such premises,
and to all renewals, modifications, amendments, consolidations, replacements and
extensions thereof, provided that such mortgage provides that Tenant's use and
occupancy of the Premises shall not be disturbed notwithstanding
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any foreclosure or deed in lieu thereof so long as Tenant is not in default
hereunder. Tenant shall execute and deliver to the owner of the premises and any
mortgagee documents which may be reasonably required by any owner of the
premises in confirmation of such subordination promptly upon Landlord's written
request. Further, Tenant, as a part of any subordination agreement, if
requested, shall agree to attorn to any mortgagee in the event of foreclosure or
deed in lieu of foreclosure. In consideration of Tenant's execution of a
subordination and/or attornment agreement, Tenant shall be granted a
nondisturbance agreement from such mortgagee. In any event, Tenant shall be
obligated to continue to pay rent and comply with all other terms of this lease
if allowed to remain in possession after any foreclosure or deed in lieu of
foreclosure.
The periodic payment terms of any mortgage hereafter given by Landlord and
secured by the Leased Premises shall be in an amount not greater than either (1)
the original base rental or (2) the then current base rental as adjusted by the
terms of this lease, whichever amount is greater, except that this limitation
shall not apply if Landlord is rebuilding the Leased Premises in accordance with
Article Thirteen (13) of this Lease. The Tenant shall receive a copy of any
notice of default sent to Landlord from any such mortgagee and be given the same
right to cure as Landlord.
Section 11.03 Sale by Landlord. In the event of any sale or conveyance by
Landlord (or its mortgagee) of the leased premises or any part thereof, the sale
or conveyance shall be made subject to this lease and shall operate to release
Landlord (and any mortgagee) from any further liability under any of the terms,
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covenants, and conditions contained in this lease, express or implied, arising
after the date thereof and Tenant shall look solely to the purchaser with
request to any matter arising after such date.
Section 11.04 Estoppel Certificates. Tenant, upon request by Landlord, shall
execute and deliver to Landlord, in contemplation of the sale or mortgage of the
leased premises, an estoppel certificate which shall, at a minimum, state to the
extent of the true facts: (1) that the lease provided to the lender or purchaser
is a true and correct copy of the lease and that it has not been modified or
terminated except as set forth, (2) that the rentals in the lease have not been
modified, (3) that there are no outside agreements that would affect lender or
purchaser or any of their rights to the lease or premises, (4) that there are no
disputes existing as to the lease, (5) that Landlord has complied with the terms
of this lease to the date of the certificate, (6) that there have been no
rentals paid more than thirty (30) days in advance, and (7) any other reasonable
terms.
Section 11.05 Leasehold Financing. Whenever Tenant shall not be in default under
the terms and conditions of this Lease and if permitted by the terms of any
mortgage now or hereafter secured by the premises and given by Landlord, Tenant
shall have the right to mortgage its leasehold interest in this Lease. If Tenant
does so, Landlord agrees as follows: (a) Landlord shall not agree to any
modification, amendment or termination of this Lease without first obtaining the
prior written approval of Tenant's leasehold mortgagee (the "Mortgagee"), which
approval shall not be
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unreasonably withheld, provided, however, that this provision shall not impair
Landlord's right to terminate this Lease pursuant to its terms due to a default
hereunder by Tenant, subject to the provisions of this Article 11.05, (b)
Landlord shall notify Mortgagee in writing of any default by Tenant under this
Lease at the time notice is sent to Tenant and Mortgagee shall then have the
right, but not the obligation, to correct any such default within the time
allotted to Tenant under this Lease, (c) If for any reason whatsoever, including
the disaffirmance or rejection of this Lease in a bankruptcy proceeding, this
Lease shall terminate or come to an end during the term of Mortgagee's mortgage,
Landlord shall enter into a new lease with Mortgagee on the same terms and
conditions as this Lease, (d) Mortgagee shall not be liable for the performance
of this Lease except during such time as Mortgagee shall be in possession due to
foreclosure or other acquisition of the leasehold estate, and upon subsequent
assignment of this Lease by Mortgagee, Mortgagee shall remain liable for the
performance of the obligations of Tenant under any substitute lease entered into
between Mortgagee and Landlord.
Landlord shall enter into an agreement in recordable form with Mortgagee,
if so requested by Mortgagee, containing the foregoing terms and conditions.
Except as expressly stated in this Section, no Mortgagee, nor anyone who claims
by, through or under such mortgagee shall acquire any greater or more extended
rights then Tenant has under this Lease and any such mortgage shall in every
respect be subject and subordinate to all conditions and terms of this Lease and
the rights of Landlord herein as well as in respect
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to all improvements located on the premises. In no event shall Landlord be
liable to pay any such leasehold mortgage.
ARTICLE XII.
DEFAULT
Section 12.01 Default by Tenant. The occurrence of any one or more of the
following conditions or any failure of Tenant to abide by the terms of this
lease shall constitute a "default" within the meaning of that word as used in
this lease. Tenant shall correct said default within ten (10) days after the
receipt of written notice of such "default" if such "default" is a monetary
default and within thirty (30) days if the "default" is nonmonetary. If such
"default" is not remedied by Tenant within the above applicable period, the
Landlord shall have the rights as set forth in this Article, which rights are
cumulative and in addition to any rights or remedies which Landlord may have by
law. If any nonmonetary default is not capable of cure within thirty (30) days,
Tenant shall have such longer period as is reasonably necessary to cure such
default provided that Tenant commences such cure within such thirty (30) day
period and diligently and in good faith prosecutes such cure to completion.
(1) The failure of Tenant to pay any part of a rental payment or
other charge due under this lease on or before its due date;
(2) Unauthorized assignment or sublease of this lease or any part
thereof or of any interest therein;
(3) Abandonment or vacation of the premises by Tenant, or failure of
Tenant to conduct business as required by this lease;
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(4) Dissolution of Tenant;
(5) The appointment of a receiver or Trustee over any part or all of
Tenant's property or that of any successor;
(6) The voluntary or involuntary making by or against Tenant of a
general assignment for the benefit of any one or more of Tenant's past, present
or future creditors;
(7) The filing or attachment of any lien or encumbrance against the
premises arising out of any act or omission by Tenant which is not released or
bonded by Tenant in accordance with law;
(8) The supplying by Tenant to Landlord of any information material
to Tenant's ability to perform this lease that Tenant knew at the time to be
false;
(9) Failure of Tenant to perform any covenant, condition, or
obligation contained herein or to give any notice required hereunder;
(10) Any act of intentional damage to the leased premises or leased
equipment;
(11) Except as qualified by subsection (12) below, Tenant's material
breach of any of its obligations arising out of the ancillary operating
"Agreement" or the "Side Agreement" between the parties both of even date
herewith;
(12) Loss of any license or permit required to operate the facility
as a long term care facility and the expiration of any appeal period or period
in which deficiencies can be corrected.
In the event of any default, Landlord shall give Tenant written notice of
the default stating the default complained of and
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referring to the Article and Section in this lease relied on by Landlord.
Section 12.02 Landlord's Rights and Remedies. Upon any default and a failure by
Tenant to cure same within the time period in the preceding section, Landlord,
at its option, and without further demand or notice, shall have the following
rights and remedies in addition to any rights provided by law, all of which
shall be cumulative:
(1) Perform any covenant or obligation of Tenant and charge the cost of
the cure to the next installment or installments of base rental due.
(2) Allow Tenant to remain in possession, declare the total rental under
this lease immediately due and payable and institute collection proceedings.
(3) Retake possession of the leased premises and any leased equipment and
relet the leased premises or any part thereof to a third party. If the Landlord
relets the premises (either for a term greater than less than or equal to the
unexpired portion of the term then in effect under the terms of this lease) for
an aggregate rent during the portion of such new lease which is less than the
rent and other charges which Tenant would pay hereunder for such period,
Landlord may immediately upon the making of such new lease, sue for and recover
the difference between the aggregate rental provided for in said new lease for
the portion of the term coextensive with the term then in effect under this
lease, and the rent which Tenant would pay hereunder for such period (discounted
to present value at a factor of 8% per annum), together with any
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expense to which Landlord may be put for brokerage commission, placing the
demised premises in tenantable condition, charges accrued prior to the new lease
or otherwise. If such new lease or tenancy is made for a shorter term than the
balance of the term of this lease, any such action brought by Landlord to
collect the deficit for that period shall not bar Landlord from thereafter suing
for any loss accruing during the balance of the unexpired term of this lease.
(4) Operate the facility on Tenant's behalf (and subject to applicable
Kentucky statutes and regulations) until any default by Tenant under this lease
has been cured. Any such summary action by Landlord shall not be construed as an
election or act constituting retaking of possession unless expressly so stated
in writing by Landlord to Tenant.
Tenant knowingly and voluntarily waives demand for performance, notice to
quit and any and all rights of redemption which Tenant may now have or hereafter
acquire pursuant to statute or court decision, except for notice as provided in
this Article.
Landlord shall have the right to cure any default by Tenant without giving
notice to Tenant in the event of an emergency.
Landlord's failure to insist on the strict performance of and compliance
with each condition in this lease shall neither constitute nor be construed as
constituting a waiver by Landlord of Landlord's rights under this Article or by
law, nor constitute nor be construed as consisting of a waiver by Landlord of a
second or subsequent default by Tenant of the same condition. Acceptance of past
due rent or other sums due shall in no way act as a waiver of
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Tenant's default nor prevent Landlord from proceeding as above stated. In the
event litigation is commenced, it shall not be necessary for Landlord to notify
Tenant of any additional occurrences of default prior to proceeding as
permitted.
Section 12.03 Default by Landlord. If Landlord defaults in the performance of
any condition or obligation in this lease and if Tenant gives Landlord notice of
the default stating the default complained of and referring to the Article and
Section in this lease relied on by Tenant, Landlord shall have thirty (30) days
after receiving written notice from Tenant to undertake the cure of any default
and shall thereafter cure same in good faith, with diligence, and within a
reasonable period of time. Notwithstanding the foregoing, Landlord shall not
have the right to cure the failure to meet the deadlines stated in Section 5.02,
except with the express written consent of Tenant.
If Landlord fails to cure any such default or to diligently and in good
faith pursue the cure as provided for herein, then Tenant may sue Landlord for
its damages, and may further obtain injunctive relief if necessary to maintain
operation of the facility or conform with applicable law. Anything to the
contrary herein contained, notwithstanding, there shall be absolutely no
personal liability on firms, individuals or entities who have an ownership
interest in Landlord with respect to any of the terms, covenants, conditions and
provisions of this lease, and Tenant shall, subject to the rights of any prior
mortgage, look solely to the interest of Landlord, its successors and assigns in
the leased premises for the satisfaction of each and every remedy of Tenant in
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the event of default by Landlord hereunder; such exculpation of personal
liability is absolute and without any exception whatsoever.
Whenever this lease requires any act (other than the payment of a
liquidated sum of money i.e., rental payments, taxes, utilities, etc.) by
Landlord or Tenant within a certain period of time or by a certain time, the
time for the performance of such act shall be extended by the period of any
delay caused by war, strikes, lockouts, civil commotion, unpreventable material
shortages, casualties, acts of God or other conditions or events beyond the
control of the obligated party. Provided, however, that written notice of such
delay and the cause and circumstances thereof shall be given to the other party
immediately after commencement of such delay and knowledge of such delay
becoming known by the obligated party.
ARTICLE XIII.
DAMAGE TO PREMISES
Section 13.01 Major Damage. In the event that the leased premises are damaged by
fire or other casualty, then Tenant shall notify Landlord in writing of such an
event.
Landlord shall repair such damage unless: (a) the estimated cost of fully
repairing the damage exceeds seventy five percent (75%) of the then full
replacement value, and the damage occurs at such time when there is three (3)
years or less of the lease term remaining (an extension term, if any, that has
not been exercised shall be included in the calculation only in the event that
Tenant
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agrees in writing within thirty (30) days of damage that it will extend the term
subject to Landlord's duty to restore as herein provided) in which event either
party shall have the right to terminate this Lease. Rent shall abate in
accordance with Section 13.02 of this lease if Tenant is unable to use all or
any part of the premises while repairs are made.
If either party elects to terminate this lease pursuant to this section,
the lease shall terminate fifteen (15) days after date of notice, Tenant shall
surrender possession to Landlord, and all accrued rights under this lease shall
survive termination.
Section 13.02 Nonmajor Damage. Any other damage to the leased premises from any
casualty or risk which does not qualify as major damage as defined above shall
be deemed to be nonmajor.
If neither party elects to terminate this lease under the "major damage"
provision above, or if the damage is nonmajor, then Landlord shall at its
expense repair or rebuild the leased premises to substantially, the same
condition as existed immediately prior to the damage and in accordance with
Kentucky State building codes and sufficient to meet licensure requirements of
the State of Kentucky for long term care facilities. The restoration shall be
done as promptly as reasonably possible, Landlord shall also restore any damaged
leased equipment, but in no event shall Landlord be responsible to restore
Tenant's personal property or equipment.
Landlord's duty to restore the leased premises and leased equipment shall
be contingent upon Landlord's receipt of insurance proceeds, however, Landlord's
obligation to restore shall not be
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limited to the extent of insurance proceeds received so long as Landlord
receives all of such proceeds. Landlord shall not have any obligation to restore
the leased premises and leased equipment in the event that Landlord's mortgagee,
under the terms of a mortgage, retains all or any portion of insurance proceeds
covering the damage unless Landlord, after a diligent and good faith attempt, is
able to borrow an amount sufficient to restore the Leased Premises at an
interest rate of twelve percent (12%) or lower and with "points" or financing
costs not exceeding one percent (1%) in the aggregate.
In the event Tenant is unable to use all or any part of the leased
premises while Landlord restores same, then monthly rent shall be equitably
prorated and abated in the greater of: (a) the proportion that the monthly rent
of the part usable by Tenant bears to the monthly rent of the total space then
leased by Tenant, taking into consideration the monthly rental rate per square
foot for the space for which the proration is made or (b) the proportion that
the number of beds available for use after such damage bears to the number of
beds available for use prior to such damage. The abatement of monthly rent shall
commence with the date of the damage and continue until the repairs are
substantially completed. Other obligations of Tenant under this lease shall not
abate in any manner.
If the leased premises is a part of a larger structure or development and
if the larger building or development is damaged, there shall be no abatement of
monthly rent where the leased premises itself is not damaged.
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ARTICLE XIV.
INSURANCE SUBROGATION AND INDEMNIFICATION
Section 14.01 Comprehensive Liability and Professional Insurance to be carried
by the Tenant. Tenant before occupying the premises, at its expense, shall cause
to be issued and kept in force during the term and each extension term, if any,
a policy or policies of comprehensive liability and professional liability
insurance, including public liability, malpractice and property damage, by the
terms of which both Landlord and Tenant shall be insured against claims for
bodily injury, death and property damage as a result of an occurrence on the
premises, with minimum combined single limits of Five Million Dollars
($5,000,000.00). Tenant shall remain liable to Landlord for any deficiency
should insurance afforded by this section be insufficient to satisfy the
liability of Tenant under Lease Section 14.05.
Section 14.02 Certificate of Insurance. Tenant, at its expense, shall carry all
insurance required by this Article with a company or companies reasonably
acceptable to Landlord and qualified to do business in the State of Kentucky,
and Tenant shall cause each policy of insurance procured by it and required by
this Article to be endorsed to provide that each insurer shall have the right to
change or cancel the policy only after first giving both parties fifteen (15)
days prior written notice by certified mail, return receipt requested, of the
insurer's intention to cancel or change the policy.
Tenant, at its expense, before commencement of the term and upon each
renewal of such insurance, shall deliver to and deposit
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with Landlord certificates of insurance for each policy required by this Article
and copies of receipts evidencing that all current premiums on such policies
have been paid.
A party's obligation to carry the insurance provided herein may be brought
within the coverage of a so-called "blanket policy" or policies of the insurance
carrier maintained by such party. However, the other party to this lease must be
named as an additional insured thereunder as its interest may appear; the
coverage afforded the other party must not be reduced or diminished by the
blanket policy of insurance, with an endorsement to that effect provided to such
other party; and the requirements set forth herein must be otherwise satisfied.
Section 14.03 Adjustments to Insurance Coverage. In order to maintain the same
level of coverage that will exist at the commencement of the term of this Lease,
the amounts and types of coverage called for herein shall be subject to review
at the end of each three year period following the effective date of this lease
and, if appropriate, they shall be increased or extended to provide the amounts
and types of coverage that are at least equal to the amounts and types of
coverages carried by prudent owners and operators of properties similar to the
leased premises but in no event shall the coverage be less than as required by
the terms of this Article.
Section 14.04 Other Coverage. Tenant, at its expense, shall carry insurance in a
reasonable amount to provide coverage for loss or damage to or from: (1) leased
equipment for its full replacement value (2) explosion of steam boilers,
pressure vessels or similar
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apparatus (3) loss of rental during first six (6) months during reconstruction
after any damage or destruction of premises.
Section 14.05 Indemnification of Landlord. Tenant assumes all risk and
responsibility for injury or death to persons and damage to property (damages to
the leased premises being waived to the extent of insurance proceeds paid to or
on behalf of Landlord) arising out of or in any way connected with or related to
Tenant's use and control of the leased premises and Tenant shall indemnify and
hold Landlord harmless as to all such liability, including reasonable attorney
fees, except as to liability for Landlord's gross negligence or willful
misconduct as to which Landlord shall hold Tenant harmless, including reasonable
attorney fees.
Section 14.06 Fire, Extended Coverage and Additional Perils Insurance. Tenant,
at its expense, shall cause to be issued and kept in force during the terms and
each extension, if any, a policy or policies of fire, extended coverage and
additional perils insurance by which Landlord and any mortgagee shall be insured
against loss resulting from damage to or destruction of the improvements located
on the premises and leased equipment for its full replacement value (exclusive
of land) as established by the insurance carrier.
14.07 Denial of Subrogation Rights. Tenant shall cause each policy of insurance
carried by it and insuring either Landlord or Tenant or both against loss or
damage as a result of fire, causes enumerated in extended coverage and
additional perils policies and endorsements, bodily injury, death and property
damage, to be written and endorsed to provide that each insurance company waives
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all rights of recovery by way of subrogation against Landlord in connection with
any loss or damage covered by and to the extent of the maximum limits and the
maximum proceeds payable under each policy of insurance.
Tenant, and for each person, organization, association and corporation
claiming under or through Tenant, herein waives, releases and discharges
Landlord from all costs, expenses, losses, damages, demands, claims and
liabilities arising in any manner that is covered by policies of insurance now
or hereafter existing during the term of this lease or any extension period, if
any. However, this release is applicable only to the extent of the maximum
proceeds paid under each applicable policy of insurance.
If the release and discharge of Landlord by Tenant as contained in this
Article, to the extent of maximum proceeds paid under each applicable policy of
insurance, contravenes any statute or decision with regard to exculpatory
agreements, the liability of Landlord shall be deemed not released but shall be
secondary to all of the insurance proceeds paid under such applicable policy of
insurance.
ARTICLE XV.
GENERAL CONDITIONS
Section 15.01 Notice. All notices, requests, demands or other communications
required or permitted under this lease shall be in writing and shall be either
personally delivered evidenced by a signed receipt or transmitted by United
States mail, certified, return receipt requested, postage prepaid, addressed as
follows:
If given to Landlord:
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c/o Daniel G. Conner Copy to: David Nachand, Attorney
2946 Highway 62 426 E. Court Ave.
Jeffersonville, IN 47130 Jeffersonville, IN 47130
If given to Tenant:
Randall Bufford Copy to: C. Edward Glasscock, Esq.
c/o Tenant Brown, Todd & Heyburn
9300 Shelbyville Road 1600 Citizens Plaza
Suite 1300 Louisville, KY 40202
Louisville, KY 40222
All notices, requests, demands and other communications shall be effective
upon personal delivery evidenced by a signed receipt or upon five (5) calendar
days after being deposited in the United States mail, whichever occurs first.
The time period in which a response to any such notice, request, demand or other
communication must be given, however, shall commence to run from the date of
personal delivery evidenced by a signed receipt or the date of receipt on the
return receipt of the notice, request, demand or other communication; provided,
however, that if a party refuses delivery of any such notice, request, demand or
other communication sent by mail, or fails or neglects without reasonable cause,
to accept delivery after three (3) attempts to so deliver by postal authorities,
it shall be deemed received on the date of its last being deposited in the
United States mail. The parties hereto shall have the right, at any time and
from time to time during the term of this lease, to change their respective
addresses for notices by giving the other party hereto written notice thereof.
Section 15.02 Merger - Entire Agreement. All prior oral negotiations, promises
and agreements between Landlord and Tenant have been and shall be conclusively
presumed to be merged into this lease. There are no promises or agreements
between the parties
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hereto other than those contained herein, other than the Agreement and Side
Agreement between the parties both of even date herewith.
Section 15.03 Amendment. This lease may be amended at any time and from time to
time; provided, however, that no amendment to this lease shall be legally
enforceable against either Landlord or Tenant unless it is in writing, executed
and acknowledged by both Landlord and Tenant.
Section 15.04 Construction. This lease shall be construed in accordance with the
laws of the State of Kentucky.
Section 15.05 Specific Performance. Landlord and Tenant for themselves and for
each person, business organization, association and corporation claiming by,
under or through either Landlord or Tenant, stipulate that both Landlord and
Tenant shall have the remedy of specific performance against the other.
Landlord and Tenant, for themselves and for each person, business
organization, association and corporation claiming by, under or through either
Landlord or Tenant, knowingly and voluntarily waive their rights to allege or
assert in or to any and all claims or counts for specific performance arising
out of or in any way connected with this lease the defense that the other party
has an adequate remedy at law.
Section 15.06 Binding Effect on Successors. Landlord and Tenant expressly agree
that, subject to the terms of this lease, all terms and conditions of this lease
shall extend to and be binding upon or inure to the benefit of the heirs,
executors, administrators, personal representatives, assigns and successors in
interest of both Landlord and Tenant.
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Section 15.07 Memorandum of Lease. Landlord and Tenant shall execute and deliver
to each other a Memorandum of Lease for recording purposes within a reasonable
time after this lease is executed by both parties. Either party, at its expense,
shall have the right to record such memorandum for the purpose of giving notice
of Tenant's interest in the premises.
Section 15.08 Reading and Receipt of Lease. Landlord and Tenant stipulate that
each has read and understands the conditions in this lease and by their
respective signatures below, acknowledge the receipt of an executed copy of this
lease.
Section 15.09 Attorney Fees and Costs. Tenant shall pay all reasonable
attorney's fees and costs incurred on behalf of Landlord if (a) Landlord
institutes litigation against Tenant for a breach of the terms and conditions of
this lease and prevails in such litigation, (b) Landlord institutes litigation
against Tenant for an unlawful detainer of the demised premises, or (c) Landlord
is made a party to litigation against Tenant instituted by a third party,
relating to the demised premises wherein Landlord is not at fault. Landlord
shall pay all reasonable attorneys fees and costs incurred on behalf of Tenant
if Tenant institutes litigation against Landlord for a breach of this Lease and
prevails in such litigation. The reimbursement of attorneys fees shall not be
conditioned upon the commencement of litigation.
Section 15.10 Prohibition of Mechanics Liens. Nothing in this lease shall be
deemed or construed in any way as constituting the consent or request of
Landlord, expressed or implied, by inference or otherwise, to any contractor,
subcontractor, laborer, or
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materialman for the performance of any labor or the furnishing of any materials
for any specific improvements, alteration to, or repair of the demised premises
or any part thereof, nor as giving Tenant any right, power, or authority to
contract for or permit the rendering of any services or the furnishing of any
materials that would give rise to the filing of any lien against the demised
premises or any part thereof.
Tenant shall not allow any encumbrances or liens resulting from
alterations, construction, repairs or maintenance performed at its request to
attach to the interest of Landlord, unless Tenant protects the interest of
Landlord by bond in accordance with law.
Section 15.11 Brokerage or Agents Fees. Each party shall be solely responsible
to pay any broker or agent representing such party and involved in this
transaction, and each agrees to indemnify and hold the other harmless, including
attorney fees, from all actions from any broker or agent for fees or commissions
claiming to represent the indemnifying party in this transaction.
Section 15.12 Captions and Indexes. Section titles, captions or indexes,
contained in this agreement are inserted only as a matter of convenience and
reference, and in no way define, limit, extend or describe the scope of this
agreement, or the intent of any provision hereof.
Section 15.13 Pronouns. 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.
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Section 15.14 Triple Net Lease. This lease is intended by the parties to be a
Triple Net Lease and Landlord shall not be required to make any payment of any
kind with respect to the premises, facility or the leased equipment except as
expressly stated herein (i.e., 1 year "call back" correction period of Section
7.04).
Section 15.15 Guaranty. The obligations of Tenant hereunder are guaranteed
personally by Randall Bufford and David Hall, jointly and severally, under a
guaranty of even date herewith and this lease shall have no legal force and
effect until and unless each guarantor above named signs the Guaranty of even
date herewith.
Section 15.16 Drafting of Lease. Landlord and Tenant have both been represented
by counsel in negotiating and drafting this lease and both parties to this lease
have influenced the language of this lease. Therefore this lease shall not be
construed against either party to this lease by reason of drafting authorship.
Section 15.17 Waiver of Landlord's Lien. Landlord hereby waives any Landlord
Liens that it may have now or in the future for unpaid rent with respect to any
accounts receivable or accounts owed to or to be reimbursed to Tenant.
ARTICLE XVI.
CONDITION PRECEDENT
Section 16.01 Condition Precedent. Landlord cannot transfer the facility, within
the meaning of KRS 216B, to Tenant until the facility has been licensed by the
Division of Licensing and Regulation, Kentucky Cabinet for Human Resources and
thirty (30) days have expired from the filing by Tenant of an "Acquisition of a
Health Facility - Notice of Intent" with the Commission for
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Health Economics Control in Kentucky. Therefore, the obligation of Landlord and
Tenant to consummate the transactions contemplated by this Lease are subject to
the satisfaction of the following condition precedent:
The receipt of all permits, consents, approvals and authorizations from
federal and state governmental authorities and regulatory agencies
necessary to effect the transaction contemplated herein, including but not
limited to the approval of, or notification that a certificate of need is
not necessary from, the Commission for Health Economics Control in
Kentucky.
In addition, the obligations of Landlord and Tenant hereunder are
contingent upon the following conditions precedent occurring within fifteen (15)
days from the date this Lease is signed:
(a) Landlord obtaining written consent to enter into this Lease from its
existing Mortgagee, INB Banking Company.
(b) Tenant obtaining a signed non-disturbance agreement, in reasonable
form and content, from Landlord's existing Mortgagee, INB Banking Company.
Tenant and Landlord shall each, in good faith and in cooperation with each
other, attempt to satisfy the aforesaid conditions. Landlord and Tenant shall be
bound by the terms and conditions of this Lease, and shall not be entitled to
cancel this Lease except as specifically stated in Section 5.02.
ARTICLE XVII.
FIRST RIGHT OF REFUSAL
Section 17.01 Tenant's Right of First Refusal. In the event that Landlord shall
receive a bona fide written offer for the purchase of the leased premises and
the offer of purchase shall be acceptable to Landlord, then Tenant shall have
the right to
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purchase the premises at the price and on the terms of the offer so made.
Landlord shall give written notice of the offer to Tenant, requiring Tenant to
elect to accept the purchase offer from Landlord in accordance with the terms of
the bona fide offer within fifteen (15) days after such written notice to
Tenant. If Tenant elects to accept the offer, then closing shall occur within
sixty (60) days from the date of Tenant's election to accept the purchase offer.
The failure of Tenant to accept to purchase in accordance with the bona
fide offer within the period above provided shall nullify and void Tenant's
right of first refusal and Landlord may sell the premises on the terms of the
bona fide offer, provided however, if Landlord does not sell pursuant to such
offer, Tenant's right of first refusal shall remain in effect.
The Tenant's right of first refusal, if not sooner terminated in
accordance with this article, shall exist during the entire duration of the
initial term of this lease and any extensions.
In the event that Tenant is in default with the terms of this lease then
Tenant's election to purchase shall be valid only if Tenant has completely cured
any default prior to its election and notice to Landlord that it shall purchase
in accordance with the bona fide offer.
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IN WITNESS WHEREOF, the parties have set their hands and seals this 29th
day of March, 1991.
LANDLORD: Auerbach-Conner, a
Kentucky General Partnership
TENANT: Cardinal of Kentucky,
Inc. By: /s/ Daniel G. Conner
-----------------------------------
Daniel G. Conner, General
Partner
By: /s/ David V. Hall
-------------------------------
By: /s S. Pearson Auerbach
Title: President -----------------------------------
S. Pearson Auerbach, M.D.,
General Partner
Attest:
By: /s/ Randall J. Bufford
-------------------------------
Title: Vice President
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STATE OF INDIANA
SS:
COUNTY OF CLARK
Before me, the undersigned a Notary Public in and for said County and State,
this 29th day of March, 1991, appeared Cardinal of Kentucky, Inc., by David Hall
its President and Randall Bufford its Secretary each of whom acknowledged the
execution of the above and foregoing instrument. Witness My hand and notarial
seal.
/s/ David Nachand
--------------------------------------------
Notary Public, Resident of Clark County,
Indiana
My commission expires: David Nachand
--------------------------------------------
Printed Name
6-25-93
STATE OF INDIANA
SS:
COUNTY OF CLARK
Before me, the undersigned, a Notary Public in and for said County and
State, this 29th day of March , 1991, appeared Auerbach-Conner, a Kentucky
Partnership, by Daniel G. Conner and acknowledged the execution of the above and
foregoing instrument.
Witness My hand and notarial seal.
/s/ David Nachand
--------------------------------------------
Notary Public, Resident of Clark County,
Indiana
My commission expires: David Nachand
--------------------------------------------
Printed Name
6-25-93
45
<PAGE>
STATE OF INDIANA
SS:
COUNTY OF CLARK
Before me, the undersigned, a Notary Public in and for said County and
State, this 29th day of March, 1991, appeared Auerbach-Conner, a Kentucky
Partnership, by S. Pearson Auerbach and acknowledged the execution of the above
and foregoing instrument.
Witness My hand and notarial seal.
/s/ David Nachand
--------------------------------------------
Notary Public, Resident of Clark County,
Indiana
My commission expires: David Nachand
--------------------------------------------
Printed Name
6-25-93
46
<PAGE>
EXHIBIT 10.18
<PAGE>
LEASE AGREEMENT
This is a LEASE AGREEMENT ("Lease") made effective this 1st day of
November 1993 (the "Effective Date"), by and between HOUSE INVESTMENTS - NURSING
HOMES PARTNERS I, an Indiana limited partnership, its successors and assigns
(hereinafter referred to as "Landlord"), and TRANSITIONAL HEALTH PARTNERS d/b/a
Transitional Health Services, a Delaware general partnership (hereinafter
referred to as "Tenant").
NOW, THEREFORE, in consideration of the mutual covenants and obligations
herein contained, the parties agree:
1. FACILITY: Landlord does hereby demise and lease unto Tenant, and Tenant
does hereby take, hire and let from Landlord that certain tract or parcel of
real estate, together with the buildings and improvements (and including
furniture, fixtures and equipment belonging to or provided by Landlord) and
constituting a 101 bed skilled and home for the aged nursing home facility known
as Lincoln Lodge Nursing Center, and the privileges and appurtenances thereunto
appertaining, situate, lying and being on 1039 East 5th Street, Connersville, in
Fayette County, Indiana, and being more particularly described on "EXHIBIT A"
hereto attached, hereafter referred to as the "Facility."
2. COVENANT OF TITLE AND QUIET ENJOYMENT: Landlord covenants and warrants
that it alone has full right and lawful authority to enter into this Lease for
the full term hereof; that it is lawfully seized of the Facility in fee simple
and has good title thereto, free and clear of all tenancies, restrictions and
encumbrances (with the exception of liens securing lenders providing financing
for the Facility which is the subject of this Lease, and other matters not
adversely affecting the intended use of the Facility or merchantability of
title, or other matters agreed to between the parties) and that at all times
during the term of this Lease and any extensions of said term, Tenant's quiet
and peaceful enjoyment of the Facility shall not be disturbed or interfered with
by any party in privity of contract with Landlord.
3. AUTHORIZATIONS AND COMPLIANCE WITH GOVERNMENTAL PROGRAMS: Landlord
hereby represents and warrants to Tenant that (i) the use of the Facility as an
intermediate or skilled care and home for the aged nursing home facility is a
permitted use under all applicable zoning or other use restrictions or
regulations, and (ii) the character, materials, design, construction and
location of the improvements is, to the best of its knowledge, in full
compliance with all building codes, zoning laws and all other laws and
ordinances pertaining thereto, and (iii) the Facility will, during the term
hereof, meet all standards require for Federal Medicare (Title 18) or Medicaid
(Title 19) skilled or intermediate care nursing programs and that it will make
any alterations necessary to maintain compliance with same. Any alterations or
changes or expansions will be negotiated at the then-current cost of
construction, which cost, together with interest at the rate of interest for
which money is financed, shall be amortized in level monthly additional Rent
payments over the agreed upon remaining lease period.
<PAGE>
Tenant agrees (i) to use the Facility as an intermediate, skilled and home
for the aged nursing home facility and operate the Facility in full compliance
with all laws, regulations and licenses applicable thereto, (ii) that no part of
the Facility shall be used for any unlawful purpose, nor will any unlawful
condition or nuisance be permitted to exist thereon, and (iii) that its
operation of the Facility of a nursing home facility shall materially comply
with (A) the representations in the certificate of need application for the
facility on file with the Indiana Department of Health - Division of Health
Facilities, (B) all conditions placed upon the certificate of need, and (C) all
licensure, certification, and other requirements of law applicable to nursing
home facilities.
4. TERM:
(a) The term of this Lease (the "Initial Term") shall be for ten
(10) years commencing on the Effective Date hereof.
(b) If Tenant is not in default hereunder, Tenant shall have the
option to renew the term of this Lease after the Initial Term for two (2)
additional terms of five (5) years each (the "Renewal Term(s))", which together
with the Initial Term shall be referred to herein as the "Term"). Such Renewal
Terms shall be upon the same terms and conditions contained in this Lease for
the Initial Term except it (i) will be subject to an adjustment of Rent payments
as negotiated between the parties at the end of the Initial Term and the first
Renewal Term, if any, and (ii) will not be less than the previous year's Total
Rent (as defined below). Tenant may exercise its option to renew for the Renewal
Term by notifying Landlord in writing of its intention to renew at least one
hundred eighty (180) nor less than ninety (90) days prior to the expiration of
the Initial Term or any Renewal Term.
5. RENT: Tenant shall pay to Landlord at its offices in Indianapolis,
Indiana, or at such other place as it may advise in writing, in advance, on the
fifteenth (15th) day of each calendar month, without notice, demand, offset or
deduction, in lawful money of the United States of America, during and
throughout the term of this Lease, base rent, which shall be payable in monthly
installments of Forty-Two Thousand Eight Hundred Forty Eight Dollars
($42,848.00) (the "Base Rent"). Commencing January 1, 1995, Tenant shall also
pay to Landlord, during and throughout the term of this Lease, additional rent
("Additional Rent"), which will be an amount per calendar year equal to the
prior year's Additional Rent (if any) plus the greater of (i) five percent (5%)
of the increase in the Facilities' revenues over the year's revenues, or (ii)
three percent (3%) of the total of the prior year's Base Rent and Additional
Rent. Additional Rent shall be reconciled annually, and payable quarterly during
the Initial Term and any Renewal Term for the period ending March 31, June 30,
September 30, and December 31. Base Rent together with Additional Rent may be
referred to herein as "Total Rent."
If the Landlord does not receive from Tenant any payment of Base
Rent or Additional Rent within ten (10) days after such payment is due,
Landlord, at its option, may charge Tenant a late charge and handling fee equal
to five percent (5%) of such rental payment, and such late charge and handling
fee shall be due and payable by Tenant to Landlord immediately upon delivery of
written notice to Tenant. In addition, if any check of Tenant's is
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returned to Landlord unpaid, Tenant shall reimburse Landlord for all charges
associated with such returned check and Landlord, at its option, in addition to
all other rights hereunder, may thereafter require that Tenant pay the Rent and
any other charges payable hereunder by a certified or cashier's check.
Landlord may at is option, and Landlord does hereby elect and
direct, that Tenant pay such portion of the Total Rent directly of Landlord's
mortgagee as may be necessary to service Landlord's mortgage indebtedness. The
balance of such Total Rent shall be paid directly to Landlord as otherwise set
forth herein.
6. REPORTS: Tenant agrees to provide Landlord with quarterly and annual
financial statements accurately reflecting Tenant's consolidated financial
condition and the results for its business operations for the period then ended
with respect to its operations generally, as well as its business conducted at
the Facility. Such statements shall be due thirty (30) days after the quarter
then ended or ninety (90) days after the close of the Tenant's fiscal year, as
the case may be, and shall be prepared in accordance with generally accepted
accounting principles consistently applied, and further shall be in such form as
required by Landlord's mortgagee. In the event of any default hereunder or any
state of facts which upon the passage of time would constitute a default, Tenant
shall provide audited statements prepared by certified public accountants
satisfactory to Landlord. Tenant agrees to also provide upon request to
Landlord, as the same are filed with the Indiana Department of Health, copies of
the facility's Medicaid Cost Reports.
7. LEGAL FEES AND COSTS: Tenant agrees, in the event it becomes necessary
for Landlord to enforce any provision of this Lease by legal action, or to
engage attorneys for the collection of rent or other monies due under this
Lease, to pay to Landlord reasonable attorney's fees and all court costs and
other costs of such collection or enforcement proceedings incurred by Landlord
if a valid claim is established.
8. UTILITIES: Landlord and Tenant agree that all water, sewer, electric
current and telephone facilities are available, connected and working as of the
Effective Date. Tenant shall pay when due all charges for heat, air
conditioning, water, gas, electricity and other utilities furnished to the
Facility for occupants thereof during the Term hereof.
9. REPAIR AND MAINTENANCE OF IMPROVEMENTS: Landlord warrants that the
entire Facility and the building and improvements thereon shall be in good, safe
condition and repair on the Effective Date. Landlord shall be responsible for
the structural integrity of the building and repair of the roof and exterior
walls, excluding windows and glass panels, and except for damages caused or
suffered to be caused by Tenant during the term of this lease. Except for such
responsibility undertaken by Landlord, Tenant shall be responsible, during the
term, for maintaining the Facility in good repair, including without limitation
all interior surfaces, electrical, plumbing, heating, air conditioning, and
other systems, as well as the exterior grounds, and shall at the end of the
Initial Term and any Renewal Term return the same to Landlord in good repair and
condition, with the exception of casualties insured against (the proceeds of
such insurance having been paid to Landlord) and ordinary wear and tear. If
Tenant fails to make any repairs, and/or perform any maintenance for which it is
responsible,
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within thirty (30) days after written notice thereof, Landlord may, at its sole
option, make the repairs and/or perform the maintenance and the reasonable
expense thereof shall be paid by Tenant, together with interest at a rate equal
to ten percent (10%) if such expense is not paid within thirty (30) days. Tenant
shall have the right at any time and with Landlord's prior consent, which
consent shall not be unreasonably withheld, to construct, alter, repair or
maintain on any part of the Facility such buildings, parking areas, driveways,
structures, sidewalks and other similar and dissimilar improvements as Tenant
shall desire. All improvements constructed by Tenant shall comply with all
applicable building codes and ordinances and shall be at Tenant's sole cost and
expense and shall become the property of Landlord upon the termination of this
Lease. Tenant agrees to indemnify Landlord against all claims by laborers and
materialmen for any improvements constructed by Tenant.
Landlord, its agents and employees, shall have the right at all reasonable
times and upon reasonable notice to Tenant, to enter the Facility or any part
thereof, to inspect and examine the same.
10. TAXES AND ASSESSMENTS: Tenant agrees to pay when due all taxes on or
with respect to the Facility. Such payments shall be made in accordance with the
terms, and payable directly to the appropriate authority or body. Landlord will
promptly send Tenant copies of all bills for taxes to be paid by Tenant and
Tenant will pay the same to the appropriate governmental authority. Tenant shall
promptly send Landlord reasonable evidence of payment of such bill after such
payment.
In the event this Lease shall commence, or shall end (by reason of
expiration of the Term or earlier termination pursuant to the provisions
hereof), on any date other than the first or last day of the year, or should the
year or period of assessment of real estate taxes be change to more or less than
one year, as the case may be, then the amount of taxes which may be payable by
Tenant as provided hereunder shall be appropriately apportioned.
11. INSURANCE INDEMNITY:
(a) During the Term of this Lease, Tenant shall at all times keep
the Facility insured with the kinds and amounts of insurance described below.
This insurance shall be written by companies to do insurance business in the
State of Indiana. The policies must name Landlord as an additional insured.
Losses shall be payable to Landlord and Tenant as provided in Section 11(e)
below. In addition, the policies shall name as an additional insured any
mortgagee by way of a standard form of mortgagee's loss payable endorsement. Any
loss adjustment shall require the written consent of Landlord, Tenant, and each
mortgagee. Evidence of insurance shall be deposited with Landlord and, if
requested, with any mortgagee(s). The insurance policies shall provide thirty
(30) days notice of cancellation to all parties named therein as insured. The
policies on the Facility shall insure against the following risks:
(i) Loss or damage by fire and such other risks as may be
included in the broadest form of extended coverage insurance from time to time
available, including but not limited to loss or damage from leakage of any
sprinkler system now or hereafter installed in the Facility or on the Facility,
in amounts sufficient to prevent Landlord or Tenant from becoming
4
<PAGE>
a co-insurer within the terms of the applicable policies and in any event in an
amount not less than one hundred percent (100%) of the then full replacement
value thereof (as defined below in Paragraph (b));
(ii) Loss or damage by explosion of steam boilers, pressure
vessels or similar apparatus, now or hereafter installed in the Facility, in
such limits with respect to any one accident as may be reasonably agreed by
Landlord and Tenant from time to time;
(iii) Claims for personal injury or property damage under a
policy of general public liability insurance with amounts not less than One
Million Dollars ($1,000,000) per occurrence in respect of bodily injury, Two
Million and No/100 Dollars ($2,000,000.00) aggregate per occurrence, and Three
Hundred Thousand and No/100 Dollars ($300,000.00) for property damage;
(iv) Claims arising out of malpractice in an amount not less
than One Million and No/100 Dollars ($1,000,000.00) for each person and for each
occurrence;
(v) Such other hazards and in such amounts as may be customary
for comparable properties in the area and is available from insurance companies
authorized to do business in the State of Indiana.
(vi) Business interruption insurance covering a risk of loss
during the first six (6) months of reconstruction resulting from the occurrence
of any of the hazards described in subsections (i) and (ii) of Paragraph (a) in
an amount sufficient to prevent Landlord from becoming a co-insurer; and
(vii) Worker's compensation.
(b) Replacement Cost. The term "full replacement value" of
improvements as used herein, shall mean the actual replacement cost thereof from
time to time, less exclusions provided in the normal fire insurance policy.
(c) Additional Insurance. In addition to the insurance described
above, Tenant shall maintain such additional insurance as may be reasonably
required from time to time by any mortgagee.
(d) Waiver of Subrogation. Any provision in this Lease to the
contrary notwithstanding, each party, to the extent it is permitted to do so by
the terms and provisions of any of the above policies, hereby waives any and all
rights it may have against the other, its agents, or employees, for any loss or
damage from risks ordinarily insured against under such policies, but only to
the extent that such loss or damage is in fact covered by such insurance and is
collectible by the insured party. Each party further covenants and agrees that
it will, upon request of the other, request each such insurance company to
attach to such policy or policies issued by it a waiver of subrogation with
respect to the other party, its agents or employees.
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<PAGE>
(e) Insurance Proceeds. All proceeds payable by reason of any loss
or damage to any of the improvements comprising the Facility and insured under
any policy of insurance required by (a) above of this Lease shall be paid to
Landlord and held by Landlord in trust (subject to the provisions of Paragraph
(f) below and the rights of the holders of the Facility mortgages) and shall be
made available for reconstruction or repair, as the case may be, of any damage
to or destruction of the Facility, and shall be paid out by Landlord from time
to time for the reasonable costs of such work. Any excess proceeds of insurance
remaining after the completion of the restoration or reconstruction of the
Facility shall be retained by Landlord and shall be credited against future
rental payments due from Tenant under this Lease. All salvage resulting from any
such loss covered by insurance shall belong to Landlord.
(f) Damage or Destruction. If, during the Term, the Facility is
totally or partially destroyed from a risk covered by the insurance described in
Paragraph (a), Landlord shall, as soon as practicable, rebuild or restore the
Facility to substantially the same condition as existed immediately before the
destruction. If the remaining term is one (1) year or less, either party shall
have the right to terminate this Lease. If the costs of the restoration exceed
the amount of proceeds received by Landlord from the insurance required under
Paragraph (a) above, Tenant shall be solely responsible for paying the
difference between the amount of insurance proceeds and such cost of
restoration.
(g) Restoration of Tenant's Property. If Landlord is required to
restore the Facility as provided in Paragraph (f), Landlord shall not be
required to restore alterations made by Tenant, or Tenant's improvements, trade
fixtures or personal property, such excluded items being the sole responsibility
of Tenant to restore. Landlord shall be required to restore tangible personal
property owned by Landlord and leased to Tenant pursuant to this Lease (and
scheduled on Exhibit B hereto) or otherwise.
(h) Tenant's Blanket Policy. Notwithstanding anything to the
contrary contained in this Section 11, Tenant's obligation to carry the
insurance provided for herein may be brought within the coverage of a so-called
blanket policy carried and maintained by Tenant; provided, however, that the
coverage afforded Landlord will not be reduced or diminished or otherwise be
different from that which would exist under a separate policy meeting all other
requirements of this Lease.
12. ASSIGNMENT AND SUBLETTING: Tenant shall have the right to assign or
mortgage/collaterally assign this Lease or leasehold estate hereby created, or
sublet all or any part of the Facility, with the consent of Landlord, such
consent not to be unreasonably withheld, but Tenant shall in such event remain
liable to Landlord for Tenant's obligations hereunder. Any merger,
consolidation, reorganization, or liquidation of Tenant, or the sale of a
controlling interest of its capital stock, or of a majority of its assets,
shall, for purposes of this Lease, constitute an assignment thereof.
13. SIGNS: Tenant shall have the right to install, maintain and replace
in, on or over or in front of the Facility or in any part thereof such signs and
advertising matter as Tenant may desire, and Tenant shall comply with all
applicable requirements of governmental authorities having jurisdiction and
shall obtain any necessary permits for such purpose. As used in this
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paragraph, the word "sign" shall be construed to include any placard, light or
other advertising symbol or object, irrespective of whether same be temporary or
permanent.
14. EMINENT DOMAIN: If the whole or substantially all of the Facility, or
all means of access thereto, be acquired by eminent domain, or by purchase in
lieu thereof, this Lease shall terminate and the Rent shall be abated during the
unexpired portion of the Lease subsequent to the actual physical taking.
Separate awards for damages shall be made to the Landlord and the Tenant for the
taking to the extent permitted by applicable law. Should, however, only a
portion of the Facility be so condemned or taken, this Lease shall continue in
full force and effect provided, however, that the Rent payable under the
unexpired portion of this Lease shall be adjusted to such extent as may be fair
and reasonable under the circumstances. Landlord shall, in such event, promptly
restore the Facility as nearly as feasible to the condition of such Facility
immediately prior to the taking, but Landlord shall not be required, at its
option, to restore or rebuild the Facility during the last year of the lease
Term. Tenant shall not be entitled to any part of the condemnation proceeds
arising from any partial taking except that Tenant shall be entitled to make a
claim for any of Tenant's property condemned.
15. DEFAULT: Any one or more of the following events shall at the
Landlord's option constitute an "Event of Default":
A. Tenant's failure to make payment of Base Rent or Additional Rent
when the same is due and payable and the continuance of such failure for a
period of ten (10) days after mailing by certified mail or delivery to Tenant of
notice in writing from Landlord specifying in detail the nature of such failure;
or
B. Tenant's failure to perform any of the other covenants,
conditions, and agreements imposed by it under this Lease and the continuance of
such failure without the curing of same for a period of thirty (30) days after
mailing by certified mail or delivery to Tenant of notice in writing from
Landlord specifying in detail the nature of such failure and provided Tenant
shall not cure such failure as provided in paragraph (D) below; or
C. The adjudication of Tenant as a bankrupt, or the appointment of a
receiver or trustee for Tenant's property and affairs, or the making by Tenant
of any assignment for the benefit of its creditors or the filing by or against
Tenant of a petition in bankruptcy not vacated or set aside within ten (10) days
of such filing.
If an Event of Default occurs (a "Default"), the Landlord, in
addition to any other right or remedy it may have with respect to such Default,
may upon ten (10) days written notice, terminate this Lease for cause and
re-enter the Facility and take possession of the same, or, at its option, in
such event Landlord may, without declaring this Lease terminated, re-enter the
Facility and occupy or lease the whole or any part thereof, for and on account
of Tenant and on such terms and conditions for such rental as Landlord may deem
proper based on reasonable business practices, and Landlord shall in such event
collect such rent and apply the same upon the rents due from Tenant and upon the
expenses of such subletting, and any and all other damages sustained by
Landlord. If a Default occurs, Landlord shall exercise reasonable efforts
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to mitigate damages hereunder and to re-let the Facility, but Landlord's failure
to relet or sublet the Facility shall not prevent or delay the exercise by
Landlord, at its option, of its right to recover as damages any Base Rents and
Additional Rents due and owing for the remainder of the Term, together with all
costs and expenses of collecting the same, subject to Landlord's obligation to
repay or credit the Tenant with all recoveries made by Landlord.
Upon the occurrence of a Default, Landlord may, at its option, give Tenant
written notice by certified mail of Landlord's election to end the term of this
Lease upon a date specified in such notice, which date shall be not less than
ten (10) days after the date of delivery or certified mailing by Landlord of
such notice, and whereupon the term and estate hereby vested in Tenant shall
cease and any and all other right, title and interest of Tenant hereunder shall
likewise cease without further notice or lapse of time as fully and with like
effect as if the entire term of this Lease had elapsed, but Tenant shall
continue to be liable to Landlord as hereinafter set forth; provided, that this
Lease shall not terminate if Tenant shall cure such Default prior to the
termination date specified in such notice.
D. In the event Landlord gives notice of a Default of such a nature
(other than a Default which may be cured by a payment of money) that it cannot
be cured within such sixty (60) day or greater period, then such Default shall
not be deemed to continue so long as Tenant, after receiving such notice,
proceeds diligently and continuously to cure the Default as soon as reasonably
possible and continues to take all steps necessary to complete the same within a
period of time which, under all prevailing circumstances, shall be reasonable.
No Default shall be deemed to continue if, and so long as, Tenant shall be
proceeding to cure the same in good faith or be delayed in or prevented from
curing the same by force majeure.
16. HOLDING OVER: If Tenant remains in possession of the Facility after
the expiration of the Term hereof, including any extensions of the term, and
without the execution of a new lease, Tenant shall occupy the Facility as a
Tenant from month to month, subject to all of the conditions of this Lease
insofar as consistent with such a tenancy and at the highest monthly Base Rent
and Additional Rent herein provided.
17. WAIVERS: Failure of Landlord or Tenant to complain of any act or
omission on the part of the other party, no matter how long the same may
continue, shall not be deemed to be a waiver by such party of any of its rights
hereunder. No waiver by Landlord or Tenant at any time, expressed or implied of
any breach of any provisions of this Lease, shall be deemed a consent to any
subsequent breach of the same or any other provision. No acceptance by Landlord
of any partial payment shall constitute an accord or satisfaction but shall only
be deemed a part payment in account.
18. SURRENDER OF FACILITY: Upon the expiration or other termination of
this Lease, Tenant covenants and agrees that it will peaceably leave and
surrender possession of the Facility to Landlord. Upon such surrender, all
improvements on the Facility shall be in good repair, damage or destruction by
fire or other casualty insured against and ordinary wear and tear, alterations,
additions and improvements herein permitted excepted.
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19. NOTICES: Until notice to the contrary to the other party has been
given, all notices and payments of money if made to Landlord shall be made or
given by telephonic facsimile (transmission electronically confirmed),
nationally recognized overnight delivery service (freight prepaid), hand
delivery, or by mail (postage prepaid) addressed to:
LANDLORD: HOUSE INVESTMENTS - NURSING HOMES PARTNERS I
c/o HMI, INC.
Two Meridian Plaza, Suite 275
10401 North Meridian Street
Indianapolis, IN 46290
Attn: Mr. Michael D. Emkes
` Phone: 317-580-2530
Fax: 317-580-2545
TENANT: TRANSITIONAL HEALTH SERVICES
9300 Shelbyville Road, Suite 1300
Louisville, Kentucky 40222
Attn: Randall J. Bufford
Phone: 502-425-3620
Fax: 502-425-3662
20. SHORT FORM LEASE: The parties hereto shall forthwith execute a
Memorandum or Short Form Lease Agreement, in recordable form, including such
provisions hereof as either party may desire to incorporate therein.
21. NON-DISTURBANCE AND ATTORNMENT: Tenant agrees upon request of
Landlord's mortgagee to attorn to such mortgagee, subordinate this Lease to any
mortgage constituting a lien on the Facility, and to provide such other
reasonable assurance as such mortgagee may reasonably require in connection with
the financing of the Facility and the improvements thereon provided, however,
any such agreement or document shall provide, and such mortgagee shall covenant,
that Tenant's use and possession of the Facility shall not be disturbed so long
as Tenant shall not cause or suffer any material Default hereunder. In the event
Landlord shall default in any payment due in respect of such mortgage, Tenant
shall have the right under Landlord's mortgage, but not the obligation, upon ten
(10) days written notice from either Landlord or Landlord's mortgage, to pay
such amount due and thereby cure such default. Landlord further agrees that it
shall execute and deliver no mortgage on the Facility purporting to limit and
prohibit Tenant from collaterally assigning this Lease or its leasehold interest
arising hereunder as security for Tenant's financing.
22. PERFORMANCE BY LANDLORD: Landlord covenants to perform all of its
obligations to any mortgagee or other secured lender holding a lien on any
property subject to this Lease and to make timely payments on all such secured
indebtedness. In the event payment is made by Tenant for Landlord's account as
hereinabove provided in Section 21 hereof, Tenant shall be entitled to recover
such payment from Landlord with interest from the day of such
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payment at the same rate applicable with respect to the secured indebtedness
upon which such payment is made, but no such payment shall be offset or
otherwise relieve Tenant from making future Rent payments as and when the same
come due.
23. ENTIRE AGREEMENT: This Lease constitutes the entire agreement between
the parties hereto, and no other oral or written statement shall apply. Tenant
agrees that it is not relying on any representations or agreements other than
those contained in this Lease. This Lease shall not be modified or canceled
except by writing subscribed to by all parties.
24. BROKERAGE: Each of the parties covenants and represents to the other
that neither has incurred brokerage fees with respect to the transaction herein
set forth.
25. PARTIES: The covenants, conditions, obligations and agreements
contained in this Lease shall bind and inure to the benefit of Landlord and
Tenant and their respective successors and assigns. Tenant's general partners
and holding company jointly and severally endorse this Lease for the purpose of
guaranteeing all of Tenant's obligations to Landlord during the Term hereof,
including without limitation, the obligation to make timely payment of all
installments of Base Rent and/or Additional Rent becoming due during the Term.
26. RIGHT OF FIRST REFUSAL: In the event Landlord wishes during the Term
to sell the Facility or any part thereof, Landlord shall notify Tenant of its
intent to sell in writing by certified mail setting forth the amount of the
proposed sale price and all other terms and conditions of such proposed sale,
and Tenant shall have the right of first refusal to purchase the Facility upon
the same terms and conditions by giving Landlord written notice of its election
so to do within thirty (30) days after receipt of Landlord's notice. In the
event Tenant fails to notify Landlord of its election within such thirty (30)
day period, or notifies Landlord it does not wish to exercise its right to
purchase, Landlord shall have the right to sell the Facility subject to this
Lease upon terms and conditions no more favorable to a purchaser than those
contained in its notice to Tenant.
In the event Landlord wishes to relet to any person or entity the
Facility upon the expiration of the Term, Landlord shall notify Tenant of its
intent to relet in writing by certified mail, setting forth the proposed terms
of such Lease, and Tenant shall have the right of first refusal to relet the
Facility upon the same terms and conditions by giving Landlord written notice of
its election to do so within thirty (30) days after receipt of Landlord's
notice. In the event Tenant fails to notify Landlord of its election within the
thirty (30) day period or notifies Landlord it does not wish to exercise its
right to relet, Landlord shall have the right to relet the Facility upon terms
and conditions no more favorable to a Tenant than those contained in its notice
to Tenant.
Tenant's right to notice and/or exercise either of the rights of
first refusal hereinabove specified shall be subject to the condition that
Tenant not be in Default hereunder. If Tenant shall have lost its right to
purchase by reason of Default as hereinabove set forth, or if after receiving
notice Tenant shall not exercise its right to acquire the Facility and the
Facility shall be sold by Landlord to a third party, the rights of first refusal
herein granted shall be terminated as of the recordation of the deed conveying
the Facility.
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IN WITNESS WHEREOF, the parties hereto have each, pursuant to due
corporate authority, caused this Lease to be executed in its name and on its
behalf, each by its duly authorized officer, all as of this day and year first
above written.
LANDLORD: HOUSE INVESTMENTS - NURSING HOMES
PARTNERS I, an Indiana limited partnership
By HMI, INC., Administrative General Partner
By: /s/ Michael D. Emkes
----------------------------------------
Name: Michael D. Emkes
Title: Vice President - Finance
Date: 10/30/93
and By CARDINAL PARTNERS, INC.,
Managing General Partner
By: /s/ Randall J. Bufford
----------------------------------------
Name: Randall J. Bufford
Title: Vice President
Date: 11/1/93
TENANT: TRANSITIONAL HEALTH PARTNERS d/b/a
Transitional Health Services, a Delaware
general partnership
By THS Partners I, Inc. and
By THS Partners II, Inc., General Partners
By: /s/ James B. Hoover
----------------------------------------
James B. Hoover, President
Date:_______________________________________
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Tenant's Obligation Endorsed and Guaranteed By:
TRANSITIONAL HEALTH SERVICES, INC.
By: /s/ James B. Hoover
----------------------------------------
James B. Hoover, President
Date:_______________________________________
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SCHEDULE 10.18
THP has entered into agreements substantially identical to Exhibit 10.18
as follows:
1. Lease Agreement dated November 1, 1993 with House Investments - Nursing
Homes Partners I for Connersville, Indiana facility. A material detail in which
this agreement differs from Exhibit 10.18 is that the "Base Rent" due per month
is $43,277.
2. Lease Agreement dated November 1, 1993 with House Investments - Nursing
Homes Partners II ("House II") for Fort Wayne, Indiana facility. A material
detail in which this agreement differs from Exhibit 10.18 is that the "Base
Rent" due per month is $33,426.
3. Lease Agreement dated November 1, 1993 with House II for Sheridan,
Indiana facility. A material detail in which this agreement differs from Exhibit
10.18 is that the "Base Rent" due per month is $33,426.
4. Lease Agreement dated November 1, 1993 with House II for South Bend,
Indiana facility. A material detail in which this agreement differs from Exhibit
10.18 is that the "Base Rent" due per month is $67,856.
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EXHIBIT 10.19
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WILLOWBROOK HEALTH CARE CENTER, INC.
LEASE AGREEMENT
THIS LEASE, made as of the 20th day of January, 1995, by and between
WILLOWBROOK HEALTH CARE CENTER, INC., a North Carolina corporation ("Landlord")
and TRANSITIONAL HEALTH PARTNERS D/B/A TRANSITIONAL HEALTH SERVICES, a Delaware
general partnership qualified to do business in North Carolina ("Tenant");
INTRODUCTION
A. Landlord is the owner of the premises herein demised;
B. Landlord has received governmental approval for the construction and
operation of a nursing home facility with 80 beds;
C. Landlord has undertaken to construct the facility and, upon licensure
and obtaining of all governmental approvals, desires to lease the facility to
Tenant and Tenant desires to lease the facility from Landlord.
AGREEMENT
For valuable consideration, the receipt and sufficiency of which is hereby
acknowledged and in consideration of the mutual covenants and obligations herein
contained, it is agreed:
1. Lease: Landlord does hereby demise and lease unto Tenant, and Tenant
does hereby take, hire and let from Landlord that certain tract or parcel of
real estate, together with the buildings, improvements and all fixtures
constructed thereon, and the privileges and appurtenances thereunto pertaining,
situate, lying and being in or around Yadkinville North Carolina and being more
particularly described on Exhibit A attached hereto (hereinafter referred to as
"Premises" and "Demised Premises"), including but not limited to the nursing
facility located at Demised Premises ("facility"), together with all furniture,
equipment and other items listed on Exhibit B attached hereto (the "Personal
Property"). (The parties acknowledge that Exhibit B may not be capable of
description at the execution hereof, but agree that such exhibit shall be
attached prior to the commencement date.)
2. Covenant of Title and Quiet Enjoyment: Landlord covenants and warrants
that at the commencement date of this Lease it alone shall have full right and
lawful authority to enter into this Lease for the full term hereof; that it is
lawfully seized of the Premises in fee simple and has good title thereto, free
and clear of all tenancies, restrictions and encumbrances (with the exception of
liens securing Lenders providing financing for the facility, and other matters
not adversely affecting the intended use of the Premises or merchantability of
title, or other matters agreed to
<PAGE>
between the parties, as specified on Exhibit C attached hereto) and that at all
times during the term of this Lease and any extensions of said term, Tenant's
quiet and peaceful enjoyment of the Premises shall not be disturbed or
interfered with by anyone.
3. Governmental Authorizations and Use of Premises: Landlord hereby
represents and warrants to Tenant, that the use of the Premises as a nursing
home facility will be a permitted use by right under all applicable zoning or
other use restrictions or Federal or State regulations. In particular, Landlord
represents and warrants to Tenant that the facility, as designed, will meet all
standards presently required for Federal Medicare and Medicaid certification,
Landlord further represents and warrants to Tenant that the facility, as
designed, will be in compliance with all applicable municipal, county, state and
federal laws and regulations (including, without limitation, health care laws,
building codes and the fire safety code).
4. Term:
(a) The initial term of this Lease shall be for fifteen (15) years
commencing with the first day of February, 1995 (the " Commencement Date"). The
effectiveness of this lease is specifically contingent upon prior licensure of
the facility and the receipt of all necessary governmental approvals pursuant to
the Certificate of Need authorizing the facility or otherwise required.
(b) Tenant shall have an option to renew the Lease for an additional five
(5) year period at the expiration of the initial term. Such option shall be
exercisable for a six (6) month period beginning with the date which is one (1)
year prior to the expiration of the initial lease term by written notice to
Landlord. The terms of such lease renewal shall be at the mutual agreement of
the parties.
(c) When used herein, the phrases "term of this Lease" or "term hereof" or
like phrases shall be deemed to include both the initial and any renewal terms
of this Lease.
5. Rent:
(a) Tenant shall pay the following rent to Landlord at its offices at 1016
Second Street, S.W., Roanoke, Virginia 24016, or at such other place as Landlord
may advise in writing, in advance, on the 1st day of each calendar month,
without notice, demand, offset or deduction, in lawful money of the United
States of America, during and throughout the term of this Lease:
1. For the first twelve (12) months of the term (Lease Year 1) the sum
of $335,800.00.
2. For the next twelve (12) months of the term (Lease Year 2) the sum
of $345,217.00.
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3. For the next twelve (12) months of the term (Lease Year 3) the sum
of $354,634.00.
4. For the next twelve (12) months of the term (Lease Year 4) the sum
of $364,051.00.
5. For the next twelve (12) months of the term (Lease Year 5) the sum
of $373,468.00.
6. For the next-twelve (12) months of the term (Lease Year 6) the sum
of $382,885.00.
7. For the next twelve (12) months of the term (Lease Year 7) the sum
of $392,302.00.
8. For the next twelve (12) months of the term (Lease Year 8) the sum
of $401,719.00.
9. For the next twelve (12) months of the term (Lease Year 9) the sum
of $411,136.00.
10. For the next twelve (12) months of the term (Lease Year 10) the sum
of $420,553.00.
11. For the next twelve (12) months of the term (Lease Year 11) the sum
of $429,970.00.
12. For the next twelve (12) months of the term (Lease Year 12) the sum
of $439,387.00.
13. For the next twelve (12) months of the term (Lease Year 13) the sum
of $448,804.00.
14. For the next twelve (12) months of the term (Lease Year 14) the sum
of $458,221.00.
15. For the next twelve (12) months of the term (Lease Year 15) the sum
of $467,638.00.
(b) If Landlord does not receive from Tenant any monthly rental payment
within fifteen (15) days after such payment is due, Landlord, at its option, may
charge Tenant a late charge and handling fee equal to Five Percent (5%) of the
monthly rental payment. Such fee shall be considered additional rent and shall
be due and payable by Tenant to Landlord immediately upon delivery of written
notice to Tenant. In addition, if any check of Tenant is returned to Landlord
unpaid, Tenant shall reimburse Landlord for all charges associated with such
returned check and Landlord, at its option, may thereafter require that Tenant
pay the rent and any other charges payable hereunder by a certified or cashier's
check.
(c) All additional sums payable by Tenant to Landlord under the provisions
of this Lease shall constitute additional rent.
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(d) (1) Except as otherwise expressly provided in this Lease, this Lease
is a "net lease" pursuant to which the parties intend to yield "net" to Landlord
the rental provided for in section 5(a) above.
(2) To further ensure that the rent to Landlord is absolutely "net"
to-Landlord, Tenant further agrees to timely pay during the term of this Lease,
all costs and expenses, including but not limited to the following:
(A) All occupational licenses and other permits necessary in the
operation of the business to be conducted on the Demised Premises;
(B) All utility charges for water, sewer, electricity, gas,
telephone or any other services provided to or consumed on the Demised Premises;
(C) All sales and use taxes due as a result of the business
conducted on. the Demised Premises and any real and personal property taxes
assessed against any property located on or used in connection with the Demised
Premises;
(D) All real property taxes and assessments levied on the Demised
Premises as provided in Section 9; and
(E) All premiums for all insurance required by this Lease as
provided in Section 10.
and Tenant agrees to hold Landlord harmless from any such cost or expense
related thereto.
6. Use of Premises: The Tenant shall use the Premises for a Federal
Medicare (Title XVIII) or Medicaid (Title XIX) certified facility and home for
adults which shall be operated in full compliance with all laws and regulations
applicable thereto. Tenant covenants that no part of the Premises shall be used
for any unlawful purpose, nor will any unlawful condition or nuisance be
permitted to exist thereon. Tenant further warrants and represents that the
Premises will be certified for participation in the Medicare and Medicaid
programs and that it will maintain such certifications at all times during the
term of this lease or any extensions thereof.
7. Reports: Tenant agrees to provide Landlord quarterly unaudited
financial statements and yearly audited financial statements of the Tenant
including balance sheets and income statements certified by an officer of Tenant
to have been prepared in accordance with Generally Accepted Accounting
Principles and to fairly present the financial condition and the results of
operations of Tenant on the dates and for the periods indicated, subject, in the
case of the quarterly financial statements, to normally recurring year-end
adjustments, Such statements shall be delivered promptly upon their completion
and in no event later than
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thirty (30) days after the close of each of the Tenant's quarters and no later
than one hundred twenty (120) days after the close of each of Tenant's fiscal
years. Tenant will also provide such other financial information as Landlord or
its mortgagee may require after notice. Tenant further will provide Landlord as
the same are filed with the State of North Carolina, copies of all Medicaid Cost
Reports and further will immediately provide Landlord, to the extent reasonably
required, copies of all communications received from the State of North Carolina
or any agency thereof regarding violations or alleged violations of applicable
laws, rules, codes or regulations.
8. Repair and Maintenance of Improvements: Landlord warrants that the
entire Premises and the building and improvements thereon shall be in good, safe
condition and repair on the Commencement Date of this Lease, Landlord shall be
responsible for the structural integrity of the building and repair of exterior
walls, excluding windows and glass panels, and except for damages caused or
suffered to be caused by Tenant, or Tenant's invitees or licensees, during the
term of this Lease, Tenant shall promptly notify Landlord of any condition known
to Tenant that Landlord is required to repair. Landlord shall not be liable to
Tenant for any damages arising in connection with Landlord's responsibility as
provided above unless Landlord fails to pursue the applicable repair within a
reasonable time after receipt of written notice from Tenant. Except for such
responsibility undertaken by Landlord, Tenant shall be responsible, during the
term of this Lease, for maintaining the Premises in good repair, including
without limitation, the roof, all interior surfaces, electrical, plumbing,
heating, air conditioning, generator and other systems, as well as the exterior
grounds, and shall at the end of the term, return the same to Landlord in good
repair and condition, with the exception of casualties insured against and
ordinary wear and tear. If Tenant fails to make any repairs, and/or perform any
maintenance for which it is responsible, within thirty (30) days after written
notice thereof, Landlord may, at its sole option, make the repairs and/or
perform the maintenance and the reasonable expense thereof shall be paid by
Tenant, together with interest at a rate equal to one and one-half percent
(1-1/2%) above the prime rate then in effect at the financial institution
financing the facility if such expense is not paid within thirty (30) days.
Tenant shall not make or construct any parking areas, driveways, additions,
buildings, structures or other improvements without the prior written consent of
Landlord, which consent shall not be unreasonably withheld after review of all
applicable architectural plans and building permits and, if applicable,
obtaining approval of Landlord's mortgagee. All improvements shall be at
Tenant's sole cost and expense and shall become the property of Landlord at the
termination of this Lease, Tenant agrees to indemnify Landlord against all
claims by laborers and materialmen for any improvements constructed by Tenant.
Tenant shall cause any mechanic's lien filed against the Premises as a result of
any act or interest of Tenant or any party claiming through Tenant to be removed
within thirty (30) days of the filing thereof.
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9. Taxes and Assessments: Tenant agrees to pay when due all taxes (as
hereinafter defined) on or with respect to the Premises. Landlord will promptly
send Tenant copies of all bills for taxes received by Landlord and Tenant will
pay the same to the appropriate governmental authority. Tenant shall promptly
send Landlord reasonable evidence of payment of such bill after such payment.
Such payments shall be further in accordance with the following provisions:
(a) Definitions: The term "Taxes" shall mean all taxes payable with
respect to the Premises or any property located on or used in connection with
the Premises, or any activity conducted on the Premises, including but not
limited to, real estate, personal property, and sales and use taxes. Tenant may
be required to make escrow payments of taxes. In such event Tenant agrees to
timely make such payments to Landlord's mortgagee, or as otherwise directed, in
accordance with the escrow requirements. Tenant shall in no event be liable for
Taxes with respect to any time Tenant is not entitled to the Demised Premises,
and Landlord shall in no event be liable for Taxes with respect to any time
Landlord is not entitled to the Demised Premises. If, at any time during the
term of this Lease, any tax or excise on rents or other Taxes, however
described, are levied or assessed upon, or against, or measured by the rent
payable to Landlord hereunder, either wholly or partially in substitution for,
or in addition to, Taxes, such tax or excise in respect of rents shall be
included in Taxes. Taxes shall not include franchise, estate, inheritance,
succession, capital levy, transfer, income, or excess profit taxes assessed on
Landlord.
(b) Reimbursement of Taxes:
(1) If, after Tenant shall have paid any Taxes pursuant to this
section, Landlord shall receive a refund of any portion of Taxes paid by Tenant
with respect to any tax year during the term hereof as a result of an abatement
of such Taxes by legal proceedings, the net refund will be paid over to Tenant.
(2) At the request of Tenant, Landlord will execute any and all
proper documents to permit the Tenant, in the name of the Landlord, and at
Tenant's sole cost and expense, to protest, institute and pursue any and all
legal proceedings necessary or appropriate to obtain reduction in any Tax
assessment or refund of any Taxes. In the event Landlord elects to undertake any
such protest or legal proceedings for such purpose, Landlord will permit Tenant
to participate therein at Tenant's sole cost and expense in order that Tenant
may assure itself that all appropriate steps are being taken to reduce the tax
obligations for which Tenant is liable hereunder.
(3) In the event this Lease shall commence, or shall end (by reason
of, expiration of the term or earlier termination pursuant to the provisions
hereof), on any date other than the first or last day of the year, or should the
year or period of assessment of real estate taxes be changed to more or less
than one
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year, as the case may be, then the amount of Taxes payable by Tenant as provided
hereunder shall be appropriately apportioned.
10. Insurance Indemnity:
(a) During the original term of this Lease, Tenant shall at all times keep
the Demised Premises insured with the kinds and amounts of insurance-described
below. This insurance shall be written by companies authorized to do insurance
business in the State of North Carolina. The policies must name Landlord as
additional insured, Losses shall be payable to Landlord and Tenant as provided
in Section 10(e) below. In addition, the policies shall name as an additional
insured any mortgagee by way of a standard form of mortgagees's loss payable
endorsement Any loss adjustment shall require the written consent of Landlord,
Tenant, and each mortgagee. Evidence of insurance shall be deposited with
Landlord and, if requested, with any mortgagee(s). The policies on the Demised
Premises shall insure against the following risks:
(i) Loss or damage by fire and such other risks as may be included
in the broadest form of extended coverage insurance from time to time available,
including but not limited to loss or damage from leakage of any sprinkler system
now or hereafter installed in the facility or on the Premises, in amounts
sufficient to prevent Landlord or Tenant from becoming a coinsurer within the
terms of the applicable policies and in any event in an amount not less than one
hundred percent (100%) of the then full replacement value thereof (as defined
below in Paragraph (b);
(ii) Loss or damage by explosion of steam boilers, pressure vessels
or similar apparatus, now or hereafter installed in the facility, in such limits
with respect to any one accident as may be reasonably agreed by Landlord and
Tenant from time to time;
(iii) Claims for personal injury or property damage under a policy
of general public liability insurance with amounts not less than One Million and
No/100 Dollars ($1,000,000.00) per occurrence in respect of bodily injury, Two
Million and No/100 Dollars ($2,000,000.00) aggregate per occurrence, and Three
Hundred Thousand and No/100 Dollars ($300,000.00) for property damage;
(iv) Claims arising out of malpractice in an amount not less than
One Million and No/100 Dollars ($1,000,000.00) for each person and for each
occurrence;
(v) Such other hazards and in such amounts as may be customary for
comparable properties in the area and is available from insurance companies
authorized to do business in the State of North Carolina;
(vi) Loss of rental under a rental value insurance policy covering a
risk of loss during the first six (6) months of reconstruction resulting from
the occurrence of any of the hazards
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described in subsections (i) and (ii) of Paragraph (a) in an amount sufficient
to prevent Landlord from becoming a coinsurer; and
(vii) Worker's compensation.
(b) Replacement Cost. The term "full replacement value" of improvements as
used herein, shall mean the actual replacement cost thereof from time to time,
less exclusions provided in the normal fire insurance policy.
(c) Additional Insurance. In addition to the insurance described above,
Tenant shall maintain such additional insurance as may be reasonably required
from time to time by any mortgagee.
(d) Insurance Proceeds. All proceeds payable by reason of any loss or
damage to any of the Improvements comprising the Demised Premises and insured
under any policy of insurance required by (a) above of this Lease shall be paid
to Landlord and held by Landlord in trust (subject to the provisions of
Paragraph (f) below and the rights of the holders of the facility mortgages) and
shall be made available for reconstruction or repair, as the case may be, of any
damage to or destruction of the Demised Premises, and shall be paid out by
Landlord from time to time for the reasonable costs of such work. Any excess
proceeds of insurance remaining after the completion of the restoration or
reconstruction of the Demised Premises shall be retained by Landlord and shall
be credited against future rental payments due from Tenant under this Lease. All
salvage resulting from any such loss covered by insurance shall belong to
Landlord.
(e) Damage or Destruction. If, during the Term, the Premises are totally
or partially destroyed from a risk covered by the insurance described in
paragraph (a), Landlord shall, as soon as practicable, restore the Demised
Premises to substantially the same condition as existed immediately before the
destruction. If the costs of the restoration exceed the amount of proceeds
received by Landlord from the insurance required under paragraph (a), Tenant
shall be solely responsible for paying the difference between the amount of
insurance proceeds and such cost of restoration.
(f) Restoration of Tenant's Property. If Landlord is required to restore
the facility as provided in paragraph (f), Landlord shall not be required to
restore alterations made by Tenant, or Tenant's improvements, trade fixtures or
personal property, such excluded items being the sole responsibility of Tenant
to restore. Landlord shall be required to restore tangible personal property
owned by Landlord and leased to Tenant pursuant to this Lease (and scheduled on
Exhibit B hereto) or otherwise.
(g) Abatement of Rent. During the period required for repair and
restoration, payments of rent provided for in Section (a) shall be abated in the
manner and to the extent that is fair, just and equitable to both Tenant and
Landlord, taking into consideration, among other relevant factors, the number of
useable beds affected
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by such damage or destruction, and availability of business interest insurance
proceeds to satisfy Tenant's obligations to pay rent.
(h) Tenant's Blanket Policy. Notwithstanding anything to the contrary
contained in this Section, Tenant's obligation to carry the insurance provided
for herein may be brought within the coverage of a so-called blanket policy,
carried and maintained by Tenant; provided, however, that the coverage afforded
Landlord will not be reduced or diminished or otherwise be different from that
which would exist under a separate policy meeting all other requirements of this
Lease.
11. Signs: Tenant shall have the right, upon Landlord's prior written
consent, which consent shall not be unreasonably withheld, to install, maintain
and replace in, on or over, or in front of, the Premises or any part thereof,
such signs and advertising matter as Tenant may desire. Tenant shall comply with
all applicable requirements of governmental authorities having jurisdiction and
shall obtain any necessary permits for such purpose. As used in this paragraph,
the word "sign" shall be construed to include any placard, light or other
advertising symbol or object, irrespective of whether same be temporary or
permanent.
12. Eminent Domain: If the whole or substantially all of the Premises, or
all or substantially all of the means of access thereto, be acquired by eminent
domain or by purchase in lieu thereof, so that the Premises cannot be licensed
as a 80 bed nursing home facility, or as otherwise amended by the approval of an
amendment to the CON, this Lease shall terminate as of the date of the actual
taking, Should, however, only a portion of the Premises be so condemned or
taken, so as not to materially and adversely affect the usefulness of the
Premises for the purposes for which it is leased hereunder, this Lease shall
continue in full force and effect; provided, however, that the rent payable
underthe unexpired portion of this Lease shall be adjusted to such extent as may
be fair and reasonable under the circumstances. Landlord shall, in such event,
promptly restore the Demised Premises as nearly as feasible to the condition of
such Premises immediately prior to the taking, subject to reasonable delays, but
Landlord shall not be required to restore or rebuild the Demised Premises during
the last year of the lease term or to restore Tenant's fixtures, furnishings,
floor coverings, equipment, stock or other personalty; provided, however, that
if Landlord elects not to restore or rebuild the Demised Premises or to restore
Tenant's fixtures, furnishings, floor coverings, equipment, stock or other
personalty, Tenant shall have the option of terminating this Lease. Tenant shall
not be entitled to any part of the condemnation proceeds arising from any
partial taking, except that Tenant shall be entitled to make a claim for any of
Tenant's property which is condemned other than Tenant's interest in the Lease.
Notwithstanding the foregoing, this Lease shall terminate if, as the result of
only a portion of the Premises being condemned or taken, Tenant is prevented
from operating or using the Premises
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under the then existing governmental and quasi-governmental licenses, permits,
approvals and certifications. in such case, Landlord and Tenant shall have such
rights to condemnation awards as are set forth above for a total or substantial
taking.
13. Utility Easements: Landlord agrees, without expense to it, to execute
all necessary documents for utility easements required to service the buildings
constructed on the Premises.
14. Default:
(a) Any one or more of the following events shall constitute an event of
default:
(1) Tenant's failure to make any payment of rent (whether monthly or
additional rent) when the same is due and payable, or certify the Premises for
participation in the Medicare (Title XVIII) and Medicaid (Title XIX) programs
and to further ensure that the Premises maintains such certifications at all
times during the term of this lease or any extensions thereof, or license the
Premises for the operation as a nursing facility pursuant to the laws of the
State of North Carolina and maintain such license in good order at all times
during the term of this lease or any extensions thereof, and the continuance of
such failure for a period of ten (10) days after written notice to Tenant by
Landlord.
(2) Tenant's failure to perform any of the other covenants,
conditions and agreements imposed by it under this Lease and the continuance of
such failure without the curing of same for a period of thirty (30) days after
receipt of notice in writing from Landlord specifying in detail the nature of
such failure and provided Tenant shall not cure said failure as provided in
paragraph (b) below.
(3) The adjudication of Tenant as a bankrupt, or the appointment of
a receiver or trustee for Tenant's property and affairs, or the making by Tenant
of any assignment for the benefit of its creditors or the filing by or against
Tenant of a petition in bankruptcy which is not vacated or set aside within
fifteen (15) days of such filing.
(b) In the event Landlord gives notice of a default of such a nature
(other than a default which may be cured by a payment of money) that it cannot
be cured within the applicable cure period, and Tenant initiates and proceeds to
cure or mitigate the default, then such default shall not be deemed to exist for
so long as Tenant proceeds to cure the same with reasonable diligence or is
delayed in or prevented from curing the same by Force Majeure (as hereinafter
defined).
(c) After the applicable cure periods have elapsed, pursuant to the
respective provision hereinbefore set forth and in the event of default,
Landlord, in addition to any other right or remedy it may have with respect to
default, may terminate this Lease
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immediately, and re-enter the Premises and take possession of the Premises and
the Personal Property, or in such event Landlord may, at its option, without
declaring this Lease terminated, re-enter the Premises and occupy or lease the
whole or any part of the Premises and the Personal Property, for and on account
of Tenant and on such terms and conditions and for such rental as Landlord may
deem proper, and Landlord shall in such event collect such rent and apply the
same upon the rents due from Tenant and upon the expenses of such subletting,
and any and all other damages sustained by Landlord. In the event of default,
Landlord shall exercise reasonable efforts to mitigate damages hereunder and to
re-let the Premises and the Personal Property, but Landlord's failure to so
re-let shall not prevent or delay the exercise by Landlord, at its option, of
its right to accelerate and recover as damages rents due and owing for the
remainder of the term, together with all costs expenses of collecting the same,
subject to Landlord's obligation to repay or credit Tenant with all recoveries
made by Landlord.
15. Holding Over: In the event Tenant remains in possession of the
Premises after the expiration of the term hereof, including any extensions of
the term, and without the execution of a new lease, Tenant shall occupy the
Premises as a tenant from month to month, subject to all of the conditions of
this Lease insofar as consistent with such a tenancy, and rent shall increase by
fifty percent (50%) during any such hold-over period.
16. Attornment and Subordination:
(a) In the event of the exercise of any power of sale under the provisions
of any mortgage or deed of trust now or hereafter encumbering the Premises,
Tenant agrees that it shall attorn to the purchaser at such sale and that it
shall recognize such purchaser as Landlord under the terms and provisions of
this Lease and shall continue this Lease in full force and effect regardless of
whether such mortgage or deed of trust was superior or subordinate to this
Lease, provided such purchaser recognizes Tenant hereunder; and provided further
that in the event Landlord shall default in any payment due in respect of such
mortgage, Tenant shall have the right under Landlord's mortgage, but not the
obligation, upon ten (10) days written notice from either Landlord or Landlord's
mortgagee to pay such amount due and thereby cure such default. Landlord further
agrees that it shall execute and deliver no mortgage on the Demised Premises
purporting to limit and prohibit Tenant from collaterally -assigning this Lease
or its leasehold interest arising hereunder as security for Tenant's financing.
(b) Tenant agrees that this Lease shall be and is subordinate to any deeds
of trust or mortgages now or hereafter encumbering the land and buildings of
which the Demised Premises are a part or against any buildings hereafter placed
upon the land on which the Demised Premises is situated.
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(c) Upon request by Landlord, Tenant agrees to promptly enter into and
deliver to Landlord such written instruments in form reasonably acceptable to
Landlord and its mortgagee which confirm the above subordination and effect the
above attornment.
17. Tenant's Indemnification: Tenant agrees to indemnify, protect and hold
harmless Landlord from and against all liabilities and damages (a) arising from
or out of any occurrence in, upon or at the Demised Premises or any part
thereof, or the occupancy or use by Tenant of the Demised Premises, the Personal
Property or any part thereof, or occasioned wholly or in part by any act or
omission of Tenant, its agents, contractors, employees or invitees in connection
with the Demised Premises or the Personal Property during the term of this
Lease, or any renewal hereof, or (b) related to any claims, assessments,
chargebacks or other expenses (whether owed to or assessed by a private or
governmental party) arising in connection with the operation or other use of the
Demised Premises or the Personal Property during the term of this Lease, or any
renewal hereof.
18. Landlord's Indemnification: Landlord agrees to indemnify, protect and
hold harmless Tenant from and against any and all liabilities and damages
arising from or occasioned wholly or in part by any act or omission of Landlord,
its agents, contractors, employees or invitees in connection with the Demised
Premises or the Personal Property during the term of this Lease, or any renewal
hereof.
19. Compliance with Governmental Programs: Landlord covenants that the
Premises will, during the term hereof, meet all standards required for Federal
Medicare (Title XVIII) or Medicaid (Title XIX) certified nursing programs and
that it will make any alterations necessary to remain in compliance with same.
Any alterations, changes-or expansions required to bring the Leased Premises
into compliance with such standards as in effect on the date of execution of
this Lease shall, unless otherwise agreed, be paid for by Landlord. Any
alterations, changes or expansions required by subsequent changes in such
standards will be negotiated at the then-current cost of construction, which
cost, together with interest at the rate of interest at which such construction
is financed, shall be amortized in level monthly additional rent payments over
the agreed-upon remaining lease period.
20. Waivers: Failure of Landlord or Tenant to complain of any act or
omission on the part of either other party, no matter how long the same may
continue, shall not be deemed to be a waiver by said party of any of its rights
hereunder. No waiver by Landlord or Tenant at any time, expressed or implied, of
any breach of any provisions of this Lease, shall be deemed a consent to any
subsequent breach of the same or any other provision. No acceptance by Landlord
of any partial payment shall constitute an accord or satisfaction but shall only
be deemed a part payment on account.
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21. Force Majeure: In the event that Landlord or Tenant shall be delayed,
hindered in or prevented from the performance of any act required hereunder by
reason of strikes, lock-outs, labor troubles, inability to procure materials,
failure of power, restrictive governmental laws or regulations, riots,
insurrection, the act, failure to act or default of the other party, war or
other reason beyond their control, then performance of such act (except the
payment of rent which shall not in any case be excused) shall be excused for the
period of the delay and the period for the performance of any such act shall be
extended for a period equivalent to the period of such delay.
22. Surrender of Premises: Upon the expiration or other termination of the
Lease, Tenant covenants and agrees that it will peaceably leave and surrender
possession of the Premises and the Personal Property to Landlord. Upon such
surrender, the Premises and the Personal Property shall be in good repair,
ordinary wear and tear and alterations, additions and improvements herein
permitted, excepted.
23. Inspection: Landlord reserves the right to inspect the Demised
Premises and all buildings situated thereon at all reasonable times and show the
property through agents or otherwise to bona fide purchasers or prospective
tenants.
24. Further Assurances: Tenant agrees to execute and deliver to Landlord
any additional or supplemental instruments or documents as may be reasonably
requested by Landlord or its mortgagee in connection with this Lease, including
any memorandum of lease.
25. No Joint Venture: The relationship between Landlord and Tenant shall
always and only be that of Lessor and Lessee. Tenant is not the agent of
Landlord. Landlord shall not be responsible for the acts or omissions of Tenant
or its agents. This Agreement is, and is intended to be, a lease. Tenant does
not acquire hereby any right, title or interest whatsoever, legal or equitable,
in the Premises, except as the Lessee hereunder.
26. Personal Liability: In no event shall any partners, principals or
stockholders of Landlord ever be personally liable for any judgment of Tenant
against Landlord.
27. No Representation: It is understood and agreed by the parties hereto
that this Lease contains all of the covenants, agreements, terms, provisions,
and conditions relating to the leasing of the Premises and the Personal
Property, and that Landlord has not made and is not making, and Tenant in
executing and delivering this Lease is not relying upon any warranties,
representations, promises or statements, except to the extent that the same may
expressly be set forth in this Lease.
28. Validity: In the event that any provisions of this Lease shall be held
invalid, the same shall not affect in any respect whatsoever the validity of the
remainder of this Lease.
13
<PAGE>
29. Applicable Law: This Lease and the rights of the parties hereunder
shall be interpreted in accordance with the laws of the State of North Carolina.
30. Notices: Until notice to the contrary to the other party has been
given, all notices and payments of money if made to Landlord shall be made or
given by (1) personal delivery; or (2) by mail (postage prepaid, certified,
return receipt requested) addressed to Landlord at 1018 2nd Street, S.W.,
Roanoke, Virginia 24016, Attn: Mr. Wayne Dillon or if made to Tenant shall be
made by delivery or by mail (postage prepaid, certified, return receipt
requested) addressed to Tenant at the Premises with a copy to: Transitional
Health Services, Inc. 9300 Shelbyville Rd., Suite 1300, Louisville, Kentucky
40222, Attention: Randall J. Bufford, or (3) by FAX to Landlord at 703/345-1371
and to Tenant at 502/425- 3662. Notice shall be deemed given when received, if
notice is given by personal delivery, or three (3) days after mailing, if notice
is given by mail, or one (1) day after sending, if notice is given by FAX.
31. Short Form Lease: The parties hereto shall forthwith execute a
memorandum or short form lease agreement, in recordable form, including such
provisions hereof as either party may desire to incorporate therein.
32. Entire Agreement: No oral statement or prior written matter shall have
any force or effect. Tenant agrees that it is not relying on any representations
or agreements other than those contained in this Lease. This Lease shall not be
modified or canceled except by writing subscribed to by all parties.
33. Brokerage: Each of the parties covenants and represents to the other
that neither has incurred brokerage fees with respect to the transactions herein
set forth.
34. Parties: The covenants, conditions, obligations and agreements
contained in this Lease shall bind and inure to the benefit of Landlord and
Tenant and their respective successors and assigns.
35. Assignment: Except as otherwise provided herein, Tenant may not assign
this Lease or sublet the Premises or any part thereof without the Landlord's
written consent (and consent of the Landlord's mortgagee of the Premises, it
being specifically understood that Landlord is not warranting to Tenant that
such consent shall be given by Landlord's mortgagee); provided, that such
consent of Landlord (and mortgagee) shall not be unreasonably withheld if
Tenant's proposed assignee shall furnish Landlord with security for its
obligations hereunder equivalent to Tenant and otherwise demonstrate that it has
sufficient assets and ability to make the Rent payments due hereunder, and
otherwise possesses such skill, experience and licenses as may be reasonably
required to operate the Premises in a manner substantially as operated by
Tenant, in which case Tenant, upon payment to Landlord of a
14
<PAGE>
$2,500.00 release and processing fee plus all actual fees and expenses which may
be incurred by Landlord in connection with the lease assignment and release,
including, but not limited to costs of Landlord's efforts to obtain mortgagee
permission, shall be released from liability hereunder (except for any
pre-existing, unsatisfied obligations hereunder); and provided further, that
Tenant may assign this Lease to an affiliate of Tenant on the condition that
Tenant shall remain liable hereunder or shall otherwise guarantee such
affiliate's performance of any and all terms of this Lease.
36. Right of First Refusal: In the event Landlord wishes to sell the
Demised Premises, Tenant shall have a right of first refusal to purchase the
Demised Premises upon the same terms and conditions. Such right of first refusal
shall be exercised as follows. Upon Landlord's receipt of a bona fide third
party offer to purchase the Demised Premises, including purchase price and
payment terms, which Landlord desires to accept, Landlord shall give notice of
such offer in writing to Tenant, including a copy of such offer. Tenant shall
have a period of thirty (30) days after notice to exercise its right of first
refusal by written notice to Landlord. If Tenant exercises its right of first
refusal, the closing of the sale shall occur in accordance with the terms of the
third party offer. If Tenant does not exercise its right of first refusal or,
having exercised it, refuses to close, Tenant's right of first refusal shall
forever lapse. Landlord may sell the Demised Premises free and clear of the
right of first refusal.
IN WITNESS WHEREOF, each of the parties hereto has caused this Lease to be
executed under seal in its name and on its behalf, each by its duly authorized
officer or general partner, all as of this day and year first above written.
LANDLORD:
WILLOWBROOK HEALTH CARE CENTER, INC.
By: /s/ Thompson W. Goodwin
---------------------------------
Name: Thompson W. Goodwin
Title: (Vice) President
Attest:
/s/ Elizabeth D. Free
- ---------------------------------
Name: Elizabeth D. Free
Title: (Asst) Secretary
[Corporate Seal]
15
<PAGE>
TENANT:
TRANSITIONAL HEALTH PARTNERS D/B/A
TRANSITIONAL HEALTH SERVICES, a
Delaware general partnership
By: THS PARTNERS I, INC., a
Delaware corporation and General
Partner
By: /s/ James J. TerBeest
---------------------------------
James J. TerBeest
Attest: Executive Vice President/CFO
/s/ John G. Hundley
- ---------------------------------
(Assistant) Secretary
[Corporate Seal]
By: THS PARTNERS II, INC., a
Delaware corporation and
General Partner
By: /s/ James J. TerBeest
---------------------------------
James J. TerBeest
Attest: Executive Vice President /CFO
/s/ John G. Hundley
- ---------------------------------
(Assistant) Secretary
[Corporate Seal]
16
<PAGE>
The undersigned corporate parent of Tenant's corporate general partners, THS
partners I, Inc., and THS Partners II, Inc., hereby guarantees to Landlord the
Tenant's full and faithful performance of all of Tenant's obligations under the
foregoing Lease:
TRANSITIONAL HEALTH SERVICES, INC.,
a Delaware corporation
By: /s/ James J. TerBeest
---------------------------------
Exec. (Vice) President
Date: 1/19/95
Attest:
/s/ John G. Hundley
- ---------------------------------
(Assistant) Secretary
[Corporate Seal]
17
<PAGE>
STATE OF Virginia )
) ss:
City of Roanoke )
I, Carla M. Honaker , Notary Public for said County and State, certify
that Elizabeth D. Free personally came before me this day and acknowledged that
he [she] is Asst. Secretary of Willowbrook Health Care Center, Inc., a
corporation, and that by authority duly given and as the act of the corporation,
the foregoing instrument was signed in its name by its ___________ President,
sealed with its corporate seal, and attested by him [her] as its Asst.
Secretary.
Witness my hand and official seal, this the 19th day of January, 1995.
[OFFICIAL SEAL] /s/ Carla M. Honaker
---------------------------
Notary Public
My commission expires: 9-30-98
18
<PAGE>
STATE OF KENTUCKY )
) ss:
COUNTY OF JEFFERSON )
I, Kimberly L. Hill , a Notary Public for said County and State, certify
that John G. Hundley personally came before me this day and acknowledged that he
[she] is Assistant Secretary of THS Partners I, Inc., a corporation, and that by
authority duly given and as the act of the corporation acting as general partner
of Transitional Health Partners d/b/a Transitional Health Services, a general
partnership, the foregoing instrument was signed in its name by its Executive
vice President/CFO sealed with its corporate seal, and attested by him [her] as
its Assistant Secretary.
Witness my hand and official seal, this the 19th day of January , 1995 .
/s/ Kimberly L. Hill
----------------------------
Notary Public
[Official Seal]
My commission expires: 9-26-96
19
<PAGE>
STATE OF KENTUCKY )
) ss:
COUNTY OF JEFFERSON )
I, Kimberly L. Hill , a Notary Public for said County and State, certify
that John G. Hundley personally came before me this day and acknowledged that he
[she] is Assistant Secretary of THS Partners I, Inc., a corporation, and that by
authority duly given and as the act of the corporation acting as general partner
of Transitional Health Partners d/b/a Transitional Health Services, a general
partnership, the foregoing instrument was signed in its name by its Executive
Vice President/CFO sealed with its corporate seal, and attested by him [her] as
its Assistant Secretary.
Witness my hand and official seal, this the 19th day of January , 1995 .
/s/ Kimberly L. Hill
----------------------------
Notary Public
[Official Seal]
My commission expires: 9-26-96
20
<PAGE>
STATE OF KENTUCKY )
) ss:
COUNTY OF JEFFERSON )
I, Kimberly L. Hill , a Notary Public for said County and State, certify
that John G. Hundley personally came before me this day and acknowledged that he
[she] is Assistant Secretary of THS Partners I, Inc., a corporation, and that by
authority duly given and as the act of the corporation acting as general partner
of Transitional Health Partners d/b/a Transitional Health Services, a general
partnership, the foregoing instrument was signed in its name by its Executive
Vice President sealed with its corporate seal, and attested by him [her] as its
Secretary.
Witness my hand and official seal, this the 19th day of January, 1995.
/s/ Kimberly L. Hill
----------------------------
Notary Public
[Official Seal]
My commission expires: 9-26-96
21
<PAGE>
EXHIBIT 10.20
<PAGE>
Charlotte Facility
================================================================================
O P E R A T I N G L E A S E
HCPI CHARLOTTE, INC.
Lessor
AND
TRANSITIONAL HEALTH PARTNERS
d/b/a TRANSITIONAL HEALTH SERVICES
Lessee
Dated as of June 19, 1995
================================================================================
<PAGE>
TABLE OF CONTENTS
Article Page
----
ARTICLE I............................................................ 1
1. Leased Property; Term.................................... 1
ARTICLE II........................................................... 2
2. Definitions.............................................. 2
ARTICLE III.......................................................... 10
3.1. Rent..................................................... 10
3.2. Quarterly Calculation and Payment of Additional
Rent: Annual Reconciliation................................... 10
3.3. Confirmation of Additional Rent.......................... 11
3.4. Additional Charges....................................... 12
3.5. Late Payment of Rent..................................... 12
3.6. Net Lease................................................ 13
ARTICLE IV........................................................... 13
4.1. Payment of Impositions................................... 13
4.2. Notice of Impositions.................................... 14
4.3. Adjustment of Impositions................................ 14
4.4. Utility Charges.......................................... 14
4.5. Insurance Premiums....................................... 14
4.6. Impound Account.......................................... 14
4.7. Facility HUD Financing Charges........................... 14
ARTICLE V............................................................ 15
5. No Termination, Abatement, Etc........................... 15
ARTICLE VI........................................................... 15
6.1. Ownership of the Lease Property.......................... 15
6.2. Personal Property........................................ 15
6.3. Option to Purchase Personal Property..................... 16
6.4. Transfer of Personal Property to Lessor.................. 16
ARTICLE VII.......................................................... 16
7.1. Condition of the Leased Property......................... 16
7.2. Use of the Leased Property............................... 17
7.3. Lessor to Grant Easements, Etc........................... 19
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ARTICLE VIII......................................................... 19
8.1. Compliance with Legal and Insurance Requirements,
Instruments, Etc............................................... 19
8.2. Legal Requirement Covenants.............................. 19
ARTICLE IX........................................................... 20
9.1. Maintenance and Repair................................... 20
9.2. Encroachments, Restrictions, Mineral Leases, Etc......... 21
ARTICLE X............................................................ 22
10. Construction of Capital Additions to the Leased Property. 22
ARTICLE XI........................................................... 22
11. Liens.................................................... 22
ARTICLE XII.......................................................... 23
12. Permitted Contests....................................... 23
ARTICLE XIII......................................................... 24
13.1. General Insurance Requirements........................... 24
13.2. Replacement Cost......................................... 25
13.3. Additional Insurance..................................... 25
13.4. Waiver of Subrogation.................................... 25
13.5. Form Satisfactory, Etc................................... 25
13.6. Increase in Limits....................................... 26
13.7. Blanket Policy........................................... 26
13.8. No Separate Insurance.................................... 26
ARTICLE XIV.......................................................... 26
14.1. Insurance Proceeds....................................... 26
14.2. Reconstruction in the Event of Damage or Destruction Covered
by Insurance................................................... 27
14.3. Reconstruction in the Event of Damage or Destruction Not
Covered by Insurance........................................... 28
14.4. No Abatement of Rent..................................... 28
14.5. Termination of Rights of First Refusal and
Option to Purchase............................................. 28
14.6. Waiver................................................... 28
14.7. New Personal Property.................................... 28
ARTICLE XV........................................................... 28
15. Condemnation............................................. 28
ARTICLE XVI.......................................................... 30
16.1. Events of Default........................................ 30
16.2. Certain Remedies......................................... 33
-ii-
<PAGE>
16.3. Damages.................................................. 33
16.4. Appointment of Receiver.................................. 34
16.5. Lessee's Obligation to Purchase.......................... 35
16.6. Waiver................................................... 35
16.7. Application of Funds..................................... 35
16.8. Facility Operating Deficiencies.......................... 35
ARTICLE XVII......................................................... 36
17. Lessor's Right to Cure Lessee's Default.................. 36
ARTICLE XVIII........................................................ 37
18. Provisions Relating to Purchase of the Leased Property... 37
ARTICLE XIX.......................................................... 37
19. Renewal Terms............................................ 37
ARTICLE XX........................................................... 38
20. Holding Over............................................. 38
ARTICLE XXI.......................................................... 38
21.1. Letters of Credit........................................ 38
21.2. Times for Obtaining Letters of Credit.................... 39
21.3. Amounts for Letters of Credit............................ 39
21.4. Uses of Letters of Credit................................ 39
ARTICLE XXII......................................................... 39
22. Risk of Loss............................................. 39
ARTICLE XXIII........................................................ 40
23. Indemnification.......................................... 40
ARTICLE XXIV......................................................... 41
24. Subletting and Assignment................................ 41
ARTICLE XXV.......................................................... 42
25. Officer's Certificates and Financial Statements.......... 42
ARTICLE XXVI......................................................... 44
26. Lessor's Right to Inspect................................ 44
ARTICLE XXVII........................................................ 45
27. No Waiver................................................ 45
ARTICLE XXVIII....................................................... 45
28. Remedies Cumulative...................................... 45
-iii-
<PAGE>
ARTICLE XXIX......................................................... 45
29. Acceptance of Surrender.................................. 45
ARTICLE XXX.......................................................... 45
30. No Merger of Title....................................... 45
ARTICLE XXXI......................................................... 45
31. Conveyance by Lessor..................................... 45
ARTICLE XXXII........................................................ 46
32. Quiet Enjoyment.......................................... 46
ARTICLE XXXIII....................................................... 46
33. Notices.................................................. 46
ARTICLE XXXIV........................................................ 47
34.1. Appraisers............................................... 47
ARTICLE XXXV......................................................... 48
35.1. First Refusal to Purchase................................ 48
35.2. Lessee's Option to Purchase the Leased Property.......... 49
ARTICLE XXXVI........................................................ 49
36.1. Lessor May Grant Liens................................... 49
36.2. Breach by Lessor......................................... 50
ARTICLE XXXVII....................................................... 50
37.1. Arbitration.............................................. 50
37.2. Appointment of Arbitrators............................... 50
37.3. Third Arbitrator......................................... 50
37.4. Arbitration Procedure.................................... 51
37.5. Expenses................................................. 51
ARTICLE XXXVIII...................................................... 51
38. Miscellaneous............................................ 51
ARTICLE XXXIX........................................................ 52
39. Memorandum of Lease...................................... 52
ARTICLE XL........................................................... 52
40. Sale of Real Estate Assets............................... 52
ARTICLE XLI.......................................................... 52
41. Subdivision............................................... 52
-iv-
<PAGE>
ARTICLE XLII......................................................... 53
42. Authority................................................ 53
ARTICLE XLIII........................................................ 53
43. Attorneys' Fees.......................................... 53
ARTICLE XLIV......................................................... 53
44. HUD Conflict Override.................................... 53
LIST OF EXHIBITS
Exhibit A Legal Description of the Land
Exhibit B Renewal and Purchase Group
-v-
<PAGE>
LEASE
THIS LEASE ("Lease") is dated as of the 19th day of June, 1995, and is
between HCPI CHARLOTTE, INC. ("Lessor"), a Delaware corporation having its
principal office at 10990 Wilshire Boulevard, Suite 1200, Los Angeles,
California 90024, and TRANSITIONAL HEALTH PARTNERS d/b/a TRANSITIONAL HEALTH
SERVICES ("Lessee"), a Delaware general partnership, having its principal
executive offices at 1300 Hurstbourne Place, 9300 Shelbyville Road, Louisville,
Kentucky 40222.
ARTICLE I.
1. Leased Property; Term
Upon and subject to the terms and conditions hereinafter set forth, Lessor
leases to Lessee and Lessee rents from Lessor all of Lessor's rights and
interest in and to the following real property, improvements, related rights,
fixtures and personal property (collectively the "Leased Property"):
(i) the real property described in Exhibit A attached hereto
(collectively, the "Land"),
(ii) all buildings, structures, Fixtures (as hereinafter defined)
and other improvements of every kind including, but not limited to,
alleyways and connecting tunnels, sidewalks, utility pipes, conduits and
lines (on-site and off-site), parking areas and roadways appurtenant to
such buildings and structures presently situated upon the Land and Capital
Additions financed by Lessor (collectively, the "Leased Improvements"),
(iii) all easements, rights and appurtenances relating to the Land
and the Leased Improvements (collectively, the "Related Rights"),
(iv) all permanently affixed equipment, machinery, fixtures and
other items of real and/or personal property, including all components
thereof, now and hereafter located in, on or used in connection with and
permanently affixed to or incorporated into the Leased Improvements,
including, without limitation, all furnaces, boilers, heaters, electrical
equipment, heating, plumbing, lighting, ventilating, refrigerating,
incineration, air and water pollution control, waste disposal, air-cooling
and air-conditioning systems and apparatus, sprinkler systems and fire and
theft protection equipment, and built-in oxygen and vacuum systems, all of
which, to the greatest extent permitted by law, are hereby deemed by the
parties hereto to constitute real estate, together with all replacements,
modifications, alterations and additions thereto, (collectively, the
"Fixtures"), and
<PAGE>
(v) all machinery, equipment, furniture, furnishings, moveable walls
or partitions, computers (except the computer hardware and software
systems that were owned or leased by Lessee prior to the Closing Date) or
trade fixtures or other personal property used or useful in Lessee's
business on the Leased Property, including without limitation all items or
furniture, furnishings and equipment, except items, if any, included
within the definition of Fixtures and consumable inventory and supplies
(collectively, the "Personal Property").
SUBJECT, HOWEVER, to the easements, encumbrances, covenants, conditions and
restrictions and other matters which affect the Leased Property as of the
Commencement Date, to have and to hold for (1) a fixed term (the "Fixed Term")
commencing on the Commencement Date and ending at 11:59 p.m. Los Angeles time on
the expiration of the fifteenth (15th) Lease Year, and (2) the Extended Terms
provided for in Article XIX with respect to the Leased Property other than the
Personal Property, unless this Lease is sooner terminated as hereinafter
provided; and as to the Personal Property, to have and to hold for a term
commencing on the Commencement Date and ending at 11:59 p.m. Los Angeles time on
the expiration of the fifth (5th) Lease Year, unless this Lease is sooner
terminated as hereinafter provided.
ARTICLE II.
2. Definitions. For all purposes of this Lease, except as otherwise
expressly provided or unless the context otherwise requires, (i) the terms
defined in this Article have the meanings assigned to them in this Article and
include the plural as well as the singular, (ii) all accounting terms not
otherwise defined herein have the meanings assigned to them in accordance with
generally accepted accounting principles as at the time applicable, (iii) all
references in this Lease to designated "Articles," "Sections" and other
subdivisions are to the designated Articles, Sections and other subdivisions of
this Lease and (iv) the words "herein," "hereof" and "hereunder" and other words
of similar import refer to this Lease as a whole and not to any particular
Article, Section or other subdivision:
Additional Charges: As defined in Article III.
Additional Rent: As defined in Article III.
Affiliate: When used with respect to any corporation, the term "Affiliate"
shall mean any person which, directly or indirectly, controls or is controlled
by or is under common control with such corporation. For the purposes of this
definition, "control" (including the correlative meanings of the terms
"controlled by" and "under common control with"), as used with respect to any
person or partnership, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
person, through the ownership of voting securities, partnership interests or
other equity interests.
Award: As defined in Article XV.
2
<PAGE>
Base Revenues: An amount equal to the first Lease Year Gross Revenues.
BLS: Bureau of Labor Statistics, United States Department of Labor.
Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday which
is not a day on which national banks in the City of New York, New York are
authorized, or obligated, by law or executive order, to close.
Capital Additions: One or more new buildings, or one or more additional
structures annexed to any portion of any of the Leased Improvements, which are
constructed on any parcel or portion of the Land, during the Term, including the
construction of a new wing or new story, or the repair, replacement,
restoration, remodeling or rebuilding of the existing Leased Improvements or any
portion thereof where the purpose and effect of such work is to provide a
functionally new facility or portion thereof needed to provide services not
previously offered in the Leased Improvements.
Code: The Internal Revenue Code of 1986, as amended.
Commencement Date: The Closing Date as defined in the Contract of
Acquisition.
Condemnation, Condemnor: As defined in Article XV.
Consolidated Financials: For any fiscal year or other accounting period
for Lessee and its consolidated subsidiaries, statements of earnings and
retained earnings and of changes in financial position for such period and for
the period from the beginning of the respective fiscal year to the end of such
period and the related balance sheet as at the end of such period, together with
the notes thereto, all in reasonable detail and setting forth in comparative
form the corresponding figures for the corresponding period in the preceding
fiscal year, and prepared in accordance with generally accepted accounting
principles.
Consolidated Net Worth: At any time, the sum of the following for Lessee
and its consolidated subsidiaries, on a consolidated basis determined in
accordance with generally accepted accounting principles:
(1) the amount of capital or stated capital (after deducting the
cost of any shares held in its treasury), plus
(2) the amount of capital surplus and retained earnings (or, in the
case of a capital surplus or retained earnings deficit, minus the amount
of such deficit), minus
(3) the sum of the following (without duplication of deductions in
respect of items already deducted in arriving at surplus and retained
earnings): (a) unamortized debt discount and expense; and (b) any write-up
in book value of assets resulting from a revaluation thereof subsequent to
the most recent Consolidated Financials prior to the date hereof, except
any net write-up in value of foreign
3
<PAGE>
currency in accordance with generally accepted accounting principles; any
write-up resulting from a reversal of a reserve for bad debts or
depreciation and any write-up resulting from a change in methods of
accounting for inventory.
Contract of Acquisition: An agreement dated as of May 8, 1995, by and
among Lessee, HCPI Knightdale, Inc., Health Care Property Investors, Inc.
("HCPI") and Lessor relating in part to the acquisition by Lessor of the Leased
Property and the subsequent lease of the Leased Property between Lessor and
Lessee.
Cost of Living Index: The Consumer Price Index for all Urban Consumers,
U.S. City Average (1982-1984 = 100), published by the BLS, or such other renamed
index. If the BLS changes the publication frequency of the Cost of Living Index
so that a Cost of Living Index is not available to make a cost-of-living
adjustment as specified herein, the cost-of-living adjustment shall be based on
the percentage difference between the Cost of Living Index for the closest
preceding month for which a Cost of Living Index is available and the Cost of
Living Index for the comparison month as required by this Lease. If the BLS
changes the base reference period for the Cost of Living Index from 1982-84 =
100, the cost-of-living adjustment shall be determined with the use of such
conversion formula or table as may be published by the BLS. If the BLS otherwise
substantially revises, or ceases publication of the Cost of Living Index, then a
substitute index for determining cost-of-living adjustments, issued by the BLS
or by a reliable governmental or other nonpartisan publication, shall be
reasonably selected by Lessor.
Date of Taking: As defined in Article XV.
Encumbrance: As defined in Article XXXVI.
Extended Terms: As defined in Article XIX.
Event of Default: As defined in Article XVI.
Facility: The health care facility being operated or proposed to be
operated on the Leased Property.
Facility HUD Financing: The mortgage indebtedness on the Leased Property
(FHA Case/Loan No. 063-43097-PM) owed to Highland Mortgage Company and insured
by HUD in the original principal amount of $3,275,000.
Facility Mortgage: As defined in Article XIII.
Facility Mortgagee: As defined in Article XIII.
Facility Operating Deficiency: A deficiency in the conduct of operation in
the Facility which, in the reasonable determination of Lessor, if not correct
within a reasonable time, would have the likely effect of jeopardizing the
Facility's licensure or certification
4
<PAGE>
under government reimbursement programs, based upon communications received from
Lessee and governmental agencies with respect thereto.
Fair Market Rental: As defined in Article XIX.
Fair Market Value: The fair market value of the Leased Property, including
all capital additions and renovations, and (a) assuming the same is unencumbered
by this Lease, (b) determined in accordance with the appraisal procedures set
forth in Article XXXIV or in such other manner as shall be mutually acceptable
to Lessor and Lessee, and (c) not taking into account any reduction in value
resulting from any indebtedness to which the Leased Property is subject except
as expressly provided herein below. In determining such Fair Market Value the
positive or negative effect on the value of the Leased Property attributable to
the interest rate, amortization schedule, maturity date, prepayment penalty and
other terms and conditions of any encumbrance which is not removed at or prior
to the closing of the transaction as to which such Fair Market Value
determination is being made shall be taken into account.
Fiscal Year: The twelve (12) month period from January 1 to December 31.
Fixed Term: As defined in Article I.
Fixtures: As defined in Article I.
Gross Revenues: The term "Gross Revenues" shall mean all revenues received
or receivable from or by reason of the operation of the Facility, or any other
use of the Leased Property; including without limitation all patient revenues
received or receivable for the use of or otherwise by reason of all rooms, beds
and other facilities provided, meals served, services performed, space or
facilities subleased or goods sold on the Leased Property, including without
limitation, and except as provided below, any consideration received under any
subletting, licensing, or other arrangements with third parties relating to the
possession or use of any portion of the Leased Property; provided, however, that
Gross Revenues shall not include non-operating revenues such as interest income
or income from the sale of assets not sold in the ordinary course of business;
and provided, further that there shall be excluded from such revenues:
(i) contractual allowances (relating to any period during the Term
of the Lease) for billings not paid by or received from the appropriate
governmental agencies or third party providers,
(ii) all proper patient billing credits and adjustments according to
generally accepted accounting principles relating to health care
accounting, and
(iii) Federal, state or local excise taxes and any tax based upon or
measured by said revenues (including any provider tax) which is added to
or made a part of the amount billed to the patient or other recipient of
such services or goods, whether included in the billing or stated
separately.
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To the extent that the Leased Property is subleased by Lessee, Gross Revenues
shall be calculated for all purposes of the Lease by including the Gross
Revenues of such sublessees with respect to the subleased property, i.e., the
Gross Revenues generated from the operations conducted on such subleased portion
of the Leased Property shall be included directly in the Gross Revenues for the
purpose of determining Additional Rent payable under this Lease and the rent
received or receivable by Lessee from or under such subleases shall be excluded
from Gross Revenues for such purpose.
Hazardous Substances: Collectively, any hazardous or toxic substance,
material or waste, regulated or listed pursuant to any federal, state or local
environmental law, including without limitation, the Clean Air Act, the Clean
Water Act, the Toxic Substances Control Act, the Comprehensive Environmental
Response Compensation and Liability Act, the Resource Conservation and Recovery
Act, the Federal Insecticide, Fungicide, Rodenticide Act, the Safe Drinking
Water Act and the Occupational Safety and Health Act.
HCPI: Health Care Property Investors, Inc., a Maryland corporation.
HKI: HCPI Knightdale, Inc., a Delaware corporation.
HUD: United States Department of Housing and Urban Development.
HUD Financing Documents: The Regulatory Agreement for Multifamily Housing
Projects between Wellington Nursing Center of Charlotte, Inc. and HUD dated
November 25, 1992, The Deed of Trust and Assignment of Rents, Profits and Income
agreement between Wellington Nursing Center of Charlotte, Inc. (Trustor), James
M. Tanner, Jr. (Trustee) and Highland Mortgage Company (Beneficiary) dated
November 25, 1992, and the Assumption Agreement between Lessor and HUD for the
acquisition of the Leased Property dated as of June 19, 1995, and The Regulatory
Agreement Nursing Homes between THS and HUD for the lease of the Leased Property
dated as of June 19, 1995.
Impositions: Collectively, all taxes (including, without limitation, all
capital stock, franchise and state income taxes of Lessor (or of HCPI as a
result of its investment in Lessor), all ad valorem, sales and use, single
business, gross receipts, transaction privilege, rent or similar taxes),
assessments (including, without limitation, all assessments for public
improvements or benefits, whether or not commenced or completed prior to the
date hereof and whether or not to be completed within the Term), ground rents,
water, sewer or other rents and charges, excises, tax levies, fees (including
without limitation, license, permit, inspection, authorization and similar
fees), and all other governmental charges, in each case whether general or
special, ordinary or extraordinary, or foreseen or unforeseen, of every
character in respect of the Leased Property and/or the Rent (including all
interest and penalties thereon due to any failure in payment by Lessee), which
at any time prior to, during or in respect of the Term hereof may be assessed or
imposed on or in respect of or be a lien upon (a) Lessor or Lessor's interest in
the Leased Property, (b) the Leased Property or any part thereof or any rent
therefrom or any estate, right, title or interest therein, or (c) any occupancy,
operation, use or possession of, or sales from or activity conducted on or in
connection with the Leased Property or the leasing or use of the Leased Property
or any part
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thereof; provided, however, nothing contained in this Lease shall be construed
to require Lessee to pay (1) any federal tax based on net income (whether
denominated as a franchise or capital stock or other tax) imposed on Lessor or
any other person or (2) any transfer, or net revenue tax of Lessor or any other
person except Lessee and its successors or (3) any tax imposed with respect to
the sale, exchange or other disposition by Lessor of any Leased Property or the
proceeds thereof, or (4), except as expressly provided elsewhere in this Lease,
any principal or interest on any assumed indebtedness on the Leased Property,
except to the extent that any tax, assessment, tax levy or charge, which Lessee
is obligated to pay pursuant to the first sentence of this definition and which
is in effect at any time during the term hereof is totally or partially
repealed, and a tax, assessment, tax levy or charge set forth in clause (1) or
(2) is levied, assessed or imposed expressly in lieu thereof.
Insurance Requirements: All terms of any insurance policy required by this
Lease and all requirements of the issuer of any such policy.
Knightdale Lease: That certain lease of even date herewith entered into
between HKI and THS pursuant to the Contract of Acquisition and creating a
leasehold estate in the real property and nursing home facility located at 1000
Tandal Place, Wake County, Knightdale, North Carolina 27545.
Land: As defined in Article I.
Lease: As defined in the preamble.
Lease Year: Each period of twelve (12) full calendar months from and after
the Commencement Date, unless the Commencement Date is a day other than the
first day of a calendar month, in which case the first Lease Year shall be the
period commencing on the first day of the first full calendar month after the
Commencement Date and ending on the last day of the twelfth full calendar month
following the month in which the Commencement Date occurs and each subsequent
Lease Year shall be each period of 12 full calendar months from and after the
first day of the calendar month following the anniversary of the Commencement
Date.
Leased Improvements: As defined in Article I.
Leased Property: As defined in Article I.
Legal Requirements: All federal, state, county, municipal and other
governmental statutes laws, rules, orders, regulations, ordinances, judgments,
decrees and injunctions affecting either the Leased Property or the
construction, use or alteration thereof, whether now or hereafter enacted and in
force, including any which may (i) require repairs, modifications or alterations
in or to the Leased Property, (ii) in any way adversely affect the use and
enjoyment thereof, and all permits, licenses and authorizations and regulations
relating thereto, and all covenants, agreements, restrictions and encumbrances
contained in any instruments, either of record or known to Lessee (other than
encumbrances created by Lessor without the consent to Lessee), at any time in
force affecting the Leased Property, or
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(iii) require the cleanup or other treatment of any Hazardous Substance or other
toxic material.
Lending Institution: Any insurance company, federally insured commercial
or savings bank, national banking association, savings and loan association,
employees, welfare, pension or retirement fund or system, corporate profit
sharing or pension trust, college or university, or real estate investment
trust, including any corporation qualified to be treated for federal tax
purposes as a real estate investment trust, having a net worth of at least
$50,000,000.
Lessee: Transitional Health Partners d/b/a Transitional Health Services, a
Delaware general partnership.
Lessor: HCPI Charlotte, Inc., a Delaware corporation, and its successors
and assigns.
Letter of Credit Date: The first day of the second Lease Year if a letter
of credit shall be required for the period beginning on the first day of the
second Lease Year, or the first day of the first calendar month in which a
letter of credit is first required under the terms of this Lease, and if at any
time during the Fixed Term or the Extended Terms Lessee satisfies the conditions
necessary to be released from the requirement of providing a letter of credit
pursuant to the terms of this Lease, the first day of the first calendar month
in which a letter of credit is again required as provided for herein.
Minimum Rent: As defined in Article III.
Minimum Repurchase Price: The purchase price of the Leased Property at the
time of acquisition of the Leased Property by Lessor plus the price paid by
Lessor for any additions or renovations to the Leased Property.
New Personal Property: As defined in Section 6.2.
Officer's Certificate: A certificate of Lessee signed by an officer
authorized to so sign by its board of directors or by-laws.
Overdue Rate: On any date, a rate equal to 2% above the Prime Rate, but in
no event greater than the maximum rate then permitted under applicable law.
Payment Date: Any due date for the payment of the installments of Minimum
Rent, Additional Rent or any other sums payable under this Lease.
Personal Property: As defined in Article I.
Primary Intended Use: As defined in Section 7.2.2.
Prime Rate: On any date, a rate equal to the annual rate on such date
announced by Citibank, N.A. to be its prime rate or base rate for 90-day
unsecured loans to its corporate
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borrowers of the highest credit standing but in no event greater than the
maximum rate then permitted under applicable law.
Quarter: During each Lease Year, the first three calendar month period
commencing on the first (1st) day of such Lease Year and each subsequent three
(3) calendar month period within such Lease Year.
Rent: Collectively, the Minimum Rent, Additional Rent and Additional
Charges, all as defined in Article III.
SEC: Securities and Exchange Commission.
State: The State or Commonwealth in which the Leased Property is located.
Subsidiaries: Corporations or partnerships, each of which Lessee owns,
directly or indirectly, more than 50% of the voting stock or partnership
interest (individually, a "Subsidiary").
Taking: A taking or voluntary conveyance during the Term hereof of all or
part of the Leased Property, or any interest therein or right accruing thereto
or use thereof, as the result of, or in settlement of any condemnation or other
eminent domain proceeding affecting the Leased Property whether or not the same
shall have actually been commenced.
Term: Collectively, the Fixed Term and any Extended Terms, as the context
may require, unless earlier terminated pursuant to the provisions hereof.
THS: Transitional Health Partners d/b/a Transitional Health Services, a
Delaware general partnership.
Unavoidable Delays: Delays due to strikes, lockouts, inability to procure
materials, power failure, acts of God, governmental restrictions, enemy action,
civil commotion, fire, unavoidable casualty or other causes beyond the control
of the party responsible for performing an obligation hereunder, provided that
lack of funds shall not be deemed a cause beyond the control of either party
hereto unless such lack of funds is caused by the failure of the other party
hereto to perform any obligations of such party, under this Lease.
Unsuitable for Its Primary Intended Use: A stat or condition of the
Facility such that by reason of damage or destruction, or a partial taking by
condemnation in the good faith judgment of Lessee, reasonably exercised, the
Facility cannot be operated on a commercially practicable basis for its Primary
Intended Use taking into account, among other relevant factors, the number of
usable beds affected by such damage or destruction or partial taking.
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ARTICLE III.
3.1. Rent. Lessee will pay to Lessor in lawful money of the United States
of America which shall be legal tender for the payment of public and private
debts the following amounts as Minimum Rent (as defined below) and Additional
Rent (as defined below) during the Term. Payments of Minimum Rent (as defined
below) shall be made by a prearranged payment deposit through the Electronic
Automated Clearing House Network ("ACH") initiated by Lessee to Lessor's account
at an ACH member bank on the first day of each calendar month. Prior to the
Commencement Date of this Lease, Lessee will provide Lessor with a written
authorization in a form satisfactory to Lessor authorizing Lessor to debit
Lessee's account at an ACH member bank and a voided blank check of Lessee which
shows Lessee's account number and the ACH member bank's routing number.
Additional Rent (as defined below) shall be paid at Lessor's address set forth
above or at such other place or to such other person, firms or corporations as
Lessor from time to time may designate in writing.
(a) Minimum Rent: During the Fixed Term of the Lease, Lessee shall
pay to Lessor annually Minimum Rent of $610,622.36, payable in advance in
equal consecutive monthly installments of $50,885.20 on the first day of
each calendar month; provided, however, that the first monthly payment of
Minimum Rent shall be payable on the Commencement Date (prorated as to any
partial month at the beginning of the Term). During the Extended Terms,
Lessee shall pay to Lessor the Minimum Rent determined in accordance with
Section XIX hereof.
(b) Additional Rent: In addition to the Minimum Rent, Lessee shall,
commencing with the first Quarter of the second Lease Year and continuing
through the expiration of the Fixed Term, pay to Lessor Additional Rent.
Additional Rent shall equal the greatest of (1) twenty-five percent (25%)
of (a) Gross Revenues for the current Lease year in excess of (b) Base
Revenues or (ii) an amount equal to the sum of (a) the prior Lease Year's
Additional Rent and (b) the product of (y) a fraction, the numerator of
which is the Cost of Living Index published for the date that is three
months prior to the beginning of the Lease Year in question minus the Cost
of Living Index published for the date that is fifteen months prior to the
beginning of the Lease Year in question, and the denominator of which is
the Cost of Living Index published for the date that is fifteen months
prior to the beginning of the Lease Year in question, multiplied by (z)
the sum of the Minimum Rent and Additional Rent, if any, for the prior
Lease Year. In no event will Additional Rent be less than the prior Lease
Year's Additional Rent, nor will the sum of Minimum Rent and Additional
Rent for any Lease Year be greater than 102.5% of the sum of the Minimum
Rent and Additional Rent for the prior Lease Year.
3.2. Quarterly Calculation and Payment of Additional Rent: Annual
Reconciliation. Lessee shall calculate and pay Additional Rent quarterly as
provided for in Section 3.1(b) for the portion of the entire Lease Year, on a
cumulative basis, up to the end of the Lease Year Quarter then most recently
ended, less the Additional Rent paid in such Lease Year. Such Additional Rent,
adjusted as aforesaid, shall be delivered to the Lessor,
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together with an Officer's Certificate setting forth the calculation thereof,
within thirty (30) days after the end of each Lease Year Quarter.
Within thirty (30) days after the end of each Lease Year, Lessee shall
deliver to Lessor an Officer's Certificate setting forth the Gross Revenues for
the Lease Year just ended. Upon receipt by Lessor of the Officer's Certificate
for the Leased Property for the full Lease Year, Lessor shall determine the
Additional Rent for the Lease Year and give Lessee notice of the same together
with the calculations upon which the Additional Rent was based. If such
Additional Rent exceeds the sum of the quarterly payments of Additional Rent
previously paid by Lessee with respect to said Lease Year, Lessee shall
forthwith pay such deficiency to Lessor. If the Additional Rent for said
preceding Lease Year as so determined is less than the amount previously paid
with respect thereto by Lessee, Lessor shall, at Lessee's option, either (i)
remit to Lessee its check in an amount equal to such difference, or (ii) grant
Lessee a credit against the quarterly payment of Additional Rent next coming
due.
Any difference between the annual Additional Rent for any Lease Year as
shown in said Officer's Certificate and the total amount of quarterly payments
for such Lease Year previously paid by Lessee whether in favor of Lessor or
Lessee, shall bear interest at a rate equal to the rate payable on 90-day U.S.
Treasury Bills as of January 1 of the year following the close of such Lease
Year until the amount of such difference shall be paid or otherwise discharged.
As soon as practicable after the expiration or earlier termination of the
Term, a final reconciliation shall be made taking into account, among other
relevant adjustments, any unresolved contractual allowances which relate to
Gross Revenues accrued prior to such termination date; provided that if the
final reconciliation has not been made within six (6) months of such expiration
or earlier termination, then a final reconciliation shall be made at that time
based on any available relevant information, including Lessee's good faith best
estimate of the amount of any unresolved contractual allowances.
3.3. Confirmation of Additional Rent. Lessee shall utilize, or cause to be
utilized, an accounting system for the Leased Property in accordance with its
usual and customary practices and in accordance with generally accepted
accounting principles which will accurately record all Gross Revenues and Lessee
shall retain for at least three (3) years after the expiration of each Lease
Year (and in any event until the reconciliation described in Section 3.2 above
for such Lease Year has been made) reasonably adequate records conforming to
such accounting system showing all Gross Revenues for such Lease Year. Lessor,
at its own expense except as provided hereinbelow, shall have the right from
time to time by its accountants or representatives to audit the information set
forth in the Officer's Certificate referred to in Section 3.2 and in connection
with such audits to examine Lessee's records with respect thereto (including
supporting data and sales tax returns) subject to any prohibitions or
limitations on disclosure of any such data under applicable law or regulations
including without limitation any duly enacted "Patients' Bill of Rights" or
similar legislation, including such limitations as may be necessary to preserve
the confidentiality of the Facility- patient relationship and the
physician-patient privilege. If any such audit discloses a deficiency in the
payment of Additional Rent, and either Lessee agrees with the result of
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such audit or the matter is compromised or determined by arbitration under the
provisions of this Lease, Lessee shall forthwith pay to Lessor the amount of the
deficiency, as finally agreed or determined, together with interest at the
Overdue Rate from the date when said payment should have been made to the date
of payment thereof; provided, however, that as to any audit that is commenced
more than two (2) years after the date Gross Revenues for any Lease Year are
reported by Lessee to Lessor, the deficiency, if any, with respect to such Gross
Revenues shall bear interest as permitted herein only from the date such
determination of deficiency is made unless such deficiency is the result of
gross negligence or wilful misconduct on the part of Lessee. If any such audit
discloses that the Gross Revenues actually received by Lessee for any Lease Year
exceed those reported by Lessee by more than 2%, Lessee shall pay the reasonable
cost of such audit and examination. Any proprietary information obtained by
Lessor pursuant to the provisions of this Section shall be treated as
confidential, except that such information may be used, subject to appropriate
confidentiality safeguards, in any litigation or arbitration proceedings between
the parties and except further that Lessor may disclose such information to
prospective lenders or purchasers. The obligations of Lessee contained in this
section shall survive the expiration or earlier termination of this Lease.
3.4. Additional Charges. In addition to the Minimum Rent and Additional
Rent, (1) Lessee will also pay and discharge as and when due and payable all
other amounts, liabilities, obligations and Impositions which Lessee assumes or
agrees to pay under this Lease and (2) in the event of any failure on the part
of Lessee to pay any of those items referred to in clause (1) above, Lessee will
also promptly pay and discharge every fine, penalty, interest and cost which may
be added for non-payment or late payment of such items (the items referred to in
clauses (1) and (2) above being referred to herein collectively as the
"Additional Charges"). To the extent that Lessee pays any Additional Charges to
Lessor pursuant to any requirement of this Lease, Lessee shall be relieved of
its obligation to pay such Additional Charges to the entity to which they would
otherwise be due.
3.5. Late Payment of Rent. Lessee hereby acknowledges that late payment by
Lessee to Lessor of Minimum Rent, Additional Rent or Additional Charges will
cause Lessor to incur costs not contemplated under the terms of this Lease, the
exact amount of which is presently anticipated to be extremely difficult to
ascertain. Such costs may include, without limitation, processing and accounting
charges and late charges which may be imposed on Lessor by the terms of any
mortgage or deed of trust covering the Leased Property and other expenses of a
similar or dissimilar nature. Accordingly, Lessor will notify Lessee by
facsimile if Lessor has not received any installment of Minimum Rent, Additional
Rent or Additional Charges (but only as to those Additional Charges which are
payable directly to Lessor) on its due date and if such installment of Minimum
Rent, Additional Rent or Additional Charges shall not be paid within three (3)
Business Days or Lessee's receipt of such facsimile notice, Lessee will pay
Lessor on demand, as Additional Charges, a late charge equal to 5% of such
installment or the maximum amount permitted by law, whichever is the lesser. The
parties agree that this late charge represents a fair and reasonable estimate of
the costs that Lessor will incur by reason of late payment by Lessee. In
addition, if any installment of Minimum Rent, Additional Rent or Additional
Charges (but only as to those Additional Charges which are payable directly to
Lessor) shall not be paid on its due date,
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the amount unpaid shall bear interest, from the due date of such installment to
the date of payment thereof, computed at the Overdue Rate (or at the maximum
rate permitted by law, whichever is the lesser) on the amount of such
installment, and Lessee will pay such interest to Lessor on demand, as
Additional Charges. The payment of said late charge or such interest shall not
constitute waiver of, nor excuse or cure, any default under this Lease, nor
prevent Lessor from exercising any other rights and remedies available to
Lessor.
3.6. Net Lease. The Rent shall be paid absolutely net to Lessor, so that
this Lease shall yield to Lessor the full amount of the installments of Minimum
Rent, Additional Rent and Additional Charge throughout the Term, all as more
fully set forth in Article IV and subject to any other provisions of this Lease
which expressly provide for adjustment or abatement of Rent or other charges.
ARTICLE IV.
4.1. Payment of Impositions. Subject to Article XII relating to permitted
contests, Lessee will pay, or cause to be paid, all Impositions before any fine,
penalty, interest or cost may be added for non-payment, such payments to be made
directly to the taxing authorities where feasible, and will promptly, upon
request, furnish to Lessor copies of official receipts or other satisfactory
proof evidencing such payments. Lessee's obligation to pay such Impositions
shall be deemed absolutely fixed upon the date such Impositions become a lien
upon the Leased Property or any part thereof. If any such Imposition may, at the
option of the taxpayer, lawfully be paid in installments (whether or not
interest shall accrue on the unpaid balance of such imposition), Lessee may
exercise the option to pay the same (and any accrued interest on the unpaid
balance of such Imposition) in installments and in such event, shall pay such
installments during the Term hereof (subject to Lessee's right of contest
pursuant to the provisions of Article XII) as the same respectively become due
and before any fine, penalty, premium, further interest or cost may be added
thereto. Lessor, at its expense, shall, to the extent permitted by applicable
law, prepare and file all tax returns and reports as may be required by
governmental authorities in respect of Lessor's net income, gross receipts,
franchise taxes and taxes on its capital stock, and Lessee, at its expense,
shall, to the extent permitted by applicable laws and regulations, prepare and
file all other tax returns and reports in respect of any Imposition as may be
required by governmental authorities. If any refund shall be due from any taxing
authority in respect of any Imposition paid by Lessee, the same shall be paid
over to or retained by Lessee if no Event of Default shall have occurred
hereunder and be continuing. Any such funds retained by Lessor due to an Event
of Default shall be applied as provided in Article XVI. Lessor and Lessee shall,
upon request of the other, provide such data as is maintained by the party to
whom the request is made with respect to the Leased Property as may be necessary
to prepare any required returns and reports. In the event governmental
authorities classify any property covered by this Lease as personal property,
Lessee shall file all personal property tax returns in such jurisdictions where
it must legally so file. Lessor, to the extent it possesses the same, and
Lessee, to the extent it possesses the same, will provide the other party, upon
request, with cost and depreciation records necessary for filing returns for any
property so classified as personal property. Where Lessor is legally required to
file personal property tax returns, Lessee will be provided with copies of
assessment notices indicating a value in
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excess of the reported value in sufficient time for Lessee to file a protest.
Lessee may, upon notice to Lessor, at Lessee's option and at Lessee's sole cost
and expense, protest, appeal, or institute such other proceedings as Lessee may
deem appropriate to effect a reduction of real estate or personal property
assessments and Lessor, at Lessee's expense as aforesaid, shall fully cooperate
with Lessee in such protest, appeal, or other action. Billings for reimbursement
by Lessee to Lessor of personal property taxes shall be accompanied by copies of
a bill therefor and payments thereof which identify the personal property with
respect to which such payments are made.
4.2. Notice of Impositions. Lessor shall give prompt notice to Lessee of
all Impositions payable by Lessee hereunder of which Lessor at any time has
knowledge, but Lessor's failure to give any such notice shall in no way diminish
Lessee's obligations hereunder to pay such Impositions.
4.3. Adjustment of Impositions. Impositions imposed in respect to the
tax-fiscal period during which the Term terminates shall be adjusted and
prorated between Lessor and Lessee, whether or not such Imposition is imposed
before or after such termination, and Lessee's obligation to pay its prorated
share thereof shall survive such termination.
4.4. Utility Charges. Lessee will pay or cause to be paid all charges for
electricity, power, gas, oil, water and other utilities used in the Leased
Property during the Term.
4.5. Insurance Premiums. Lessee will pay or cause to be paid all premiums
for the insurance coverage required to be maintained pursuant to Article XIII
during the Term.
4.6. Impound Account. Lessor may, at its option to be exercised by thirty
(30) days' written notice to Lessee, require Lessee to deposit, at the time of
any payment of Minimum Rent, an amount equal to one-twelfth of Lessee's
estimated annual taxes, of every kind and nature, required pursuant to Section
4.1 and one-twelfth of Lessee's estimated annual insurance premiums required
pursuant to Section 13.1 into an interest-bearing escrow account as directed by
Lessor. Such amounts shall be applied to the payment of the obligations in
respect of which said amounts were deposited in such order of priority as Lessor
shall determine, on or before the respective dates on which the same or any of
them would become delinquent. Nothing in this Section 4.6 shall be deemed to
affect any right or remedy of Lessor under this Lease. If requested by Lessor,
Lessee shall, at its sole cost and expense, cause to be furnished to Lessor a
tax reporting service, to be designed by Lessor, covering the Leased Property.
Any interest accruing on the amounts placed in the escrow account shall be paid
to Lessee. To the extent that Lessee pays any amounts to Lessor pursuant to this
Section 4.6, Lessee shall be relieved of its obligation to pay such amounts to
the entity to which they would otherwise be due.
4.7. Facility HUD Financing Charges. Lessee will pay, or cause to be paid,
as Additional Charges due hereunder, all amounts necessary to establish or
maintain any replacement reserve, impound escrow and security or other deposit
under the Facility HUD Financing indebtedness. To the extent that Lessee pays
any amounts to Lessor pursuant to
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this Section 4.7, Lessee shall be relieved of its obligations to pay such
amounts to the entity to which they would otherwise be due.
ARTICLE V.
5. No Termination, Abatement, Etc. Except as otherwise specifically
provided in this Lease, Lessee, to the extent permitted by law, shall remain
bound by this Lease in accordance with its terms and shall neither take any
action without the consent of Lessor to modify, surrender or terminate the same,
nor seek nor be entitled to any abatement, deduction, deferment or reduction of
Rent, or set-off against the Rent nor shall the respective obligations of Lessor
and Lessee be otherwise affected by reason of (a) any damage to, or destruction
of, any Leased Property or any portion thereof from whatever cause or any
destruction of, any Leased Property or any portion thereof from whatever cause
or any Taking of the Leased Property or any portion thereof, (b) the lawful or
unlawful prohibition of, or restriction upon, Lessee's use of the Leased
Property, or any portion thereof, the interference with such use by any person,
corporation, partnership or other entity, or by reason of eviction by paramount
title; (c) any claim which Lessee has or might have against Lessor or by reason
of any default or breach of any warranty by Lessor under this Lease or any other
agreement between Lessor and Lessee, or to which Lessor and Lessee are parties,
(d) any bankruptcy, insolvency, reorganization, composition, readjustment,
liquidation, dissolution, winding up or other proceedings affecting Lessor or
any assignee or transferee of Lessor, or (e) for any other cause whether similar
or dissimilar to any of the foregoing other than a discharge of Lessee from any
such obligations as a matter of law. Lessee hereby specifically waives all
rights, arising from any occurrence whatsoever, which may now or hereafter be
conferred upon it by law to (i) modify surrender or terminate this Lease or quit
or surrender the Leased Property or any portion thereof, or (ii) entitle Lessee
to any abatement, reduction suspension or deferment of the Rent or other sums
payable by Lessee hereunder, except as otherwise specifically provided in this
Lease. The obligations of Lessor and Lessee hereunder shall be separate and
independent covenants and agreements and the Rent and all other sums payable by
Lessee hereunder shall continue to be payable in all events unless the
obligations to pay the same shall be terminated pursuant to the express
provisions of this Lease or by termination of this Lease other than by reason of
an Event of Default.
ARTICLE VI.
6.1. Ownership of the Lease Property. Lessee acknowledges that the Leased
Property in the property of Lessor and that Lessee has only the right to the
exclusive possession and use of the Leased Property upon the terms and
conditions of this Lease.
6.2. Personal Property. After the commencement of this Lease, Lessee may
(and shall as provided hereinbelow), at its expense, install, affix or assemble
or place on any parcels of the Land or in any of the Leased Improvements, any
items of personal property (the "New Personal Property"), and such New Personal
Property and replacements thereof shall be the property of and owned by Lessee.
Except as provided in Section 6.4, Lessor shall have no rights to the New
Personal Property. Lessee shall provide and maintain during
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the entire Lease Term all Personal Property, including without limitation, all
Personal Property necessary in order to operate the Facility in compliance with
all licensure and certification requirements, in compliance with all applicable
Legal Requirements and Insurance Requirements and otherwise in accordance with
customary practice in the industry for the Primary Intended Use. Lessee will, at
its expense, restore the Leased Property to the condition required by Section
9.1(d).
6.3. Option to Purchase Personal Property. Lessee shall have the option
exercisable on not less than six (6) months' prior written notice to purchase
the Personal Property upon the expiration of the fifth year of the Term at the
fair market value of the Personal Property as of the date of such purchase so
long as such purchase shall not in Lessor's determination result in an
unacceptable amount of gross income for purposes of the 95% gross income test
stated in Section 856(c)(2) of the Code or otherwise impair the status of
Lessor, or any partner of Lessor if Lessor is a partnership, as a Real Estate
Investment Trust under the Code. If Lessor determines such an unacceptable
amount of gross income would result from such purchase, Lessee shall have the
option to lease the Personal Property on a month-to-month basis at the fair
market rental of the Personal Property until Lessor is able to sell the Personal
Property without Lessor or any partner of Lessor, if Lessor is a partnership,
receiving an unacceptable amount of gross income for the purposes described
above. The fair market value of the Personal Property shall be determined by an
appraisal in a manner mutually acceptable to Lessor and Lessee with the costs of
such appraisal to be borne equally by Lessor and Lessee.
6.4. Transfer of Personal Property to Lessor. Upon the termination of this
Lease, all Personal Property and New Personal Property shall become the property
of Lessor, if not already owned by Lessor, and Lessee shall execute all
documents and take any actions reasonably necessary to evidence such ownership.
ARTICLE VII.
7.1. Condition of the Leased Property. Lessee acknowledges receipt and
delivery of possession of the Leased Property and that Lessee has examined and
otherwise has knowledge of the condition of the Leased Property prior to the
execution and delivery of this Lease and has found the same to be in good order
and repair, free from Hazardous Substances or other toxic materials, and
satisfactory for its purposes hereunder. Regardless, however of any inspection
made by lessee of the Leased Property and whether or not any patent or latent
defect or condition was revealed or discovered thereby Lessee is leasing the
Leased Property "as is" in its present condition. Lessee waives any claim or
action against Lessor in respect of the condition of the Leased Property
including without limitation any defects or adverse conditions not discovered or
otherwise known by Lessee as of the date hereof. LESSOR MAKES NO WARRANTY OR
REPRESENTATION EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED PROPERTY OR ANY PART
THEREOF, EITHER AS TO ITS FITNESS FOR USE. DESIGN OR CONDITION FOR ANY
PARTICULAR USE OR PURPOSE OR OTHERWISE, OR AS TO THE NATURE OR QUALITY OF THE
MATERIAL OR WORKMANSHIP THEREIN, OR THE EXISTENCE OF ANY TOXIC OR HAZARDOUS
WASTE, BUILDING MATERIAL OR OTHER
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FORM OF TOXIC OR HAZARDOUS SUBSTANCES, IT BEING AGREED THAT ALL SUCH RISKS
LATENT OR PATENT ARE TO BE BORNE SOLELY BY LESSEE. Lessor shall cooperate with
Lessee in the prosecution, which may include the assignment of any
such rights to the extent permitted by law, or any of Lessor's rights to proceed
against any predecessor in title for breaches of warranties or representations,
or for latent defects in the Leased Property. Any such action shall be at
Lessee's expense.
7.2. Use of the Leased Property.
7.2.1. Lessee covenants that it will obtain and maintain all
approvals needed to use and operate the Leased Property and the Facility under
applicable local, state and federal law, including but not limited to licensure
and Medicare and/or Medicaid certification.
7.2.2. After the Commencement Date and the entire Term, Lessee shall
use or cause to be used the Leased Property and the improvements thereon as a
nursing home and for such other uses as may be necessary or incidental to such
use (the particular such use to which the Leased Property is put at any
particular time is herein referred to as the "Primary Intended Use"). Lessee
shall not use the Leased Property or any portion thereof for any other use
without the prior written consent of Lessor, which consent Lessor may withhold
in its sole discretion. No use shall be made or permitted to be made of the
Leased Property, and no acts shall be done, which will cause the cancellation of
any insurance policy covering the Leased Property or any part thereof, nor shall
Lessee shall or otherwise provide to residents or patients therein, or permit to
be kept used or sold in or about the Leased Property any article which may be
prohibited by law or by the standard form of fire insurance policies, or any
other insurance policies required to be carried hereunder, or fire underwriters
regulations. Lessee shall, at its sole cost, comply with all of the requirements
pertaining to the Leased Property or other improvements of any insurance board,
association, organization or company necessary for the maintenance of insurance,
as herein provided, covering the Leased Property.
7.2.3. Lessee covenants and agrees that during the Term it will
operate continuously the Leased Property as a provider of health care services
in accordance with its Primary Intended Use and to maintain its certifications
for reimbursement and licensure and its accreditation, if compliance with
accreditation standards is required to maintain the operations of the Facility
and if a failure to comply would adversely affect operations of the Facility.
7.2.4. Lessee shall conduct its business at the Facility in
conformity with the standards of patient care practice provided in similar
facilities in the State and shall maintain all applicable and customary
licenses, accreditation and affiliations maintained by skilled and intermediate
nursing facilities of the type and quality of the Facility in the State.
7.2.5. Lessee shall not commit or suffer to be committed any waste
on the Leased Property, or in the Facility, nor shall Lessee cause or permit any
nuisance thereon.
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Lessee shall not allow any Hazardous Substance or other toxic material to be
located in, on, or under the Leased Property, or incorporated in the Facility or
any improvements thereon, except for those substances customarily used by a
skilled and intermediate nursing facility provided such substances are used in a
customary manner, nor allow the Leased Property to be used as a landfill or a
waste disposal site, or a manufacturing, handling, storage, distribution or
disposal facility for any Hazardous Substance or other toxic material.
7.2.6. Lessee shall at all times and in all material respects comply
with all federal, state or local laws, ordinances, regulations and orders
relating to industrial hygiene, environmental protection, or the use, analysis,
generation, manufacture, storage, disposal or transportation of any Hazardous
Substance.
7.2.7. If Lessee becomes aware of the presence of any Hazardous
Substance in, on or under the Leased Property or any adjacent property or if
Lessee, Lessor, or the Leased Property becomes subject to any order of any
federal, state or local agency to repair, close, detoxify, decontaminate or
otherwise cleanup the Leased Property, Lessee shall, at its own cost and
expense, carry out and complete or cause to be carried out or completed any
repair, closure, detoxification, decontamination or other cleanup of the Leased
Property. If Lessee fails to implement or cause to be implemented and diligently
pursue any such repair, closure, detoxification, decontamination or other
cleanup of the Leased Property, Lessor shall have the right, but not the
obligation, to carry out such action and recover all of the costs and expenses
from Lessee as Additional Charges. Notwithstanding anything in this Agreement to
the contrary, nothing in this Agreement shall be interpreted or construed so as
to limit Lessee's remedies against or its right to seek indemnification and
damages from any third party, including but not limited to the previous owners
of the Leased Property or parties who have exercised control over the Leased
Property, in connection with claims, damages and expenses associated with the
presence or cleanup of Hazardous Substances in, on or under any of the Leased
Property.
7.2.8. Lessee shall neither suffer nor permit the Leased Property or
any portion thereof, including any Capital Addition or New Personal Property, to
be used in such a manner as (i) might reasonably tend to impair Lessor's title
thereto or to any portion thereof or (ii) may reasonably make possible a claim
or claims of adverse usage or adverse possession by the public, as such, or of
implied dedication of the Leased Property or any portion thereof.
7.2.9. Lessee covenants and agrees that so long as the Facility HUD
Financing indebtedness remains in effect with regard to the Leased Property, it
will conduct its business as the Facility in conformity with all the provisions
of the HUD Financing Documents and any other standards or requirements necessary
to ensure compliance with the rules and regulations associated with the Facility
HUD Financing indebtedness on the Leased Property. Lessee further agrees to
comply with all statutes and regulations limited the sale, assignment, lease and
sublease of HUD financed property, as well as limitations on the transfer of
management and service contracts for such properties. Lessee further agrees to
cooperate fully with Lessor in connection with providing to HUD any required
reports, accounting or financial information, etc.
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7.3. Lessor to Grant Easements, Etc. Lessor will, from time to time so
long as no Event of Default has occurred and is continuing, at the request of
Lessee and at Lessee's cost and expense (but subject to the approval of Lessor,
which approval shall not be unreasonably withheld or delayed, and provided,
however, that if Lessor has not responded to any such request of Lessee within
30 days after receipt thereof, such request shall be deemed approved), (i) grant
easements and other rights in the nature of easements, (ii) release existing
easements or other rights in the nature of easements which are for the benefit
of the Leased Property, (iii) dedicate or transfer unimproved portions of the
Leased Property for road, highway or other public purposes, (iv) execute
petitions to have the Leased Property annexed to any municipal corporation or
utility district, (v) execute amendments to any covenants and restrictions
affecting the Leased Property and (vi) execute and deliver to any person any
instruction appropriate to confirm our effect such grants, releases, dedications
and transfers (to the extent of its interest in the Leased Property), but only
upon delivery to Lessor of an Officer's Certificate stating that such grant
release, dedication, transfer, petition or amendment is not detrimental to the
proper conduct of the business of Lessee on the Leased Property and does not
materially reduce its value. Lessor does hereby irrevocably appoint Lessee the
attorney-in-fact of Lessor during the Term of this Lease to execute any
documents relating to the above matters which have been approved or are deemed
to have been approved by Lessor as provided above.
ARTICLE VIII.
8.1. Compliance with Legal and Insurance Requirements, Instruments, Etc.
Subject to Article XII regarding permitted contests, Lessee, at its expense,
will promptly (a) comply with all Legal Requirements and Insurance Requirements
in respect of the use, operation, maintenance, repair and restoration of the
Leased Property whether or not compliance therewith shall require structural
changes in any of the Leased Improvements or interfere with the use and
enjoyment of the Leased Property and (b) procure, maintain and comply with all
licenses, certificates of need, provider agreements and other authorizations
required for any use of the Leased Property then being made, and for the proper
erection, installation, operation and maintenance of the Leased Property or any
part thereof, including without limitation any capital additions. Lessor may,
but is not obligated to, enter upon the Leased Property and take such actions
and incur such costs and expenses to effect such compliance as it deems
advisable to protect its interest in the Leased Property, and Lessee shall
reimburse Lessor for the full amount of all costs and expenses incurred by
Lessor in connection with such compliance activities.
8.2. Legal Requirement Covenants. Lessee covenants and agrees that the
Leased Property shall not be used for any unlawful purpose. Lessee shall acquire
and maintain all licenses, certificates, permits, provider agreements and other
authorizations and approvals needed to operate the Leased Property in its
customary manner for the Primary Intended Use, and any other use conducted on
the Leased Property as may be permitted from time to time hereunder. Lessee
further covenants and agrees that Lessee's use of the Leased Property and
maintenance, alteration, and operation of the same, and all parts thereof shall
at all times conform to all applicable local, state, and federal laws,
ordinances, rules and regulations unless the same are held by a court of
competent jurisdiction to be unlawful.
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Lessee may, however, upon prior written notice to Lessor contest the legality
and applicability of any such law, ordinance rule or regulations, or any
licensure or certification decision if Lessee maintains such action in good
faith, with due diligence, without prejudice to Lessor's rights hereunder, and
at Lessee's own expense. If by the terms of any such law, ordinance, rule or
regulation, compliance therewith pending the prosecution of any such proceeding
may legally be delayed without the occurrence of any lien, charge or liability
of any kind against the Facility or Lessee's leasehold interest therein and
without subjecting Lessee or Lessor to any liability, civil or criminal, for
failure so to comply therewith, Lessee may delay compliance therewith until the
final determination of such proceeding. If any lien, charge or civil or criminal
liability would be incurred by reason of any such delay, Lessee, on the prior
written consent of Lessor, which consent shall not be unreasonably withheld, may
nonetheless contest as aforesaid and delay as aforesaid provided that such delay
would not subject Lessor to criminal liability and Lessee both (a) furnishes to
Lessor security reasonably satisfactory to Lessor against any loss or injury by
reason of such contest or delay, and (b) prosecutes the contest with due
diligence and in good faith.
ARTICLE IX.
9.1. Maintenance and Repair.
(a) Lessee, at its expense, will keep the Leased Property and New
Personal Property and all private roadways, sidewalks and curbs
appurtenant thereto and which are under Lessee's control in good order and
repair (whether or not the need for such repairs occurs as a result of
Lessee's use, any prior use, the elements or the age of the Leased
Property, or any portion thereof), and, except as otherwise provided in
Article XIV, with reasonable promptness, make all necessary and
appropriate repairs thereto of every kind and nature, whether interior or
exterior, structural or non-structural, ordinary or extraordinary,
foreseen or unforeseen or arising by reason of a condition existing prior
to the commencement of the Term of this Lease (concealed or otherwise).
All repairs shall, to the extent reasonably achievable, be at least
equivalent in quality to the original work. Lessee will not take or omit
to take any action the taking or omission of which might materially impair
the value or the usefulness of the Leased Property or any part thereof for
its Primary Intended Use.
(b) Lessor shall not under any circumstances be required to build or
rebuild any improvements on the Leased Property, or to make any repairs,
replacements, alterations, restorations or renewals of any nature or
description to the Leased Property, whether ordinary or extraordinary,
structural or non-structural, foreseen or unforeseen, or to make any
expenditure whatsoever with respect thereto, in connection with this
Lease, or to maintain the Leased Property in any way. Lessee hereby
waives, to the extent permitted by law, the right to make repairs at the
expense of Lessor pursuant to any law in effect at the time of the
execution of this Lease or hereafter enacted.
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(c) Nothing contained in this Lease and no action or inaction by
Lessor shall be construed as (i) constituting the consent or request of
Lessor expressed or implied, to any contractor, subcontractor, laborer,
materialman or vendor to or for the performance of any labor or services
or the furnishing of any materials or other property for the construction,
alteration, addition, repair or demolition of or to the Leased Property or
any part thereof, or (ii) giving Lessee any right, power or permission to
contract for or permit the performance of any labor or services or the
furnishing of any materials or other property in such fashion as would
permit the making of any claim against Lessor in respect thereof or to
make any agreement that may create, or in any way be the basis for, any
right, title, interest, lien, claim or other encumbrance upon the estate
of Lessor in the Leased Property, or any portion thereof.
(d) Unless Lessor shall convey any of the Leased Property to Lessee
pursuant to the provisions of this Lease or unless the Lease shall have
been terminated pursuant to the provisions of Section 14.2.1, Lessee will,
upon the expiration or prior termination of the Term, vacate and surrender
the Leased Property to Lessor in the condition in which the Leased
Property was originally received from Lessor, except as repaired, rebuilt,
restored, altered or added to as permitted or required by the provisions
of this Lease and except for ordinary wear and tear (subject to the
obligation of Lessee to maintain the Leased Property in good order and
repair during the entire Term of the Lease), and with due consideration
being given to the age of the Leased Improvements at such time.
9.2. Encroachments, Restrictions, Mineral Leases, Etc. If any of the
Leased Improvements shall, at any time, encroach upon any property, street or
right-of-way adjacent to the Leased Property, or shall violate the agreements or
conditions contained in any lawful restrictive covenant or other agreement
affecting the Leased Property, or any part thereof, or shall impair the rights
of others under any easement or right-of-way to which the Leased Property is
subject, or the use of the Leased Property is impaired, limited or interfered
with by reason of the exercise of the right or surface entry or any other rights
under a lease or reservation of any oil, gas, water or other minerals, then
promptly upon the request of Lessor or at the behest of any person affected by
any such encroachment, violation or impairment, Lessee, at its sole cost and
expense (subject to its right to consent the existence of any such encroachment,
violation or impairment), shall protect, indemnify, save harmless and defend
Lessor from and against all losses, liabilities, obligations, claims, damages,
penalties, causes of action, costs and expenses (including without limitation
reasonable attorneys' fees and expenses) based on or arising by reason of any
such encroachment, violation or impairment and in such case, in the event of an
adverse final determination, either (i) obtain valid and effective waivers or
settlements of all claims, liabilities and damages resulting from each such
encroachment, violation or impairment, whether the same shall affect Lessor or
Lessee or (ii) make such changes in the Leased Improvements, and take such other
actions, as Lessee in the good faith exercise of its judgment deems reasonably
practicable, to remove such encroachment, and to end such violation or
impairment, including, if necessary, the alteration of any of the Leased
Improvements, and in any event take all such actions as may be necessary in
order to be able to continue the
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operation of the Leased Improvements for the Primary Intended Use substantially
in the manner and to the extent the Leased Improvements were operated prior to
the assertion of such violation or encroachment. Lessee's obligations under this
Section 9.2 shall be in addition to and shall in no way discharge or diminish
any obligation of any insurer under any policy of title or other insurance and
Lessee shall be entitled to a credit for any sums recovered by Lessor under any
such policy of title or other insurance.
ARTICLE X.
10. Construction of Capital Additions to the Leased Property. If no Event
of Default shall have occurred and be continuing, Lessee shall have the right,
upon and subject to the terms and conditions set forth below, to construct or
install Capital Additions on the Leased Property with the prior written consent
of Lessor which shall not be unreasonably withheld if the Capital Addition Cost,
when aggregated with the costs of all other Capital Additions made by Lessee,
would not exceed $200,000. Notwithstanding any other provision of this Article X
appearing to the contrary, no Capital Additions shall be made without the
consent of Lessor, which consent may be withheld in Lessor's sold and absolute
discretion, which may be based upon considerations of Lessor including, but not
limited to, Lessor's decision not to fund any Capital Addition, if the Capital
Addition Cost of such proposed Capital Addition, when aggregated with the costs
of all other Capital Additions made by Lessee, would exceed $200,000. Prior to
Lessor's consent to construction of any Capital Addition, Lessee shall submit to
Lessor in writing a proposal setting forth in reasonable detail any proposed
Capital Addition and shall provide to Lessor such plans and specifications,
permits, licenses, contracts and other information concerning the proposed
Capital Addition as Lessor may reasonably request. Without limiting the
generality of the foregoing, such proposal shall indicate the approximate
projected cost of constructing such Capital Addition and the use or uses to
which it will be put. Furthermore, no Capital Addition shall be made which would
tie in or connect any Leased Improvements on the Leased Property with any other
improvements on property adjacent to the Leased Property (and not part of the
land covered by this Lease) including, without limitation, tie-ins of buildings
or other structures or utilities, unless Lessee shall have obtained the prior
written approval of Lessor, which approval in Lessor's sole discretion may be
granted or withheld.
ARTICLE XI.
11. Liens. Subject to the provisions of Article XII relating to permitted
contests, Lessee will not directly or indirectly create or allow to remain and
will promptly discharge at its expense any lien, encumbrance, attachment, title
retention agreement or claim upon the Leased Property or any attachment, levy,
claim or encumbrance in respect of the Rent, not including, however, (a) this
Lease, (b) the matters, if any, that existed as of the Commencement Date, (c)
restrictions, liens and other encumbrances which are consented to in writing by
Lessor, or any easements granted pursuant to the provisions of Section 7.3 of
this Lease, (d) liens for those taxes of Lessor which Lessee is not required to
pay hereunder, (e) subleases permitted by Article XXIV, (f) liens for
Impositions or for sums resulting from noncompliance with Legal Requirements so
long as (1) the same are not yet payable or are payable without the addition of
any fine or penalty or (2) such liens are in the process of
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being contested as permitted by Article XII, (g) liens of mechanics, laborers,
materialmen, suppliers or vendors for sums either disputed or not yet due,
provided that (1) the payment of such sums shall not be postponed under any
related contract for more than sixty (60) days after the completion of the
action giving rise to such lien and such reserve or other appropriate provisions
as shall be required by law or generally accepted accounting principles shall
have been made therefor or (2) any such liens are in the process of being
contested as permitted by Article XII, and (h) any liens which are the
responsibility of Lessor pursuant to the provisions of Article XXXVI of this
Lease.
ARTICLE XII.
12. Permitted Contests. Lessee, on its own or on Lessor's behalf (or in
Lessor's name) but at Lessee's expense, may contest, by appropriate legal
proceedings conducted in good faith and with due diligence, the amount or
validity or application, in whole or in part, of any Imposition or any Legal
Requirement or Insurance Requirement or any lien, attachment, levy, encumbrance,
charge or claim not otherwise permitted by Article XI, provided that (a) in the
case of an unpaid Imposition, lien, attachment, levy, encumbrance, charge or
claim, the commencement and continuation of such proceedings shall suspend the
collection thereof from Lessor and from the Leased Property, (b) neither the
Leased Property nor any Rent therefrom nor any part thereof or interest therein
would be in any danger of being sold, forfeited, attached or lost pending the
outcome of such proceedings, (c) in the case of a Legal Requirement, Lessor
would not be in any danger of civil or criminal liability for failure to comply
therewith pending the outcome of such proceedings, (d) in the event that any
such contest shall involve a sum of money or potential loss in excess of Fifty
Thousand ($50,000) Dollars, then Lessee shall deliver to Lessor and its counsel
an opinion of Lessee's counsel to the effect set forth in clauses (a), (b) and
(c), to the extent applicable; provided however, that the requirement of
delivery of such opinion of Lessee's counsel may be waived by the Lessor upon
written request of the Lessee, (e) in the case of a Legal Requirement and/or an
Imposition, lien, encumbrance or charge, Lessee shall give such reasonable
security as may be demanded by Lessor to insure ultimate payment of the same and
to prevent any sale or forfeiture of the affected Leased Property or the Rent by
reason of such non-payment or noncompliance, provided, however, the provisions
of this Article XII shall not be construed to permit Lessee to contest the
payment of Rent (except as to contests concerning the method of computation or
the basis of levy of any Imposition or the basis for the assertion of any other
claim) or any other sums payable by Lessee to Lessor hereunder, (f) in the case
of an Insurance Requirement, the coverage required by Article XIII shall be
maintained, and (g) if such contest be finally resolved against Lessor or
Lessee, Lessee shall, as Additional Charges due hereunder, promptly pay the
amount required to be paid, together with all interest and penalties accrued
thereon, or comply with the applicable Legal Requirement or Insurance
Requirement. Lessor, at Lessee's expense, shall execute and deliver to Lessee
such authorizations and other documents as may reasonably be required in any
such contest, and, if reasonably requested by Lessee or if Lessor so desires,
Lessor shall join as a party therein. Lessee shall indemnify and save Lessor
harmless against any liability, cost or expense of any kind that may be imposed
upon Lessor in connection with any such contest and any loss resulting
therefrom. Lessee shall be entitled to any refund of
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any claim and such charges and penalties or interest thereon which have been
paid by Lessee or paid by Lessor and for which Lessor has been fully reimbursed
by Lessee.
ARTICLE XIII.
13.1. General Insurance Requirements. During the term of this Lease,
Lessee shall at all times keep the Leased Property, and all property located in
or on the Leased Property, including all personal property, insured with the
kinds and amounts of insurance described below. This insurance shall be written
by companies authorized to do insurance business in the State in which the
Leased Property is located. The policies must name Lessor as an additional
insured. Losses shall be payable to Lessor and/or Lessee as provided in Article
XIV. In addition, the policies shall name as an additional insured the holder of
any mortgage, deed of trust or other security agreement ("Facility Mortgagee")
securing any indebtedness or any other Encumbrance placed on the Leased Property
in accordance with the provisions of Article XXXVI ("Facility Mortgage") by way
of a standard form of mortgagee's loss payable endorsement. Any loss adjustments
shall require the written consent of Lessor, Lessee, and each Facility
Mortgagee. Evidence of insurance shall be deposited with Lessor and, if
requested, with any Facility Mortgagee(s). If any provision of any Facility
Mortgage requires deposits of insurance to be made with such Facility Mortgagee,
Lessee shall either pay to Lessor monthly the amounts required and Lessor shall
transfer such amounts to each Facility Mortgagee, or, pursuant to written
direction by Lessor, Lessee shall make such deposits directly with such Facility
Mortgagee. The policies on the Leased Property, including the Leased
Improvements, and Fixtures and Personal Property, shall insure against the
following risks:
13.1.1. Loss or damage by fire, vandalism and malicious mischief,
extended coverage perils commonly known as "All Risk," earthquake and all
physical loss perils including but not limited to sprinkler leakage in an amount
not less than one hundred percent (100%) of the then full replacement cost
thereof (as defined below in Section 13.2);
13.1.2. Loss or damage by explosion of steam boilers, pressure
vessels or similar apparatus, now or hereafter installed in the Facility, in
such limits with respect to any one accident as may be reasonably requested by
Lessor from time to time;
13.1.3. Loss of rental under a rental value insurance policy
covering risk of loss during the first twelve (12) months of reconstruction
necessitated by the occurrence of any of the hazards described in Sections
13.1.1 or 13.1.2 in an amount sufficient to prevent Lessor from becoming a
co-insurer;
13.1.4. Claims for personal injury or property damage under a policy
of comprehensive general public liability insurance with amounts not less than
Five Million and No/100 Dollars ($5,000,000.00) per occurrence and in the
aggregate in respect of bodily injury and death and Five Million No/100 Dollars
($5,000,000.00) for property damage;
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13.1.5. Claims arising out of malpractice in an amount not less than
Five Million and No/100 Dollars ($5,000,000.00) for each person and for each
occurrence and in the aggregate; and
13.1.6. Flood (when the Leased Property is located in while or in
part within a designated flood plain area) and such other hazards and in such
amounts as may be customary for comparable properties in the area.
13.2. Replacement Cost. The term "full replacement cost" as used herein,
shall mean the actual replacement cost thereof from time to time including
increased cost of construction endorsement, less exclusions provided in the
normal fire insurance policy. In the event either party believes the full
replacement cost (the then replacement cost less such exclusions) has increased
or decreased at any time during the Lease Term, it shall have the right to have
such full replacement cost redetermined by the fire insurance company which is
then carrying the largest amount of fire insurance carried on the Leased
Property, hereinafter referred to as "impartial appraiser." The party desiring
to have the full replacement cost so redetermined shall forthwith, on receipt of
such determination by such impartial appraiser, give written notice thereof to
the other party hereto. The determination of such impartial appraiser shall be
final and binding on the parties hereto, and Lessee shall forthwith increase, or
may decrease, the amount of the insurance carried pursuant to this Section, as
the case may be, to the amount so determined by the impartial appraiser. Each
party shall pay one-half (1/2) of the fee, if any, of the impartial appraiser.
If, Lessee shall have made improvements to the Leased Property, Lessor may at
Lessee's expense have such full replacement cost redetermined at any time after
such improvements are made regardless of when the full replacement cost was last
determined.
13.3. Additional Insurance. In addition to the insurance described above,
Lessee shall maintain such additional insurance as may be reasonably required
from time to time by any Facility Mortgagee and shall further at all times
maintain adequate worker's compensation insurance coverage for all persons
employed by Lessee on the Leased Property. Such worker's compensation insurance
shall be in accordance with the requirements of applicable local, state and
federal law.
13.4. Waiver of Subrogation. All insurance policies carried by either
party covering the Leased Property including without limitation, contents, fire
and casualty insurance, shall expressly waive any right of subrogation on the
part of the insurer against the other party. The parties hereto agree that their
policies will include such waiver clause or endorsement so long as the same are
obtainable without extra cost, and in the event of such an extra charge the
other party, at its election, may pay the same, but shall not be obligated to do
so.
13.5. Form Satisfactory, Etc. All of the policies of insurance referred to
in this Section shall be written in form satisfactory to Lessor and by insurance
companies satisfactory to Lessor. Lessor agrees that it will not unreasonably
withhold its approval as to the form of the policies of insurance or as to the
insurance companies selected by Lessee. Lessee shall pay all of the premiums
therefore, and deliver such policies or certificates thereof to Lessor prior to
their effective date (and with respect to any renewal policy, at least
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ten (10) days prior to the expiration of the existing policy), and in the event
of the failure of Lessee either to effect such insurance in the names herein
called for or to pay the premiums therefor, or to deliver such policies or
certificates thereof to Lessor at the times required, Lessor shall be entitled,
but shall have no obligation, to effect such insurance and pay the premiums
therefor, which premiums shall be repayable to Lessor with interest at the
Overdue Rate upon written demand therefor and failure to repay the same shall
constitute an Event of Default within the meaning of Section 16.1(d). Each
insurer mentioned in this Section shall agree, by endorsement on the policy or
policies issued by it, or by independent instrument furnished to Lessor, that it
will give to Lessor thirty (30) days, written notice before the policy or
policies in question shall be altered, allowed to expire or cancelled.
13.6. Increase in Limits. In the event that either party shall at any time
deem the limits of the personal injury or property damage public liability
insurance then carried to be either excessive or insufficient, the parties shall
endeavor to agree on the proper and reasonable limits for such insurance to be
carried; and such insurance shall thereafter be carried with the limits thus
agreed on until further change pursuant to the provisions of this Section. If
the parties shall be unable to agree thereon, the proper and reasonable limits
for such insurance to be carried shall be determined by an impartial third party
selected by the parties. Nothing herein shall permit the amount of insurance to
be reduced below the amount or amounts required by any of the Facility
Mortgages.
13.7. Blanket Policy. Notwithstanding anything to the contrary contained
in this Section, Lessee's obligations to carry the insurance provided for herein
may be brought within the coverage of a so-called blanket policy or policies of
insurance carried and maintained by Lessee; provided, however, that the coverage
afforded Lessor will not be reduced or diminished or otherwise be different from
that which would exist under a separate policy meeting all other requirements of
this Lease by reason of the use of such blanket policy of insurance, and
provided further that the requirements of this Article XIII are otherwise
satisfied.
13.8. No Separate Insurance. Lessee shall not on Lessee's own initiative
or pursuant to the request or requirements of any third party, take out separate
insurance concurrent in form or contributing in the event of loss with that
required in this Articles, to be furnished by or which may reasonably be
required to be furnished by, Lessee or increase the amounts of any then existing
insurance by securing an additional policy or additional policies, unless all
parties having an insurable interest in the subject matter of the insurance,
including in all cases Lessor and all Facility Mortgagees, are included therein
as additional insured and the loss is payable under said insurance in the same
manner as losses are payable under this Lease. Lessee shall immediately notify
Lessor of the taking out of any such separate insurance or of the increasing of
any of the amounts of the then existing insurance by securing an additional
policy or additional policies.
ARTICLE XIV.
14.1. Insurance Proceeds. All proceeds payable by reason of any loss or
damage to the Leased Property, or any portion thereof, and insured under any
policy of insurance
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required by Article XIII of this Lease shall be paid to Lessor and held by
Lessor in trust and shall be made available for reconstruction or repair, as the
case may be, of any damage to or destruction of the Leased Property, or any
portion thereof, and shall be paid out by Lessor from time to time for the
reasonable costs of such reconstruction or repair. Any excess proceeds of
insurance remaining after the completion of the restoration or reconstruction of
the Leased Property (or in the event neither Lessor nor Lessee is required or
elects to repair and restore all such insurance proceeds) shall be retained by
Lessor free and clear upon completion of any such repair and restoration except
as otherwise specifically provided below in this Article XIV. All salvage
resulting from any risk covered by insurance shall belong to Lessor.
14.2. Reconstruction in the Event of Damage or Destruction Covered by
Insurance.
14.2.1. If during the Term the Leased Property is totally or
partially destroyed from a risk covered by the insurance described in Article
XIII and the Facility thereby is rendered Unsuitable for its Primary Intended
Use, Lessee shall either (A) restore the Facility to substantially the same
condition as existed immediately before the damage or destruction, or (B) offer
to acquire the Leased Property from Lessor for a purchase price equal to the
greater of the Minimum Repurchase Price and the Fair Market Value of the Leased
Property immediately prior to such damage or destruction. If the Lessor does not
accept Lessee's offer to so purchase the Leased Property, Lessee may either
withdraw its offer to purchase the Leased Property and proceed to restore the
Facility to substantially the same condition as existed immediately before the
damage or destruction or terminate the Lease and Lessor shall be entitled to
retain the insurance proceeds.
14.2.2. If during the Term, the Leased Improvements, Personal
Property and/or the Fixtures are totally or partially destroyed from a risk
covered by the insurance described in Article XIII, but the Facility is not
thereby rendered Unsuitable for its Primary Intended Use, Lessee shall restore
the Facility to substantially the same condition as existed immediately before
the damage or destruction. Such damage or destruction shall not terminate this
Lease; provided, however if Lessee cannot within a reasonable time obtain all
necessary government approvals, including building permits, licenses,
conditional use permits and any certificates of need, after diligent effort to
do so in order to be able to perform all required repair and restoration work
and to operate the Facility for its Primary Intended Use in substantially the
same manner immediately prior to such damage or destruction, Lessee may offer to
purchase the Leased Property for a purchase price equal to the greater of the
Minimum Repurchase Price or the Fair Market Value of the Leased Property
immediately prior to such damage or destruction. If Lessee shall make such offer
and Lessor does not accept the same, Lessee may either (A) withdraw such
officer, in which event this Lease shall remain in full force and effect and
Lessee shall proceed to restore the Facility as soon as reasonably practicable
to substantially the same condition as existed immediately before such damage or
destruction, or (B) terminate this Lease, in which event Lessor shall be
entitled to retain the insurance proceeds.
14.2.3. If the cost of the repair or restoration exceeds the amount
of proceeds received by Lessor from the insurance required under Article XIII,
Lessee shall be obligated
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to contribute any excess amounts needed to restore the Facility. Such difference
shall be paid by Lessee to Lessor to be held in trust together with any other
insurance proceeds for application to the cost of repair and restoration.
14.2.4. In the event Lessor accepts Lessee's offer to purchase the
Leased Property, as provided above, this Lease shall terminate as to the Leased
Property upon payment of the purchase price and Lessor shall remit to Lessee all
insurance proceeds pertaining to the Leased Property being held in trust by
Lessor.
14.3. Reconstruction in the Event of Damage or Destruction Not Covered by
Insurance. If during the Term, the Facility is totally or materially destroyed
from a risk not covered by the insurance described in Article XIII, whether or
not such damage or destruction renders the Facility Unsuitable for its Primary
Intended Use, Lessee shall restore the Facility to substantially the same
condition it was in immediately before such damage or destruction and such
damage or destruction shall not terminate the Lease.
14.4. No Abatement of Rent. This Lease shall remain in full force and
effect and Lessee's obligation to make rental payments and to pay all other
charges required by this Lease shall remain unabated during the period required
for repair and restoration. However, any rental insurance proceeds actually
received by Lessor shall be used to offset any Rent required under this Lease.
14.5. Termination of Rights of First Refusal and Option to Purchase. Any
termination of this Lease pursuant to this Article XIV shall cause any right of
first refusal granted to Lessee under Section 35.1, and the option to purchase
granted to Lessee under Section 35.2 of this Lease to be terminated and to be
without further force or effect.
14.6. Waiver. Lessee hereby waives any statutory rights of termination
which may arise by reason of any damage or destruction of the Facility which
Lessor or Lessee is obligated to restore or may restore under any of the
provisions of this Lease.
14.7. New Personal Property. All insurance proceeds payable by reason of
any loss of or damage to any New Personal Property shall be paid to Lessee, and
Lessee shall hold such insurance proceeds in trust to pay the cost of repairing
or replacing damaged new Personal Property.
ARTICLE XV.
15. Condemnation.
15.1. Definitions
15.1.1. "Condemnation" means (a) the exercise of any governmental
power, whether by legal proceedings or otherwise, by a Condemnor, and (b) a
voluntary sale or transfer by Lessor to any Condemnor, either under threat of
condemnation or while legal proceedings for condemnation are pending.
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15.1.2. "Date of Taking" means the date the Condemnor has the right
to possession of the property being condemned.
15.1.3. "Award" means all compensation, sums or anything of value
awarded, paid or received on a total or partial condemnation.
15.1.4. "Condemnor" means any public or quasipublic authority, or
private corporation or individual, having the power of condemnation.
15.2. Parties, Rights and Obligations. If during the Term there is any
taking of all or any part of the Leased Property or any interest in this Lease
by condemnation, the rights and obligations of the parties shall be determined
by this Article XV.
15.3. Total Taking. If the Leased Property is totally and permanently
taken by condemnation, this Lease shall terminate on the Date of Taking.
15.4. Partial Taking. If a portion of the Leased Property is taken by
condemnation, this Lease shall remain in effect if the Facility is not thereby
rendered Unsuitable for Its Primary Intended Use, but if the Facility is thereby
rendered Unsuitable for Its Primary Intended Use, this Lease shall terminate on
the Date of Taking.
15.5. Restoration. If there is a partial taking of the Leased Property and
this Lease remains in full force and effect pursuant to Section 15.4, Lessor at
its cost shall accomplish all necessary restoration up to but not exceeding the
amount of the award payable to Lessor, as provided herein; provided, however,
that Lessor shall have no obligation to repair or restore alterations made by
Lessee or Lessee's leasehold improvements.
15.6. Award-Distribution. The entire Award shall belong to and be paid to
Lessor, except that, subject to the rights of the Facility Mortgagees, Lessee
shall be entitled to receive from the Award, if and to the extent such Award
specifically includes such item, the following:
15.6.1. A sum attributable to the value, if any of the leasehold
interest of Lessee under this Lease.
15.6.2. Any sums attributable to relocation expenses and business
interruption.
15.6.3. Any sums attributable to any New Personal Property paid for
by Lessee.
15.6.4. Provided, however, that in any event Lessor shall receive
from the Award, subject to the rights of the Facility Mortgages, no less than
the greater at the time of such Award of the Fair Market Value attributable to
the property taken or the percentage of the Minimum Repurchase Price
attributable to the property taken.
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15.7. Temporary Taking. The taking of the Leased Property, or any part
thereof, by military or other pubic authority shall constitute a taking by
condemnation only when the use and occupancy by the taking authority has
continued for longer than six (6) months. During any such six (6) month period,
which shall be a temporary taking, all the provisions of this Lease shall remain
in full force and effect. In the event of any such temporary taking, the entire
amount of any such Award made for such temporary taking allocable to the Term of
this Lease, whether paid by way of damages, rent or otherwise, shall be paid by
Lessee.
ARTICLE XVI.
16.1. Events of Default. If any one or more of the following events
(individually, an "Event of Default") shall occur:
(a) an Event of Default shall occur under any other lease or other
agreement now or hereafter existing (including, without limitation, the
Knightdale Lease and any contract of acquisition, promissory note,
mortgage or guaranty) between Lessor or any Affiliate or Lessor and Lessee
or any Affiliate of Lessee, where the default is not cured within any
applicable grace period set forth therein,
(b) if Lessee shall fail to make payment of the Rent payable by
Lessee under this Lease when the same becomes due and payable and such
failure is not cured by Lessee within a period of five (5) days after
receipt by Lessee of notice thereof from Lessor; provided, however, that
such notice shall be in lieu of and not in addition to any notice required
under applicable law, or
(c) if Lessee shall fail to obtain a letter of credit before the
applicable Letter of Credit Date as required by Article XXI, or
(d) if Lessee shall fail to observe or perform any other term,
covenant or condition of this Lease and such failure is not cured by
Lessee within a period of thirty (30) days after receipt by lessee of
notice thereof from lessor, unless such failure cannot with due diligence
be cured within a period of thirty (30) days, in which case such failure
shall not be deemed to continue if Lessee proceeds promptly and with due
diligence to cure the failure and diligently completes the curing thereof;
provided, however, that such notice shall be in lieu of and not in
addition to any notice required under applicable law, or
(e) if Lessee or any guarantor shall:
(i) admit in writing its inability to pay its debts generally
as they become due,
(ii) file a petition in bankruptcy or a petition to take
advantage of any insolvency act,
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(iii) make an assignment for the benefit of its creditors,
(iv) consent to the appointment of a receiver of itself or of
the whole or any substantial part of its Property, or
(v) file a petition or answer seeking reorganization or
arrangement under the Federal bankruptcy laws or any other applicable law
or statute of the United States of America or any state thereof, or
(f) if Lessee or any guarantor shall, on a petition in bankruptcy
filed against it, be adjudicated as bankrupt or a court of competent
jurisdiction shall enter an order or decree appointing, without the
consent of Lessee, a receiver of Lessee or of the whole or substantially
all of its property, or approving a petition filed against its seeking
reorganization or arrangement of Lessee under the Federal bankruptcy laws
or any other applicable law or statute of the United States of America or
any state thereof, and such judgment, order or decree shall not be vacated
or set aside or stayed within 60 days from the date of the entry thereof,
or
(g) if Lessee or any guarantor shall be liquidated or dissolved, or
shall begin proceedings toward such liquidation or dissolution, or shall,
in any manner, permit the sale or divestiture of substantially all its
assets other than in connection with a merger or consolidation of Lessee
into, or a sale of substantially all of Lessee's assets to, another
corporation provided that the survivor of such merger or the purchaser of
such assets shall assume all of Lessee's obligations under this Lease by a
written instrument, in form and substance reasonably satisfactory to
Lessor accompanied by an opinion of counsel, reasonably satisfactory to
Lessor and addressed to Lessor stating that such instrument of assumption
is valid binding and enforceable against the parties thereto in accordance
with its terms (subject to usual bankruptcy and other creditors, rights
exceptions), and provided further that immediately after giving effect to
any such merger, consolidation or sale the Lessee or other corporation (if
not the Lessee) surviving the same, shall have a consolidated net worth
equal to or greater than the Consolidated Net Worth, as defined,
immediately prior to such merger, consolidation or sale all as to be set
forth in an Officer's Certificate and delivered to Lessor within a
reasonable period of time after such merger, consolidation or sale, or
(h) if the estate or interest of Lessee in the Leased Property or
any part thereof shall be levied upon or attached in any proceeding and
the same shall not be vacated or discharged within the later of ninety
(90) days after commencement thereof or 30 days after receipt by Lessee of
notice thereof from Lessor, (unless Lessee shall be contesting such lien
or attachment in good faith in accordance with Article XII hereof);
provided, however, that such notice shall be in lieu of and not in
addition to any notice required under applicable law, or
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(i) if, except as a result of damage, destruction or a partial or
complete condemnation, Lessee voluntarily ceases operations on the Leased
Property for a period in excess of 30 days, or
(j) if any of the representations or warranties made by Lessee or
any guarantor in the Contract of Acquisition proves to be untrue when made
in any material respect which materially and adversely affects Lessor, and
which is not cured within 20 days after receipt by Lessee of notice from
Lessor thereof, or if not susceptible of being cured within 20 days,
Lessee has commenced to cure within 20 days after notice thereof and has
thereafter diligently proceeded to cure such default in the representation
or warranty; provided, however, that such notice shall be in lieu of and
not in addition to any notice required under applicable law, or
(k) if the Facility's applicable license or third-party provider
reimbursement agreements essential for the Facility's operation for its
Primary Intended Use are at any time suspended, terminated or revoked, or
(l) if any local, state or federal agency having jurisdiction over
the operation of the Facility removes ten percent (10%) or more of the
patients located in the Facility and an equal number of patients are not
replaced within thirty (30) days after such patients are removed, or
(m) if Lessee voluntarily transfers ten (10) or more patients
located in the Facility, or
(n) if Lessee fails to give notice to Lessor not later than ten (10)
days after Lessee's receipt hereof of any Class A fine notice from any
government authority or officer acting on behalf thereof relating to the
Facility, or
(o) if Lessee fails to notify Lessor within three (3) Business Days
after receipt of any written notice from any governmental agency
terminating or suspending or threatening termination or suspension, of any
license or certification relating to the Facility, or
(p) if Lessee fails to give notice to Lessor not later than ten (10)
days after the end of each calendar month during the Term of any notice,
claim or demand from any governmental authority or any officer acting on
behalf thereof, of any violation of any law, order, ordinance, rule or
regulation with respect to the operation of the Facility and the non-cure
of which would have a material impact on the Facility, or
(q) if Lessee fails during the Term of this Lease to cure or abate
any Class A violation occurring during the Term that is claimed by any
governmental authority, or any officer acting on behalf thereof, of any
law, order, ordinance, rule or regulation pertaining to the operation of
the Facility, and within the time permitted by such authority for such
cure or abatement, or
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(r) if any proceedings are instituted against Lessee by any
governmental authority which are reasonably likely to result in either (i)
the revocation of any license granted to Lessee for the operation of the
Facility, (ii) the decertification of the Facility from participation in
the Medicaid reimbursement program, or (iii) the issuance of a stop
placement order against Lessee, or
(s) if any default and acceleration of any other indebtedness of
over $250,000 in the aggregate of Lessee or any Affiliate of Lessee has
occurred.
(t) if Lessee fails to provide Lessor with the letter of credit as
required by Section 21.1.
then, and in any such event, Lessor may terminate this Lease by giving Lessee
not less than five (5) days' notice of such termination and upon the expiration
of the time fixed in such notice, the Term shall terminate and all rights of
Lessee under this Lease shall cease. Lessor shall have all rights at law and in
equity available to Lessor as a result of Lessee's breach of this Lease, or
Lessee will, to the extent permitted by law, pay as Additional Charges all
costs and expense incurred by or on behalf of Lessor, including, without
limitation, reasonable attorneys' fees and expenses, as a result of any Event of
Default hereunder. Lessor will, to the extent permitted by law, pay Lessee's
reasonable attorney's fees and expenses if there is litigation in which the
parties disagree as to whether an action or inaction by Lessee is an Event of
Default hereunder and Lessee ultimately prevails on such issue.
No Event of Default (other than a failure to make payment of money) shall
be deemed to exist under clause (d) during any time the curing thereof is
prevented by an Unavoidable Delay provided that upon the cessation of such
Unavoidable Delay, Lessee shall remedy such default without further delay.
16.2. Certain Remedies. If an Event of Default shall have occurred (and
the event giving rise to such Event of Default has not been cured within the
curative period relating thereto as set forth in Section 16.1 above) and be
continuing, whether or not this Lease has been terminated pursuant to Section
16.1, Lessee shall, to the extent permitted by law, if required by Lessor so to
do, immediately surrender to Lessor the Leased Property pursuant to the
provisions of Section 16.1 and quit the same and Lessor may enter upon and
repossess the Leased Property by reasonable force, summary proceedings,
ejectment or otherwise, and may remove Lessee and all other personal and any and
all personal property form the Leased Property subject to rights of any
residents or patients and to any requirement of law. If an Event of Default
shall have occurred, Lessor will take reasonable steps to mitigate its damages.
16.3. Damages. Neither (a) the termination of this Lease pursuant to
Section 16.1, (b) the repossession of the Leased Property, (c) the failure of
Lessor, notwithstanding reasonable good faith efforts, to relet the Leased
Property, (d) the reletting of all or any portion thereof, nor (e) the failure
of Lessor to collect or receive any rentals due upon any
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such reletting, shall relieve Lessee of its liability and obligations hereunder,
all of which shall survive any such termination, repossession or reletting. In
the event of any such termination. Lessee shall forthwith pay to Lessor all Rent
due and payable with respect to the Leased Property to and including the date of
such termination. Thereafter:
Lessee shall forthwith pay to Lessor, or Lessor's option, as and for
liquidated and agreed current damages for Lessee's Default, either;
(A) the sum of:
(i) the worth at the time of award of the unpaid Rent which
had been earned at the time of termination.
(ii) the worth at the time of award of the amount by which the
unpaid Rent which would have been earned after termination until the time
of award exceeds the amount of such rental loss that Lessee proves could
have been reasonably avoided,
(iii) the worth at the time of award of the amount by which
the unpaid Rent for the balance of the Term after the time of award
exceeds the amount of such rental loss that Lessee proves could be
reasonably avoided, and
(iv) any other amount necessary to compensate Lessor for all
the detriment proximately caused by Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom.
In making the above determinations, the worth at the time of the award
shall be determined by the court having jurisdiction thereof using the
lowest rate of capitalization (highest present worth) reasonably
applicable at the time of such determination and allowed by applicable law
and the Additional Rent shall be deemed to be the same as for the then
current Lease Year or, if not determinable, the immediately preceding
Lease Year, for the remainder of the Term, or such other amount as either
party shall prove reasonably could have been earned during the remainder
of the Term or any portion thereof,
or (B)
without termination of Lessee's right to possession of the Leased
Property, each installment of said Rent and other sums payable by Lessee
to Lessor under the Lease as the same becomes due and payable, which Rent
and other sums shall bear interest at the maximum annual rate permitted by
the law of the state in which the Leased Property is located from the date
when due until paid, and Lessor may enforce,by action or otherwise, any
other term or covenant of this Lease.
16.4. Appointment of Receiver. Upon the occurrence of an Event of Default,
and upon filing of a suit or other commencement of judicial proceedings to
enforce the rights of
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Lessor hereunder, Lessor shall be entitled, as a matter of right, to the
appointment of a receiver or receivers acceptable to Lessor of the Leased
Property and the Facility and of the revenues, earnings, include, products and
profits thereof, pending such proceedings, with such powers as the court making
such appointments shall confer.
16.5. Lessee's Obligation to Purchase. If an Event of Default shall have
occurred and be continuing, by including such requirements in the five (5) day
notice of termination of this Lease given to Lessee by Lessor pursuant to the
provisions of the first (unnumbered) paragraph of Section 16.1 (such notice
requirement being set forth immediately following clause (t) of said Section
16.1) or by separate notice given by Lessor to Lessee at any time thereafter
prior to the time such Event of Default shall be cured, Lessor may require
Lessee to purchase the Leased Property on the first Minimum Rent payment date
occurring not less than thirty (30) days after the date of receipt of, or such
later date that is specified in, said notice requiring such purchase for an
amount equal to the higher of the then current Fair Market Value or the Minimum
Repurchase Price of the Leased Property plus all Rent then due and payable
(excluding the installment of Minimum Rent due on the purchase date) as of the
date of purchase. If Lessor exercises such right, Lessor shall convey the Leased
Property to Lessee on the date fixed therefor in accordance with the provisions
of Article XVIII upon receipt of the purchase price therefor and this Lease
shall thereupon terminate. Any purchase by Lessee of the Leased Property
pursuant to this Section shall be in lieu of the damages specified in Sections
16.3.
16.6. Waiver. If this Lease is terminated pursuant to Section 16.1, Lessee
waives, to the extent permitted by applicable law (a) any right of redemption,
re-entry or repossession, (b) any right to a trial by jury in the event of
summary proceedings to enforce the remedies set forth in this Article XVI, and
(c) the benefit of any laws now or hereafter in force exempting property from
liability for rent or for debt.
16.7. Application of Funds. Any payments received by Lessor under any of
the provision of this Lease during the existence or continuance of any Event of
Default (and such payment is made to Lessor rather than Lessee due to the
existence of an Event of Default) shall be applied to Lessee's obligations in
the order which Lessor may determine or as may be prescribed by the laws of the
State of California.
16.8. Facility Operating Deficiencies. On notice of request therefor by
Lessor to Lessee, upon the occurrence of a Facility operating Deficiency
specified with particularity in Lessor's notice, and for a period equal to the
greater of six (6) months or the time necessary fully to remedy the Facility
Operating Deficiency, Lessee shall engage the services of a management company,
unaffiliated with Lessee and approved by Lessor, to assume responsibility for
management of the Facility for the purpose of taking all steps reasonably
necessary to remedy the Facility Operating Deficiency(ies). Pursuant to a
written agreement among the management company, Lessee and Lessor, the
management company will have complete responsibility for operation of the
Facility, subject to Lessee's retaining only such power and authority as shall
be required by the State as the minimum level of power and authority to be
possessed by the licensed operator of a nursing home of the type of the Facility
in the State. The management company shall provide the following services:
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(a) furnish an on-site, full-time licensed administrator approved by
Lessor who shall be an employee of the management company;
(b) take all steps reasonably necessary to keep the Facility fully
licensed by the State, certified as a provider under applicable government
reimbursement programs and duly accredited by applicable agencies and
bodies;
(c) perform all of Lessee's obligations hereunder with respect to
maintenance and repair of the Facility;
(d) conduct at the onset of the management company's engagement, and
monthly thereafter, audits of Facility operations in at least the
following departments and services: patient care, activities and therapy,
dietary, medical records, drugs and medicines, supplies, housekeeping and
maintenance, and report the results of these audits in writing to Lessor
no later than five (5) days after the end of each calendar month;
(e) immediately upon receipt thereof, deliver to Lessor by overnight
courier copies of all communications received from any regulatory agency
of the State or federal government with respect to the Facility; and
(f) with respect to the Facility Operating Deficiency(ies) which
gave rise to the request to Lessee to engage the management company,
prepare and deliver to Lessor within five (5) days after the commencement
of the management company's responsibilities at the Facility a
comprehensive written report of the nature and extent of the
Deficiency(ies) and advise Lessor orally by telephone no later than noon
local time on each Friday thereafter as to steps being taken by the
management company to remedy the same and the status of any threatened or
actual governmental administrative action with respect thereto.
The management company shall have complete access to the Facility, its
records, offices and facilities, in order that it may carry out its duties. If
Lessee shall fail to designate a management company acceptable to Lessor within
five (5) days after receipt of the notice of request therefor, Lessor may
designate such management company by further notice to Lessee. Lessee shall be
responsible for payment of all fees and expenses reasonably charged and incurred
by the management company in carry out it duties, provided that the management
fee chargeable by a management company designated by Lessor, as herein able
provided, shall not exceed 7% of the Facility's Gross Revenues.
ARTICLE XVII.
17. Lessor's Right to Cure Lessee's Default. If Lessee shall fail to make
any payment or to perform any act required to be made or performed under this
Lease, and to cure the same within the relevant time periods provided in Section
16.1, Lessor, after notice to and demand upon Lessee, and without waiving or
releasing any obligation or Default, may (but shall be under no obligation to)
at anytime thereafter make such payment or perform
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such act for the account and at the expense of Lessee, and may, to the extent
permitted by law, enter upon the Leased Property for such purpose and taken all
such action thereon as, in Lessor's opinion, may be necessary or appropriate
therefor. No such entry shall be deemed an eviction of Lessee. All sums so paid
by Lessor and all costs and expenses (including, without limitation reasonable
attorneys' fees and expenses, in each case, to the extent permitted by law) so
incurred, together with a late charge thereon (to the extent permitted by law)
at the Overdue Rate from the date on which such sums or expenses are paid or
incurred by Lessor, shall e paid by Lessee to Lessor on demand. The obligations
of Lessee and rights of Lessor contained in this Article shall survive the
expiration or earlier termination of this Lease.
ARTICLE XVIII.
18. Provisions Relating to Purchase of the Leased Property. In the event
Lessee purchases the Leased Property from Lessor pursuant to any of the terms of
this Lease, Lessor shall, upon receipt from Lessee of the applicable purchase
price, together with full payment of any unpaid Rent due and payable with
respect to any period ending on or before the date of the purchase, deliver to
Lessee an appropriate deed or other conveyance conveying the entire interest of
Lessor in and to the Leased Property to Lessee free and clear of all
encumbrances other than (i) those that Lessee has agreed hereunder to pay or
discharge, (ii) those mortgage liens, if any, which Lessee has agreed in writing
to accept and to take title subject to, (iii) those liens and encumbrances which
were in effect on the date of conveyance of the Leased Property to Lessor and
(iv) any other encumbrances permitted to be imposed on the Leased Property under
the provisions of Section 36.1 which are assumable at no cost to Lessee or to
which Lessee may take subject without cost to Lessee. The difference between the
applicable purchase price and the total of the encumbrances assumed or taken
subject to shall be paid in cash to Lessor or as Lessor may direct, in federal
or other immediately available funds except as otherwise mutually agreed by
Lessor and Lessee. Closing any such sale shall be contingent upon and subject to
Lessee obtaining all required governmental consents and approvals for such
transfer and if such sale shall fail to be consummated by reasonable of the
inability of Lessee to obtain all such approvals and consents, any options to
extend the Term of this Lease which otherwise would have expired during the
escrow period to such proposed sale shall be deemed to remain in effect for 30
days after termination of the escrow or other arrangement covering the closing
of such proposed sale. All expenses of such conveyance, including without
limitation, the cost of title examination or standard coverage title insurance,
if reasonably required under the circumstances then existing, attorneys' fees
incurred by Lessor in connection with such conveyance and release, transfer
taxes and recording fees shall be paid by Lessee.
ARTICLE XIX.
19. Renewal Terms. If no Event of Default shall have occurred and be
continuing, Lessee is hereby granted the right to renew this Lease for two (2)
5-year optional renewal terms ("Extended Terms") after the expiration of the
Fixed Term, upon giving written notice to Lessor of such extension at least one
hundred eighty (180) days but not more than three hundred sixty (360) days prior
to the termination of the then current Term so
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long as Lessee, for each Extended Term, concurrently exercises its right to
renew as to every facility contained in the group of properties of which the
Leased Property is a part as describe din Exhibit B. During such Extended Terms,
all of the terms and conditions of this Lease shall continue in full force and
effect except that the Rent for and during the Extended Term shall be the then
current fair market rental ("Fair Market Rental") and which unless otherwise
mutually agreed to by Lessor and Lessee shall be determined by arbitration
pursuant to the provision of Article XXXVII.
ARTICLE XX.
20. Holding Over. If Lessee shall for any reason remain in possession of
the Leased Property after the expiration of the Term or earlier termination of
the Term hereof, such possession shall be as a month-to-month tenant during
which time Lessee shall pay as rental each month, two times the aggregate of (i)
one-twelfth of the aggregate Minimum Rent and Additional Rent payable with
respect to the last Lease Year of the preceding Term; (ii) all Additional
Charges accruing during the month; and (iii) all other sums, if any, payable by
Lessee pursuant to the provisions of this Lease with respect to the Leased
Property. During such period of month-to-month tenancy, Lessee shall be
obligated to perform and observe all of the terms, covenants and conditions of
this Lease, but shall have no rights hereunder other than the right, to the
extent give by law to month-to-month tenancies, to continue its occupancy and
use of the Leased Property. Nothing contained herein shall constitute the
consent, express or implied, of Lessor to the holding over of Lessee after the
expiration or earlier termination of this Lease.
ARTICLE XXI.
21.1. Letters of Credit. No letter of credit will be required prior to the
end of the first Lease Year. If at the conclusion of the first Lease Year the
combined average cash flow coverage (after deduction of a management fee equal
to 6% of net patient revenues and a $200 per bed annual reserve) over lease
payments for all facilities that THS, or any affiliate of THS, then leases from
HCPI or any Affiliate and HCPI ("combined average cash flow coverage"), has not
equaled 1.3 to 1.0 for any three consecutive months during the first Lease Year,
or at any point in time thereafter when such combined average cash flow coverage
fails to exceed 1.3 to 1.0 for any three consecutive calendar months, and
continuing thereafter through the Fixed Term and each Extended Term, Lessee
shall have obtained and delivered to Lessor, or cause to have been obtained and
delivered to Lessor, a letter of credit. Subsequent to the issuance of any
letter of credit, if for any nine consecutive calendar months the combined
average cash flow coverage is greater than 1.3 to 1, then upon expiration of
that nine months period a letter of credit will no longer be required. If at any
time thereafter the combined average cash flow coverage falls below 1.3 to 1.0
for any three consecutive calendar months, a letter of credit will again be
required until the end of the Fixed Term and Extended Terms or until the nine
month threshold is again attained. The letter of credit shall be from a
financial institution satisfactory to Lessor naming Lessor as beneficiary to
secure Lessee's obligations hereunder and Lessee's or an Affiliate of Lessee's
obligations under any other lease or agreement (including, without limitation,
the Contract of Acquisition and the Knightdale Lease) between Lessor or any
Affiliate of Lessor and Lessee
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or any Affiliate of Lessee, at the time, in the amounts and for the purposes set
forth below. Each letter of credit shall be for a term of one year and
irrevocable during that period unless and until the nine month threshold is
achieved. Each letter of credit shall provide that it will be honored upon the
signed statement by Lessor that Lessor is entitled to draw upon the letters of
credit under this Lease, and shall require no signature or statement from any
party other than Lessor. No notice to Lessee shall be required to enable Lessor
to draw upon the letter of credit. Each letter of credit shall also provide that
following the honor of any drafts in an amount less than the aggregate amount of
the letter of credit, the financial institution shall return the original letter
of credit to Lessor and Lessor's rights as to the remaining amount of the letter
of credit will not be extinguished. If the financial institution from which
Lessee has obtained a letter of credit shall admit in writing its inability to
pay its debts generally as they become due, file a petition in bankruptcy or a
petition to take advantage of any insolvency act, make an assignment for the
benefit of its creditors consent to the appointment of a receiver of itself or
of the whole or any substantial part of its property, or file a petition or
answer seeking reorganization or arrangement under the Federal bankruptcy laws
or any other applicable law or statute of the United States of America or any
state thereof, then Lessee shall obtain a replacement letter of credit within
thirty (30) days of such act from another financial institution satisfactory to
Lessor.
21.2. Times for Obtaining Letters of Credit. Each letter of credit shall
be obtained and delivered to Lessor by the Letter of Credit Date, and a new
letter of credit shall be obtained and delivered to Lessor thirty (30) days
prior to the expiration of a letter of credit if a letter of credit is still
required by the terms of this Lease.
21.3. Amounts for Letters of Credit. Each letter of credit required to be
provided hereunder shall be in an amount equal to Rent paid during the
immediately preceding six (6) calendar months, and shall cover all facilities
listed in Exhibit B.
21.4. Uses of Letters of Credit. Lessor shall have the right to draw upon
a letter of credit up to its full amount whenever an Event of Default pursuant
to Article XVI has occurred or an event of default under any other lease between
Lessor or an Affiliate of Lessor and Lessee or an Affiliate of Lessee has
occurred, provided further, in the event Lessee fails to obtain a satisfactory
letter of credit as required under this Article XXI prior to the applicable
Letter of Credit Date, Lessor has the right to draw upon the full amount of the
then existing letter of credit without giving any notice or time to cure to
Lessee. Any such draw shall not cure an Event of Default.
ARTICLE XXII.
22. Risk of Loss. During the Term of this Lease, the risk of loss or of
decrease in the enjoyment and beneficial use of the Leased Property as a
consequence of the damage or destruction thereof by fire, the elements,
casualties, thefts, riots, wars or otherwise, or in consequence of foreclosures,
attachments, levies or executions (other than by Lessor and those claiming from,
through or under Lessor) is assumed by Lessee, and, in the absence of gross
negligence, willful misconduct or breach of this Lease by Lessor pursuant to
Section
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36.2, Lessor shall in no event be answerable or accountable therefor nor shall
any of the events mentioned in this Section entitle Lessee to any abatement of
Rent.
ARTICLE XXIII.
23. Indemnification. Notwithstanding the existence of any insurance
provided for in Article XIII, and without regard to the policy limits of any
such insurance, Lessee will protect, indemnify, save harmless and defend Lessor
from and against all liabilities, obligations, claims, damages penalties, causes
of action, costs and expenses (including, without limitation, reasonable
attorneys' fees and expenses), to the extent permitted by law, imposed upon or
incurred by or asserted against Lessor by reason of: (a) any accident, injury to
or death of persons or loss of or damage to property occurring on or about the
Leased Property or adjoining sidewalks, including without limitation any claims
of malpractice, (b) any injury to or death of persons or loss of or damage to
property resulting from any Hazardous Substance used, stored or present on, in
or under the Leased Property or which migrates on, in or under the Leased
Property from any adjacent property, (c) Lessee's failure to comply with any
federal, state or local laws, ordinances, regulations or orders relating to any
Hazardous Substance, (d) any use, misuse, non-use, condition, maintenance or
repair by Lessee of the Leased Property, (e) any Impositions (which are the
obligations of Lessee to pay pursuant to the applicable provisions of this
Lease), (f) any failure on the part of Lessee to perform or comply with any of
the terms of this Lease, and (g) the non-performance of any of the terms and
provisions of any and all existing and future subleases of the Leased Property
to be performed by the landlord (Lessee) thereunder. Lessee's obligations under
this Article XVIII shall include, without limitation, any and all costs incurred
in connection with any investigation of site conditions and any and all costs of
any required or necessary repair, cleanup, detoxification, or decontamination of
the Leased Property (including, without limitation the soil and groundwater on
or under the Leased Property) and the preparation and implementation of any
closure, remedial action or other required plans in connection thereof. Any
amounts which become payable by Lessee under this Section shall be paid within
ten (10) days after liability therefor on the part of Lessee is determined by
litigation or otherwise, and if not timely paid shall bear a late charge (to the
extent permitted by law) at the Overdue Rate from the date of such determination
to the date of payment. Lessee, at its expense, shall contest, resist and defend
any such claim, action or proceeding asserted or instituted against Lessor or
may compromise or otherwise dispose of the same as Lessee sees fit. For purposes
of this Article XXIII, any acts or omissions of Lessee, or by employees, agents,
assignees, contractors, subcontractors or others acting for or on behalf of
Lessee (whether or not they are negligent, intentional, willful or unlawful),
shall be strictly attributable to Lessee.
Lessor shall indemnify, save harmless and defend Lessee from and against
all liabilities, obligations, claims, damages, penalties, causes of action,
costs and expenses imposed upon or incurred by or asserted against Lessee as a
result of the grossly negligent act or omission to act or willful misconduct of
Lessor.
Lessee's or Lessor's liability for a breach of the provisions of this
Article arising during the Term hereof shall survive any termination of this
Lease; provided, however that if
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this Lease terminates without Lessee purchasing the Leased Property, the
liability of Lessee resulting from the existence of any Hazardous Substance on,
in or under the Leased Property shall be limited to those injuries to or death
of persons or loss of or damage to property resulting from any Hazardous
Substance which existed on, in or under the Leased Property prior to the later
of (i) the termination or expiration of this Lease or (ii) the vacating of the
Leased Property by Lessee.
ARTICLE XXIV.
24. Subletting and Assignment. Lessee shall not, without Lessor's prior
written consent, which may be withheld at Lessor's sole and absolute discretion,
voluntarily or by operation of law assign (which term includes any sale,
encumbering, pledge or other transfer or hypothecation) this Lease, sublet all
or any part of the Leased Property or engage the services of any person for the
management or operations of the Facility. However, Lessor's consent to the
collateral assignment of Lessee's interest in this Lease shall not be
unreasonably withheld. If Lessee desires at any time to assign this Lease, to
sublet the Facility or any portion thereof or engage the services of any person
for the management or operation of the Facility, it shall first notify Lessor of
its desire to do so and shall submit in writing to Lessor: (i) the name of the
proposed sublessee, assignee or manager; (ii) the terms and provisions of the
proposed sublease, assignment or management agreement; and (iii) such financial
information as Lessor may request concerning the proposed sublessee, assignee or
manager. Any sublease shall be expressly subject and subordinate to all
applicable terms and conditions of this Lease. Furthermore, any sublease,
assignment or management agreement shall expressly provide that the sublessee,
assignee or manager shall furnish Lessor with such financial information as
Lessor may reasonably request from time to time. Any purported or attempted
assignment, sublease, management agreement or other permission to use the
Facility contrary to the provisions of this Article shall be void and, at the
option of Lessor, shall terminate this Lease. If Lessee is a corporation (or
partnership), any transfer of its stock (or partnership interests), including
any transfer of such stock or interest or the stock or interest of a parent
company pursuant to a public offering registered with the Securities and
Exchange Commission, or any dissolution, merger or consolidation, which results
in a change in the control of Lessee from the person or persons owning a
majority of its voting stock (or partnership interests) immediately prior
thereto, or the sale or other transfer of all or substantially all of the assets
of Lessee, shall constitute an assignment of Lessee's interest in this Lease
within the meaning of this Article XXIV and the provisions requiring consent
contained herein. Lessor's consent to the transfer of such stock or interest in
Lessee or Lessee's parent companies shall not be unreasonably withheld, subject
to Lessor's review of the controlling entity's net worth, cash flow coverage and
debt to equity ratio. The consent by Lessor to any assignment, subletting or
management arrangement shall not constitute a consent to any subsequent
assignment, subletting or management arrangement by Lessee or to any subsequent
or successive assignment, subletting or management arrangements by the
sublessee, assignee or manager. Lessee shall reimburse Lessor for Lessor's
reasonable costs and expenses incurred in conjunction with the processing and
documentation of any assignment, subletting or management arrangement, including
attorneys', architects', engineers' or other consultants' fees whether or not
such sublease, assignment or management agreement is actually consummated.
Anything contained in this
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Lease to the contrary notwithstanding, Lessee shall not (i) sublet, assign or
enter into a management arrangement for the Leased Property on any basis such
that the rental or other amounts to be paid by the sublessee, assignee or
manager thereunder would be based, in whole or in part, on the income or profits
derived by the business activities of the sublessee, assignee or manager; (ii)
furnish or render any services to the sublessee, assignee or manager or manage
or operate the Leased Property so subleased, assigned or managed; (iii) sublet,
assign or enter into a management arrangement for the Leased Property to any
person that Lessee or Lessor owns, directly or indirectly (by applying
constructive ownership rules set forth in Section 856(d)(5) of the Code); or
(iv) sublet, assign or enter into a management arrangement for the Leased
Property in any other manner which could cause any portion of the amounts
received by Lessor pursuant to this Lease or any sublease to fail to qualify as
"rents from real property" within the meaning of Section 856(d) of the Code, or
any similar or successor provision thereto or which could cause any other income
received by Lessor to fail to qualify as income described in Section 856(c)(2)
of the Code.
ARTICLE XXV.
25. Officer's Certificates and Financial Statements.
(a) At any time and from time to time upon Lessee's receipt of not
less than ten (10) days' prior written request by Lessor, Lessee will furnish to
Lessor an Officer's Certificate certifying that this Lease is unmodified and in
full force and effect (or that this Lease is in full force and effect as
modified and setting forth the modifications), the dates to which the Rent has
been paid, whether or not to the best knowledge of Lessee, Lessor is in default
in the performance of any covenant, agreement or condition contained in this
Lease and, if so, specifying each such default of which Lessee may have
knowledge, and responding to such other questions or statements of fact as
Lessor or any ground or underlying lessor or any mortgage or beneficiary shall
reasonably request. Lessee's failure to deliver such statement within such time
shall constitute an acknowledgement by Lessee that this Lease is unmodified and
in full force and effect except as may be represented to the contrary by Lessor,
Lessor is not in default in the performance of any covenant, agreement or
condition contained in this Lease and the other matters set forth in such
request, if any, are true and correct. Any such certificate furnished pursuant
to this Section may be relied upon by Lessor and any prospective mortgagee,
ground lessor or purchaser of the Leased Property.
(b) Lessee will furnish the following statements to Lessor:
(i) within 120 days after the end of each of Lessee's fiscal years,
a copy of the audited consolidated balance sheets of Lessee, its
consolidated subsidiaries as of the end of such fiscal year, and related
audited consolidated statements of income, changes in common stock and
other stockholders, equity and changes in the financial position of
Lessee, its consolidated subsidiaries for such fiscal year, prepared in
accordance with generally accepted accounting principles applied on a
basis consistently maintained throughout the period involved, such
consolidated financial statements to be certified by nationally recognized
certified public accountants;
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(ii) within 120 days after the end of each of Lessee's fiscal years,
and together with the annual audit report furnished in accordance with
clause (i) an Officer's Certificate stating that to the best of the
signer's knowledge and belief after making due inquiry, Lessee is not in
default in the performance or observance of any of the terms of this
Lease, or if Lessee shall be in default to its knowledge, specifying all
such defaults, the nature thereof, and the steps being taken to remedy the
same;
(iii) within 30 days after the end of each month for those months
occurring from the Commencement Date to three months after the first month
in which the average cash flow coverage (after a management fee of 6% of
net patient revenues and a $200 per bed reserve) for the Facility equals
or exceeds 1.3 for such month, all consolidated financial reports Lessee
produces for reporting purposes and detailed statements of income and
detailed operational statistics regarding occupancy rates, patient mix and
patient rates by type for the Facility; thereafter within 60 days after
the end of each of Lessee's quarters, all quarterly consolidated financial
reports Lessee produces for reporting purposes and detailed statements of
income and detailed operational statistics regarding occupancy rates,
patient mix and patient rates by type for the Facility;
(iv) within 60 days after its due date, a copy of each cost report
filed with the appropriate governmental agency for the Facility;
(v) within 30 days after they are required to be filed with the SEC,
copies of any annual reports and of information, documents and other
reports (or copies of such portions of any of the foregoing as the SEC may
by rules and regulations prescribe) which Lessee is required to file with
the SEC pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934;
(vi) immediately upon its receipt thereof, Lessee shall deliver to
Lessor copies of all material written communications received by Lessee
from any regulatory agency of the State or federal government relating to
(i) surveys of the Facility for purposes of licensure, Medicare and
Medicaid certification and accreditation and (ii) any proceeding, formal
or informal, with respect to cited deficiencies with respect to services
and activities provided and performed at the Facility, including patient
care, patient activities, patient therapy, dietary, medical records, drugs
and medicines, supplies, housekeeping and maintenance, or the condition of
the Facility, and involving an actual or threatened warning, imposition of
a fine or a penalty, or suspension, termination or revocation of the
Facility's license to be operated in accordance with its Primary Intended
Use;
(vii) with reasonable promptness such other information respecting
the financial condition and affairs of Lessee and the Facility as Lessor
may reasonably request from time to time;
(viii) within 120 days after the end of each fiscal year of the
financial institution issuing the letter of credit required under Article
XXI, a copy of the
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audited consolidated balance sheets of such financial institution as of
the end of such fiscal year, and related unaudited consolidated statements
of income, changes in common stock and other stockholders equity and
changes in the financial position of such financial institution and its
consolidated subsidiaries for each such fiscal year, prepared in
accordance with generally accepted accounting principles applied on a
basis consistently maintained throughout the period involved, such
consolidated financial statements to be certified by nationally recognized
certified public accountants;
(ix) immediately upon Lessee's learning, or having reasonable cause
to believe, that any Hazardous Substance or other toxic material is
located in, on, or under the Leased Property or any adjacent property,
Lessee shall notify Lessor in writing of (aa) any enforcement, cleanup,
removal, or other governmental or regulatory action instituted, completed
or threatened, (bb) any claim made or threatened by any person against
Lessee or the Leased Property relating to damage, contribution, cost
recovery, compensation, loss, or injury resulting from or claimed to
result from any Hazardous Substance, and (cc) any reports made to any
federal, state or local environmental agency arising out of or in
connection with any Hazardous Substance in or removed from the Leased
Property, including any complaints, notices, warnings or asserted
violations in connection therewith; and
(x) immediately upon its receipt thereof, Lessee shall deliver to
Lessor copies of all claims, reports, complaints, notices, warnings or
asserted violations relating in any way to the Leased Property or Lessee's
use thereof.
(c) Lessee hereby acknowledges that the failure to furnish Lessor
with any of the certificates or statements required by this Article XXV will
cause Lessor to incur costs and expenses not contemplated under the terms of
this Lease, the exact amount of which is presently anticipated to be extremely
difficult to ascertain. Accordingly, if Lessee fails to furnish Lessor with any
of the certificates or statements required by this Article XXV within five (5)
days after written demand by Lessor for the receipt thereof, Lessee agrees to
pay to Lessor, upon Lessor's request, $1,000 for each such failure as Additional
Charges. The parties agree that this charge represents a fair and reasonable
estimate of the costs that Lessor will incur by reason of Lessee's failure to
furnish Lessor with such certificates and statements.
ARTICLE XXVI.
26. Lessor's Right to Inspect. Lessee shall permit Lessor and its
authorized representatives to inspect the Leased Property during usual business
hours subject to any security, health, safety or confidentiality requirements of
Lessee or any governmental agency or insurance requirement relating to the
Leased Property, or imposed by law or applicable regulations.
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ARTICLE XXVII.
27. No Waiver. No failure by Lessor to insist upon the strict performance
of any term hereof or to exercise any right, power or remedy consequent upon a
breach thereof, and no acceptance of full or partial payment of Rent during the
continuance of any such breach, shall constitute a waiver of any such breach or
of any such term. To the extent permitted by law, no waiver of any breach shall
affect or alter this Lease, which shall continue in full force and effect with
respect to any other then existing or subsequent breach.
ARTICLE XXVIII.
28. Remedies Cumulative. To the extent permitted by law, each legal,
equitable or contractual right, power and remedy of Lessor now or hereafter
provided either in this Lease or by statute or otherwise shall be cumulative and
concurrent and shall be in addition to every other right, power and remedy and
the exercise or beginning of the exercise by Lessor of any one or more of such
rights, powers and remedies shall not preclude the simultaneous or subsequent
exercise by Lessor of any or all of such other rights, powers and remedies.
ARTICLE XXIX.
29. Acceptance of Surrender. No surrender to Lessor of this Lease or of
the Leased Property or any part of any thereof, or of any interest therein,
shall be valid or effective unless agreed to and accepted in writing by Lessor
and no act by Lessor or any representative or agent of Lessor, other than such a
written acceptance by Lessor, shall constitute an acceptance of any such
surrender.
ARTICLE XXX.
30. No Merger of Title. There shall be no merger of this Lease or of the
leasehold estate created hereby by reason of the fact that the same person,
firm, corporation or other entity may acquire, own or hold, directly or
indirectly, (a) this Lease or the leasehold estate created hereby or any
interest in this Lease or such leasehold estate and (b) the fee estate in the
Leased Property.
ARTICLE XXXI.
31. Conveyance by Lessor. If Lessor or any successor owner of the Leased
Property shall convey the Leased Property in accordance with the terms hereof
other than as security for a debt, Lessor or such successor owner, as the case
may be, shall thereupon be released from all future liabilities and obligations
of the Lessor under this Lease arising or accruing from and after the date of
such conveyance or other transfer as to the Leased Property and all such future
liabilities and obligations shall thereupon be binding upon the new owner.
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ARTICLE XXXII.
32. Quiet Enjoyment. So long as Lessee shall pay all Rent as the same
becomes due and shall fully comply with all of the terms of this Lease and fully
perform its obligations hereunder, Lessee shall peaceably and quietly have, hold
and enjoy the Leased Property for the Term hereof, free of any claim or other
action by Lessor or anyone claiming by, through or under Lessor, but subject to
all liens and encumbrances of record as of the date hereof or hereafter
consented to by Lessor. Lessee shall have the right, by separate and independent
action to pursue any claim it may have against Lessor as a result of a breach by
Lessor of the covenant of quiet enjoyment contained in this Section. No failure
by Lessor to comply with the covenant of quiet enjoyment shall give Lessee any
right to cancel or terminate this Lease or abate, reduce or make a deduction
from or offset against the Rent or any other sum payable under this Lease, or to
fail to perform any other obligation of Lessee hereunder.
ARTICLE XXXIII.
33. Notices. All notices, demands, requests, consents, approvals and other
communications hereunder shall be in writing and served by personal delivery,
registered or certified mail, return receipt requested and postage prepaid, use
of a nationally recognized overnight carrier, or by facsimile transmission
followed by sending a copy by first class mail, addressed to the respective
parties, as follows:
(a) if to Lessee:
Transitional Health Partners
d/b/a Transitional Health Services
1300 Hurstbourne Place
9300 Shelbyville Road
Louisville, KY 40222
Phone: (800) 735-3620 and
(502) 423-5101
Fax: (502) 425-3662
Attention: Randall J. Bufford
with a copy to:
John G. Hundley, Esq.
Vice President of Legal Affairs
1300 Hurstbourne Place
9300 Shelbyville Road
Louisville, KY 40222
Phone: (800) 735-3620 and
(502) 423-5101
Fax: (502) 425-3662
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(b) if to Lessor:
HCPI Charlotte, Inc., and
Health Care Property Investors, Inc.
10990 Wilshire Boulevard
Suite 1200
Los Angeles, California 90024
Phone: (310) 473-1990
Fax: (310) 444-7817
Attention: Legal Department
with a copy to:
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071
Fax: (213) 891-8763
Attention: David H. Vena, Esq.
or to such other address as either party may hereafter designate, and shall be
effective upon receipt if hand delivered or upon the expiration of the fifth
business day after the day of mailing.
ARTICLE XXXIV.
34.1. Appraisers. In the event that it becomes necessary to determine the
Fair Market Value of the Leased Property for any purpose of this Lease, the
party required or permitted to give notice of such required determination shall
include in the notice the name of a person selected to act as appraiser on its
behalf. Within 10 days after receipt of any such notice, Lessor (or Lessee, as
the case may be) shall by notice to Lessee (or Lessor, as the case may be)
appoint a second person as appraiser on its behalf. The appraisers thus
appointed, each of whom must be a member of the American Institute of Real
Estate Appraisers (or any successor organization thereto), shall, within 45 days
after the date of the notice appointing the first appraiser, proceed to appraise
the Leased Property to determine the Fair Market Value thereof as of the
relevant date (giving effect to the impact, if any, of inflation from the date
of their decision to the relevant date) provided, however that if only one
appraiser shall have been so appointed, or if two appraisers shall have been so
appointed but only one such appraiser shall have made such determination within
50 days after the making of Lessee's or Lessor's request, then the determination
of such appraiser shall be final and binding upon the parties. To the extent
consistent with sound appraisal practice as then existing at the time of any
such appraisal, such appraisal shall be made on a basis consistent with the
basis on which the Leased Property was appraised for purposes of determining its
Fair Market Value at the time the Leased Property was acquired by Lessor. If two
appraisers shall have been appointed and shall have made their determination
within the respective requisite periods set forth above and if the difference
between the amounts so determined shall not exceed ten percent (10%) of the
lesser of such amounts then the Fair
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Market Value shall be an amount equal to 50% of the sum of the amounts so
determined. If the difference between the amounts so determined shall exceed ten
percent (10%) of the lessor of such amounts, then such two appraisers shall have
20 days to appoint a third appraiser, but if such appraisers fail to do so, then
either party may request the American Arbitration Association or any successor
organization thereto to appoint an appraiser within 20 days of such request, and
both parties shall be bound by any appointment so made within such 20 day
period. If no such appraiser shall have been appointed within such 20 days or
within 90 days of the original request for a determination of Fair Market Value,
whichever is earlier, either Lessor or Lessee may apply to any court having
jurisdiction to have such appointment made by such court. Any appraiser
appointed by the original appraisers,by the American Arbitration Association or
by such court shall be instructed to determine the Fair Market Value within 30
days after appointment of such appraiser. The determination of the appraiser
which differs most in terms of dollar amount from the determination of the other
two appraisers shall be excluded, and 50% of the sum of the remaining two
determinations shall be final and binding upon Lessor and Lessee as the Fair
Market Value for such interest. This provision for determination by appraisal
shall be specifically enforceable to the extent such remedy is available under
applicable law, and any determination hereunder shall be final and binding upon
the parties except as otherwise provided by applicable law. Lessor and Lessee
shall each pay the fees and expenses of the appraiser appointed by it and each
shall pay one-half of the fees and expenses of the third appraiser and one-half
of all other cost and expenses incurred in connection with each appraisal.
ARTICLE XXXV.
35.1. First Refusal to Purchase.
(a) During the Term of this Lease, Lessee shall have a first refusal
option to purchase the Leased Property upon the same terms and conditions as
Lessor shall propose to sell the Leased Property, or upon the same terms and
conditions of any offer from a third party to purchase the Leased Property which
Lessor intends to accept (or has accepted subject to Lessee's right of first
refusal herein); provided, that such first refusal option shall not apply to any
sale of the Leased Property by Lessor to an Affiliate of Lessor. If, during the
Term, Lessor reaches such agreement with a third party or proposes to offer the
Leased Property for sale, Lessor shall promptly notify Lessee of the purchase
price and all other material terms and conditions of such agreement or proposed
sale and Lessee shall have thirty (30) days after receipt of such notice from
Lessor within which time to exercise Lessee's option to purchase. If Lessee
exercises its option, then such transaction shall be consummated within sixty
(60) days after the date of receipt by Lessor of notice of such exercise in
accordance with the terms and conditions of such agreement, as to price and the
other conditions set forth therein and in accordance with the provisions of
Article XVIII hereof to the extent not inconsistent therewith, on the first day
of the first month after all permits for owning or operating the Facility on the
Leased Property have been obtained by Lessee, but in no event later than 120
days after the date of receipt by Lessor of notice of the exercise by Lessor of
this option. If Lessee shall not exercise Lessee's option to purchase within
said thirty (30) day period after receipt of said notice from Lessor, Lessor
shall be free for a period of one year after the expiration of said 30 day
period to sell the Leased
48
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Property to any third party at a price and upon terms no less favorable to
Lessor than those so offered to Lessee. Whether or not such sale is consummated,
Lessee shall be entitled to exercise its right of first refusal as provided in
this section, as to any subsequent sale of the Leased Property during the Term
of this Lease.
(b) Lessor agrees not to sell a part of the Leased Property to
anyone unless it is selling all parts of the Leased Property concurrently. In
any such case, Lessee's right of first refusal shall be applicable and the price
at which Lessee may purchase shall be the sum of the proposed sale prices of the
parts.
35.2. Lessee's Option to Purchase the Leased Property. Lessee shall have
the option, exercisable on not less than 6 months' prior written notice and
given not earlier than 9 months prior to the expiration of the tenth (10th)
Lease Year, the expiration of the Fixed Term and the expiration of each
subsequent Extended Term, to purchase the Leased Property upon the expiration of
the tenth (10th) Lease Year, the Fixed Term or any Extended Term, as the case
may be, at the greater of (a) the purchase price of $5,602,040, plus the cost of
all capital additions financed by Lessor, (b) the then Fair Market Value of the
Leased Property as determined by appraisal, unencumbered by the Lease, or (c)
the then Fair Market Value of the Leased Property as determined by appraisal,
encumbered by the Lease, provided that Lessee concurrently exercises its right
to purchase every facility contained in the group of properties of which the
Leased Property is a part as described on Exhibit B. For (b) and (c), the
Facilities will be valued at their highest and best use.
ARTICLE XXXVI.
36.1. Lessor May Grant Liens. Without the consent of Lessee, Lessor may,
from time to time, directly or indirectly, create or otherwise cause to exist
any lien, encumbrance or title retention agreement ("Encumbrance") upon the
Leased Property, or any portion thereof or interest therein, whether to secure
any borrowing or other means of financing or refinancing. Any such Encumbrance
shall not be for an amount greater than the higher of the Minimum Repurchase
Price or the Fair Market Value of the Leased Property at the time the
Encumbrance is created. Any such Encumbrance, other than one the proceeds of
which are used to finance construction of Capital Additions (as to which the
following restrictions shall not apply) shall contain the right to prepay
(whether or not subject to prepayment penalty). This Lease is and at all times
shall be subject and subordinate to any ground or underlying leases, mortgages,
trust deeds or like encumbrances, which may now or hereafter affect the Leased
Property and to all renewals, modifications, consolidations, replacements and
extensions of any such lease, mortgage, trust deed or like encumbrance. This
clause shall be self-operative and no further instrument of subordination shall
be required by any ground or underlying lessor or by any mortgagee or
beneficiary, affecting any lease or the Leased Property. In confirmation of such
subordination, Lessee shall execute promptly any certificate that Lessor may
request for such purposes; provided, however that such subordination shall be
conditioned upon the holder of such interest executing and delivering to Lessee
an agreement in a form acceptable to such interest holder which agreement shall
provide that such interest holder will recognize Lessee's right to possession of
the Leased Property under this Lease so long as Lessee is not in default under
the terms of this Lease.
49
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36.2. Breach by Lessor. It shall be a breach of this Lease if Lessor shall
fail to observe or perform any term, covenant or condition of this Lease on its
part to be performed and such failure shall continue for a period of thirty (30)
days after notice thereof from Lessee (or such shorter time as may be required
in order to protect the health or welfare of any patients or other residents of
the Leased Property), unless such failure cannot with due diligence be cured
within a period of thirty (30) days, in which case such failure shall not be
deemed to continue if Lessor, within said thirty (30) day period, proceeds
promptly and with due diligence to cure the failure and diligently completes the
curing thereof. The time within which Lessor shall be obligated to cure any such
failure shall also be subject to extension of time due to the occurrence of any
Unavoidable Delay. If Lessor shall fail to pay when due any payment of an
obligation secured by a lien on the Leased Property, Lessee, without waiving or
releasing any rights or remedies, may (but shall be under no obligation at any
time thereafter to) upon written notice to Lessor make such payment. All sums so
paid by Lessee and all costs, and expenses (including, without limitation,
reasonable attorneys fees) so incurred, together with interest thereon (at the
Overdue Rate) from the date on which sums or expenses are paid or incurred by
Lessee, shall be paid by Lessor to Lessee on demand.
ARTICLE XXXVII.
37.1. Arbitration. Except with respect to the payment of Minimum Rent
hereunder, in case any controversy shall arise between the parties hereto as to
any of the requirements of this Lease or the performance thereof, which the
parties shall be unable to settle by agreement or as otherwise provided herein,
such controversy shall be determined by arbitration to be initiated and
conducted as provisions of this Article XXXVII.
37.2. Appointment of Arbitrators. The party or parties requesting
arbitration shall serve upon the other a demand therefor, in writing, specifying
the matter to be submitted to arbitration and nominating some competent
disinterested person to act as an arbitrator; within twenty (20) days after
receipt of such written demand and notification, the other party shall, in
writing, nominate a competent disinterested person and the two (2) arbitrators
so designated shall, within ten (10) days thereafter, select a third arbitrator
and give immediate written notice of such selection to the parties and shall fix
in said notice a time and place for the first meeting of the arbitration, which
meeting shall be held as soon as conveniently possible after the selection of
all arbitrators at which time and place the parties to the controversy may
appear and be heard.
37.3. Third Arbitrator. In case the notified party or parties shall fail
to make a selection upon notice, as aforesaid, or in case the first two (2)
arbitrators selected shall fail to agree upon a third arbitrator within ten (10)
days after their selection, then such arbitrator or arbitrators, may, upon
application made by either of the parties to the controversy, after twenty (20)
days, written notice thereof to the other party or parties, be appointed by any
judge of any United States Court of Record having jurisdiction in the state in
which the Leased Property is located, or, if such office shall not then exist,
by a judge holding an office most nearly corresponding thereto.
50
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37.4. Arbitration Procedure. Said arbitrators shall give each of the
parties not less than ten (10) days written notice of the time and place of each
meeting at which the parties or any of them may appear and be heard and after
hearing the parties in regard to the matter in dispute and taking such other
testimony and making such other examinations and investigations as justice shall
require and as the arbitrators may deem necessary, they shall decide the
question submitted to them; and the decision of said arbitrators in writing
signed by a majority of them shall be final and binding upon the parties to such
controversy. In rendering such decision and award, the arbitrators shall not add
to, subtract from or otherwise modify the provisions of this Lease.
37.5. Expenses. The expense of such arbitration shall be divided between
Lessor and Lessee unless otherwise specified in the award. Each party in
interest shall pay the fees and expenses of its own counsel.
ARTICLE XXXVIII.
38. Miscellaneous.
38.1. Anything contained in this Lease to the contrary notwithstanding,
all claims against, and liabilities of, the Lessee or Lessor arising prior to
any date of termination of this Lease shall survive such termination. If any
term or provision of this Lease or any application thereof shall be invalid or
unenforceable, the remainder of this Lease and any other application of such
term or provision shall not be affected thereby. If any late charges provided
for in any provision of this Lease are based upon a rate in excess of the
maximum rate permitted by applicable law, the parties agree that such charges
shall be fixed at the maximum permissible rate. Neither this Lease nor any
provision hereof may be changed, waived, discharged or terminated except by an
instrument in writing and in recordable form signed by Lessor and Lessee. All
the terms and provisions of this Lease shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns. The
headings in this Lease are for convenience of reference only and shall not limit
or otherwise affect the meaning hereof. This Lease shall be governed by and
construed in accordance with the laws of the State of California (but not
including its conflicts of laws rules), except for those certain procedural laws
which must be governed by the laws of the location of the Leased Property,
regarding which procedures the law of the state or commonwealth in which the
Leased Property is located shall govern.
38.2. Lessee specifically agrees to look solely to the Leased Property,
and to other assets of Lessor which directly relate to the proceeds (which shall
include any insurance proceeds or condemnation Awards) of the Leased Property,
for recovery of any judgment from Lessor. It is specifically agreed that no
constituent partner in Lessor or officer or employee of Lessor shall ever be
personally liable for any such judgment or for the payment of any monetary
obligation to Lessee. The provision contained in the foregoing sentence is not
intended to, and shall not, limit any right that Lessee might otherwise have to
obtain injunctive relief against Lessor or Lessor's successors in interest, or
any action not involving the personal liability of Lessor (original or
successor). Furthermore, except as otherwise expressly provided herein, in no
event shall Lessor (original or successor) ever be liable to
51
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Lessee for any indirect or consequential damages suffered by Lessee from
whatever cause. Notwithstanding the foregoing, Lessor shall be fully liable, to
the extent of the amount of such insurance proceeds or Awards actually received
by Lessor, for the willful misapplication of (i) insurance proceeds from any
policy of insurance covering any portion of the Leased Property, and (ii) any
Award received as a result of any Condemnation affecting the Leased Property.
38.3. Upon the expiration or earlier termination of the Term, Lessee shall
use its best efforts to transfer to Lessor or Lessor's nominee or to cooperate
with Lessor or Lessor's nominee in connection with the processing by Lessor or
Lessor's nominee of any applications for all licenses, operating permits and
other governmental authorization and all contracts, including contracts with
governmental or quasi-governmental entities which may be necessary for the
operation of the Facility; provided that the costs and expenses of any such
transfer or the processing of any such application shall be paid by Lessor or
Lessor's nominee.
ARTICLE XXXIX.
39. Memorandum of Lease. Lessor and Lessee shall, promptly upon the
request of either, enter into a short form memorandum of this Lease, in form
suitable for recording under the laws of the state in which the Leased Property
is located, in which reference to this Lease, and all options contained herein,
shall be made. Lessee shall pay all costs and expenses of recording such
Memorandum of Lease.
ARTICLE XL.
40. Sale of Real Estate Assets. Notwithstanding any other provision of
this Lease, Lessor shall not be required to sell or transfer the Leased
Property, or any portion thereof, which is a real estate asset as defined in
Section 856(c)(6)(B), or functionally equivalent successor provision, of the
Code, to Lessee if Lessor's counsel advises Lessor that such sale or transfer
may not be a sale of property described in Section 857(b)(6)(C), or functionally
equivalent successor provision, of the Code. If Lessor determines not to sell
such property pursuant to the above sentence, Lessee's right, if any, to
purchase any or all of such property shall continue and be exercisable, upon and
subject to all applicable terms and conditions set forth in this Lease,
including without limitation the provisions of Article XXXV, at such time as the
transaction, upon the advice of Lessor's counsel, would be a sale of Property
described in Section 857(b)(6)(C), or functionally equivalent successor
provision, of the Code, and until such time Lessee shall lease the Leased
Property from Lessor at Fair Market Rental.
ARTICLE XLI.
41. Subdivision. If the Land is in excess of that which is required to
operate the Leased Property in accordance with its Primary Intended Use, Lessor
may subdivide the Land and amend this Lease and the legal description attached
hereto as Exhibit A such that the Land contains only so much of the Land as is
necessary to operate the Leased Property in accordance with its Primary Intended
Use. If Lessor subdivides the Land there shall be no
52
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change in the Rent payable or any other obligations of either party under this
Lease. After any such subdivision Lessee shall have no rights to any land which
is no longer part of the Leased Property and Lessor may sell, lease or develop
any land which is no longer part of the Leased Property. If Lessor elects to
subdivide the Land Lessee shall cooperate with Lessor and take all actions
reasonably requested by Lessor to effect such subdivision.
ARTICLE XLII.
42. Authority. If Lessee is a corporation, trust, or general or limited
partnership, Lessee, and each individual executing this Lease, represent and
warrant that each is duly authorized to execute and deliver this Lease on behalf
of said entity and shall within thirty (30) days after execution of this Lease
deliver to Lessor evidence of such authority satisfactory to Lessor.
ARTICLE XLIII.
43. Attorneys' Fees. Lessee agrees to pay, as Additional Rent, all of
Lessor's reasonable attorneys' fees incurred in connection with the
administration or enforcement of this Lease, including without limitation,
attorneys' fees incurred in connection with Lessee's exercise of its option to
purchase the Leased Property, Lessee's exercise of its option to purchase the
Personal Property, the renewal of this Lease for any Extended Term, the review
of any new forms of letters of credit, the processing and documentation of any
assignment, subletting, or management arrangement, or the collection of past due
Rent.
ARTICLE XLIV.
44. HUD Conflict Override.
Lessee shall not sublet, assign or enter into a management arrangement for
the Leased Property without the express consent of HUD or in violation of any
statutes, rules or regulations pertaining to HUD financed properties, so long as
the Facility HUD Financing indebtedness remains in effect with regard to the
Leased Property. Lessee shall not voluntarily reduce the number of beds without
first obtaining the written approval of HUD. Lessee further covenants and agrees
that so long as the Facility HUD Financing indebtedness remains in effect with
regard to the Leased Property, it will conduct its business at the Facility in
conformity with all the provisions of the HUD Financing Documents and any other
standards or requirements necessary to ensure compliance with the rules and
regulations associated with the Facility HUD Financing indebtedness on the
Leased Property. If any provision of this Lease conflicts with or contradicts
any provision of the HUD Financing Documents, the provisions in the HUD
Financing Documents shall control. In the event any provision of this Lease is
invalid or unenforceable due to a conflict with any provision of the HUD
Financing Documents, the remainder of the Lease shall be valid and enforceable.
53
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IN WITNESS WHEREOF, the parties have caused this Lease to be executed and
attested by their respective officers thereunto duly authorized.
HCPI CHARLOTTE, INC., a Delaware TRANSITIONAL HEALTH PARTNERS
corporation d/b/a TRANSITIONAL HEALTH
SERVICES, a Delaware general
partnership
By: THS Partners I, Inc., a Delaware
corporation, its general partner
By: /s/ James G. Reynolds By: /s/ James J. TerBeest
--------------------------- -----------------------------------
Its: Vice President Its: EVP-CFO
By: /s/ Edward J. Henning By: /s/ John G. Hundley
--------------------------- -----------------------------------
Its: Vice President and Secretary Its: Vice President/Assistant Secretary
By: THS Partners II, Inc., a Delaware
corporation, its general partner
By: /s/ James J. TerBeest
-----------------------------------
Its: EVP-CFO
By: /s/ John G. Hundley
-----------------------------------
Its: Vice President/Assistant Secretary
"Lessor" "Lessee"
54
<PAGE>
SCHEDULE 10.20
THP has entered into a lease agreement substantially identical to Exhibit
10.20 as follows:
1. Operating Lease dated June 19, 1995 with HCPI Knightdale, Inc. for
Knightdale, North Carolina facility. Material details in which this agreement
differs from Exhibit 10.20 is that the amount of mortage indebtedness owed to
Highland Mortgage Company and insured by the United States Department of Housing
and Urban Development is $2,639,620.33, and the "Minimum Rent" is $386,727.64
per year.
55
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EXHIBIT 10.21
<PAGE>
LEASE AGREEMENT
THIS LEASE, made this 3rd day of June, 1991, by and between ELDERBERRY
NURSING HOME, INC., a Virginia Corporation, its successors and assigns,
(hereinafter referred to as "Landlord") party of the first part; and CARDINAL OF
KENTUCKY, INC., a Kentucky corporation, (hereinafter referred to as "Tenant"),
party of the second part;
W I T N E S S E T H :
In consideration of the mutual covenants and obligations herein contained,
IT IS AGREED:
1. PREMISES: Landlord does hereby demise and lease unto Tenant, and Tenant
does hereby take, hire and let from Landlord that certain tract or parcel of
real estate, together with the buildings and improvements (and including
furniture, fixtures and equipment belonging to or provided by Landlord) and
constituting an 83 bed (63 nursing home beds and 20 home for adult beds)
intermediate, skilled and home for the aged nursing home facility, and the
privileges and appurtenances thereunto appertaining, situate, lying and being on
North Aspen Street in Lincolnton, North Carolina, and being more particularly
described on "EXHIBIT A" hereto attached, hereafter referred to as "Premises" or
"Demised Premises".
2. COVENANT OF TITLE AND QUIET ENJOYMENT: Landlord covenants and warrants
that it alone has full right and lawful authority to enter into this Lease for
the full term hereof; that
<PAGE>
it is lawfully seized of the Premises in fee simple and has good title thereto,
free and clear of all tenancies, restrictions and encumbrances, (with the
exception of liens securing Lenders providing financing for the facility which
is the subject of this Lease, and other matters not adversely affecting the
intended use of the Premises or merchantability of title, or other matters
agreed to between the parties) and that at all times during the term of this
Lease and any extensions of said term, Tenant's quiet and peaceful enjoyment of
the Premises shall not be disturbed or interfered with by anyone.
3. GOVERNMENTAL AUTHORIZATIONS, UTILITIES AND USE OF PREMISES: Landlord
hereby represents and warrants to Tenant, that the use of the Premises as an
intermediate, skilled and home for the aged nursing home facility is a permitted
use under all applicable zoning or other use restrictions or regulations.
Landlord further warrants that the character, materials, design, construction
and location of the improvements is in full compliance with all building codes,
zoning laws and all other laws and ordinances pertaining thereto.
The Tenant shall use the premises as an intermediate, skilled and
home for the aged nursing home facility which shall be operated in full
compliance with all laws, regulations and licenses applicable thereto. Tenant
covenants that no part of the Demised Premises shall be used for any unlawful
purpose, nor will any unlawful condition or nuisance be permitted to exist
thereon.
-2-
<PAGE>
Tenant further covenants and agrees that its operation of the
nursing home facility shall materially comply with the representations in the
certificate of need application for the facility on file with the North Carolina
Department of Human Resources, Division of Facility Services, shall materially
comply with all conditions placed upon the certificate of need, and shall comply
with all licensure, certification, and other requirements of law applicable to
nursing home facilities.
4. TERM: The original term of this Lease shall be for Ten (10) years
commencing with the first day of the calendar month following the date that the
facility is licensed and becomes operational (the "Availability Date"). The
effectiveness of this Lease is specifically contingent upon prior licensure of
the facility.
5. RENT: A. Tenant shall pay to Landlord at its offices
in Lynchburg, Virginia, or at such other place as it may advise
in writing, in advance, on the 1st day of each calendar month,
without notice, demand, offset or deduction, in lawful money of
the United States of America, during and throughout the term of
this Lease, rent which shall be payable in monthly installments
equal to the sum of:
(1) For the first twelve (12) months of the term (Lease Year 1) the
sum of Twenty-Four Thousand, Three Hundred Sixty-Two Dollars ($24,362.00).
(2) For the next twelve (12) months of the term (Lease Year 2) the
sum of Twenty-Four Thousand, Eight Hundred Sixty-Seven Dollars
($24,867.00).
-3-
<PAGE>
(3) For the next thirty-six (36) months of the term (Lease Years 3,
4 and 5) the sum of Twenty-Five Thousand, Two Hundred Forty-Six Dollars
($25,246.00).
(4) For the next thirty-six (36) months of the term (Lease Years 6,
7 and 8) the sum of Twenty-Seven Thousand, One Hundred Thirty-Nine Dollars
($27,139.00).
(5) For the next twenty-four (24) months of the term (Lease Years 9
and 10) the sum of Twenty-Seven Thousand, Seven Hundred Seventy Dollars
($27,770.00).
Any rent adjustment resulting from a change in licensed beds
becoming effective on any day other than the first day of any month shall be
prorated on a per diem basis.
If the Landlord does not receive from Tenant any monthly rental
payment within ten (10) days after such payment is due, Landlord, at its option,
may charge Tenant a late charge and handling fee equal to Five Percent (5%) of
the monthly rental payment (such late charge and handling fee shall be deemed
additional rent) and such late charge and handling fee shall be due and payable
by Tenant to Landlord immediately upon delivery of written notice to Tenant, In
addition, if any check of Tenant's is returned to Landlord unpaid, Tenant shall
reimburse Landlord for all charges associated with such returned check and
Landlord, at its option, may thereafter require that Tenant pay the Rent and any
other charges payable hereunder by a certified or cashiers check.
B. If the Availability Date (as hereinabove defined) is not on the first
day of a month, a prorated monthly installment
-4-
<PAGE>
of Rent shall be paid by Tenant to Landlord for the period of time from the
Availability Date up to (but not including) the first day of the next succeeding
month, and thereafter the Rent shall be paid on the first day of each and every
month.
C. All additional sums payable by Tenant to Landlord under the provisions
of this Lease Agreement shall constitute additional rent.
6. REPORTS: Tenant agrees to provide Landlord with signed annual financial
statements accurately reflecting Tenant's financial condition and the results
for its business operations for the preceding year with respect to its
operations generally, as well as its business conducted on the Demised Premises.
Such statements shall be due ninety (90) days after the close of the Tenant's
fiscal year and shall be prepared in accordance with generally accepted
accounting principles consistently applied and further shall be in such form as
required by Landlord's mortgagee, In the event of any default hereunder or any
state of facts which upon the passage of time would constitute a default, Tenant
shall provide audited statements prepared by certified public accountants
satisfactory to Landlord. Tenant agrees to provide Landlord with annual
financial statements of any Guarantor of this Lease, duly signed by such
Guarantor within ninety (90) days after the close of the Guarantor's fiscal
year.
Tenant further will provide Landlord, as the same are filed with the
State of North Carolina, copies of all Medicaid Cost Reports, reports submitted
to the Department of Human Resources and other State agencies, and further will
provide
-5-
<PAGE>
Landlord copies of all communications with the State of North Carolina regarding
violations or alleged violations of applicable laws, rules, codes or
regulations.
7. LEGAL FEES AND COSTS: Tenant agrees, in the event it becomes necessary
for Landlord to enforce any provision of this Lease by legal action, or to
engage attorneys for the collection of rent or other monies due under this
Lease, to pay to Landlord reasonable attorneys fees and all court costs and
other costs of such collection or enforcement proceedings incurred by Landlord
if a valid claim is established.
8. UTILITIES: Landlord covenants that all water, sewer, electric current
and telephone facilities are available, connected and working as of the
availability date, Tenant shall pay when due all charges for heat, air
conditioning, water, gas, electricity and other utilities furnished to the
Premises for occupants thereof during the term hereof when the same become due
and payable.
9. REPAIR AND MAINTENANCE OF IMPROVEMENTS: Landlord warrants that the
entire Premises and the building and improvements thereon shall be in good, safe
condition and repair on the Availability Date and for a period of one (1) year
thereafter. Landlord shall be responsible for the structural integrity of the
building and repair of the roof and exterior walls, excluding windows and glass
panels, and except for damages caused or suffered to be caused by Tenant during
the term of this Lease. Except for such responsibility undertaken by Landlord,
Tenant shall be responsible, during the term, for maintaining the
-6-
<PAGE>
Premises in good repair, including without limitation all interior surfaces,
electrical, plumbing, heating, air conditioning, and other systems, as well as
the exterior grounds, and shall at the end of the term, return the same to
Landlord in good repair and condition, with the exception of casualties insured
against (the proceeds of such insurance having been paid to Landlord) and
ordinary wear and tear. If Tenant fails to make any repairs, and/or perform any
maintenance for which it is responsible, within thirty (30) days after written
notice thereof, Landlord may, at its sole option, make the repairs and/or
perform the maintenance and the reasonable expense thereof shall be paid by
Tenant, together with interest at a rate equal to One and One-Half Percent
(1-1/2%) in excess of the Prime Rate then in effect at the Bank financing the
construction of the facility if such expense is not paid within thirty (30)
days. Tenant shall have the right at any time and with the Landlord's prior
consent, which consent shall not be unreasonably withheld, to construct, alter,
repair or maintain on any part of the Premises such buildings, parking areas,
driveways, structures, sidewalks and other similar and dissimilar improvements
as Tenant shall desire. All improvements constructed by Tenant shall comply with
all applicable building codes and ordinances and shall be at Tenant's sole cost
and expense and shall become the property of Landlord at the termination of this
Lease, Tenant agrees to indemnify Landlord against all claims by laborers and
materialmen for any improvements constructed by Tenant.
-7-
<PAGE>
Landlord, its agents and employees, shall have the right at all reasonable
times and upon reasonable notice to Tenant, to enter the Demised Premises or any
part thereof, to inspect and examine the same for the purpose of making any
repairs to or within the Demised Premises.
10. DAMAGE OR DESTRUCTION OF IMPROVEMENTS: If the improvements located
upon the Premises shall be damaged or destroyed by any cause insured against,
Landlord shall, rebuild or restore the damaged or destroyed improvements, using
insurance proceeds for such purpose and this Lease shall continue in full force
and effect. In such event the rental reserved hereunder shall be paid by the
business interruption insurance hereinafter provided for. If the remaining term
is one (1) year or less, either party shall have the right to terminate this
Lease.
11. TAXES AND ASSESSMENTS: Tenant agrees to pay when due, all taxes (as
hereinafter defined) on or with respect to the Premises, Such payments shall be
made in accordance with the terms, and payable directly to the appropriate
authority or body. Landlord will promptly send Tenant copies of all bills for
taxes to be paid by Tenant and Tenant will pay the same to the appropriate
governmental authority. Tenant shall promptly send Landlord reasonable evidence
of payment of such bill after such payment.
In the event this Lease shall commence, or shall end (by reason of
expiration of the term or earlier termination pursuant to the provisions
hereof), on any date other than the first or last day of the year, or should the
year or period of
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assessment of real estate taxes be changed to more or less than one year, as the
case may be, then the amount of taxes which may be payable by Tenant as provided
hereunder shall be appropriately apportioned.
12. INSURANCE INDEMNITY:
(a) Tenant shall at all times during the original term and any
extension thereof, carry and maintain, for the mutual benefit of Landlord,
Tenant and Landlord's designated mortgagee, general public liability insurance
issued by a company or companies licensed to do business in North Carolina and
which are approved by Landlord (which approval shall not be unreasonably
withheld) against claims for personal injury, sickness, or disease, including
death and property damages in, on or about the Premises, such insurance to
afford protection to the limit of not less than $1,000,000.00 in respect to each
person, and to the limit of not less than $3,000,000.00 in respect to any one
occurrence causing bodily injury or death, and to the limit of not less than
$200,000.00 in respect to property damage. Tenant shall furnish Landlord with a
duplicate certificate or certificates of such insurance policy or policies, and
Tenant shall name Landlord and upon request, Landlord's mortgagee, as a party
insured in such policy or policies.
(b) During the term of this Lease or any extension thereof, Tenant
shall maintain for the benefit of Tenant, Landlord, and Landlord's designated
Mortgagee, business interruption insurance sufficient to pay the rent and
Tenant's other obligations hereunder for a period of six (6) months.
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Tenant shall be entitled to all payments made under such business interruption
insurance to the extent such payments exceed sums necessary to pay the rent and
Tenant's other obligations hereunder.
(c) During the term of this Lease or any extension thereof, Tenant
shall keep all buildings and improvements on the premises insured in the amount
of the full replacement cost for the benefit of Tenant, Landlord, and Landlord's
designated mortgagee against loss or damage by fire, with customary extended
coverage, All proceeds payable at any time and from time to time by an insurance
company under such policies (except contents belonging to Tenant and Tenant's
relocation allowance, if any) shall be payable to Landlord, or its designated
mortgagee, The proceeds shall be utilized by Landlord and Tenant for the
restoration of improvements in the event such restoration is required hereunder.
If no restoration is required, the proceeds shall belong to Landlord.
(d) The insurance policies herein mentioned shall provide thirty
(30) days notice of cancellation to all parties named therein as insured.
(e) Tenants shall fully indemnify, protect and save Landlord
harmless from all expenses, claims, demands, counsel fees, costs, liabilities,
judgments and executions in any manner relating to or arising out of the use or
occupancy of the Premises for the term of this Lease or any extension thereof.
(f) Any provision in this Lease to the contrary notwithstanding,
each party, to the extent it is permitted so to
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do by the terms and provisions of any such policy or policies, hereby waives any
and all rights to recover from the other, its agents, or employees, any loss or
damage from risks ordinarily insured against under such policies, but only to
the extent that such loss or damage is in fact covered by such insurance and is
collectible by such insured party, Each party further covenants and agrees that
it will, upon request of the other, request each such insurance company to
attach to such policy or policies issued by it a waiver of subrogation with
respect to the other party, its agents and employees.
13. ASSIGNMENT AND SUBLETTING: Tenant shall have the right to assign this
Lease or sublet all or any part of the Premises with the consent of Landlord,
such consent not to be unreasonably withheld, but Tenant shall in such event
remain liable to Landlord for Tenant's obligations hereunder. Any merger,
consolidation, reorganization, or liquidation of Tenant, or the mortgage by
Tenant of the leasehold estate hereby created, or the sale or other transfer of
a controlling interest of its capital stock, or of a majority of its assets,
shall, for purposes of this Lease, constitute an assignment thereof.
14. SIGNS: Tenant shall have the right to install, maintain and replace
in, on or over or in front of the Premises or in any part thereof such signs and
advertising matter as Tenant may desire, and Tenant shall comply with all
applicable requirements of governmental authorities having jurisdiction and
shall obtain any necessary permits for such purpose. As used in this paragraph,
the word "sign" shall be construed to include any
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placard, light or other advertising symbol or object, irrespective of whether
same be temporary or permanent.
15. EMINENT DOMAIN: If the whole or substantially all of the
Premises, or all means of access thereto, be acquired by eminent domain, or by
purchase in lieu thereof, this lease shall terminate and the rent shall be
abated during the unexpired portion of the lease subsequent to the actual
physical taking. Separate awards for damages shall be made to the Landlord and
the Tenant for the taking to the extend permitted by applicable law. Should,
however, only a portion of the premises be so condemned or taken, this Lease
shall continue in full force and effect provided, however, that the rent payable
under the unexpired portion of this Lease shall be adjusted to such extent as
may be fair and reasonable under the circumstances. Landlord shall, in such
event, promptly restore the Demised Premises as nearly as feasible to the
condition of such premises immediately prior to the taking, but Landlord shall
not be required, at its option, to restore or rebuild the Demised Property
during the last year of the Lease term, Tenant shall not be entitled to any part
of the condemnation proceeds arising from any partial taking except that Tenant
shall be entitled to rake a claim for any of Tenant's property condemned.
16. DEFAULT: Any one or more of the following events shall constitute
events of default.
(a) Tenant's failure to make payment of rent when the same is due
and payable and the continuance of such failure for a period of ten (10) days
after mailing by certified mail or
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delivery to Tenant of notice in writing from Landlord specifying in detail the
nature of such failure; or,
(b) Tenant's failure to perform any of the other covenants,
conditions, and agreements imposed by it under this Lease and the continuance of
such failure without the curing of same for a period of thirty (30) days after
mailing by certified mail or delivery to Tenant of notice in writing from
Landlord specifying in detail the nature of such failure and provided Tenant
shall not cure said failure as provided in paragraph (d) below, or,
(c) The adjudication of Tenant as a bankrupt, or the appointment of
a receiver or trustee for Tenant's property and affairs, or the making by Tenant
of any assignment for the benefit of its creditors or the filing by or against
Tenant of a petition in bankruptcy not vacated or set aside within ten (10) days
of such filing.
In the event of default, the Landlord, in addition to any other
right or remedy it may have with respect to such default, may upon ten (10) days
written notice, terminate this Lease for cause and re-enter the Premises and
take possession of the same, or, at its option, in such event Landlord may,
without declaring this Lease terminated, re-enter the Premises and occupy or
lease the whole or any part thereof, for and on account of Tenant and on such
terms and conditions for such rental as Landlord may deem proper based on
reasonable business practices, and Landlord shall in such event collect such
rent and apply the same upon the rents due from Tenant and upon the expenses of
such
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subletting, and any and all other damages sustained by Landlord. In the event of
default, Landlord shall exercise reasonable efforts to mitigate damages
hereunder and to re-let the Premises, but Landlord's failure to re-let or sublet
the Premises shall not prevent or delay the exercise by Landlord, at its option,
of its right to recover as damages rents due and owing for the remainder of the
term, together with all costs and expenses of collecting the same, subject to
Landlord's obligation to repay or credit the Tenant with all recoveries made by
Landlord.
Upon the occurrence of any of the above events of default, Landlord
may, at its option, give Tenant written notice by certified mail of Landlord's
election to end the term of this Lease upon a date specified in such notice,
which date shall be not less than thirty (30) days after the date of delivery or
certified mailing by Landlord of such notice, and whereupon the term and estate
hereby vested in Tenant shall cease and any and all other right, title and
interest of Tenant hereunder shall likewise cease without further notice or
lapse of time as fully and with like effect as if the entire term of this Lease
had elapsed, but Tenant shall continue to be liable to Landlord as hereinafter
set forth; provided, that this Lease shall not terminate if Tenant shall cure
such default prior to the termination date specified in such notice.
(d) In the event Landlord gives notice of a default of such a nature
(other than a default which may be cured by a payment of money) that it cannot
be cured within such thirty (30) day period, then such default shall not be
deemed to continue so
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long as Tenant, after receiving such notice, proceeds diligently and
continuously to cure the default as soon as reasonably possible and continues to
take all steps necessary to complete the same within a period of time which,
under all prevailing circumstances shall be reasonable. No default shall be
deemed to continue if, and so long as, Tenant shall be so proceeding to cure the
same in good faith or be delayed in or prevented from curing the same by Force
Majeure.
17. HOLDING OVER: In the event Tenant remains in possession of the
Premises after the expiration of the term hereof, including any extensions of
the term, and without the execution of a new lease, Tenant shall occupy the
Premises as a Tenant from month to month, subject to all of the conditions of
this Lease insofar as consistent with such a tenancy and at the highest monthly
rental herein provided.
18. COMPLIANCE WITH GOVERNMENTAL PROGRAMS: Landlord covenants that the
Premises will, during the term hereof, meet all standards required for Federal
Medicare (Title 18) or Medicaid (Title 19) skilled care or intermediate care
nursing programs and that it will make any alterations necessary to maintain
compliance with same. Any alterations or changes or expansion will be negotiated
at the then current cost of construction, which cost, together with interest at
the rate of interest for which money is financed, shall be amortized in level
monthly additional rent payments over the agreed upon remaining lease period.
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Tenant further covenants and agrees that its operation of the
nursing home facility shall materially comply with the representations in the
certificate of need application for the facility on file with the North Carolina
Department of Human Resources, Division of Facility Services, shall materially
comply with all conditions placed upon the certificate of need, and shall comply
with all licensure, certification, and other requirements of law applicable to
nursing home facilities.
19. WAIVERS: Failure of Landlord or Tenant to complain of any act or
omission on the part of the other party, no matter how long the same may
continue, shall not be deemed to be a waiver by said party of any of its rights
hereunder. No waiver by Landlord or Tenant at any time, expressed or implied of
any breach of any provisions of this Lease, shall be deemed a consent to any
subsequent breach of the same or any other provision. No acceptance by landlord
of any partial payment shall constitute an accord or satisfaction but shall only
be deemed a part payment in account.
20. SURRENDER OF PREMISES: Upon the expiration or other termination of
this Lease, Tenant covenants and agrees that it will peaceably leave and
surrender possession of the Premises to Landlord. Upon such surrender, all
improvements on the Premises shall be in good repair, damage or destruction by
fire or other casualty insured against and ordinary wear and tear, alterations,
additions and improvements herein permitted, excepted.
21. NOTICES: Until notice to the contrary to the other party has been
given, all notices and payments of money if made
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to Landlord shall be made or given by delivery or by mail (postage prepaid)
addressed to Landlord at P.0. Box 638, 1000 Church Street, Lynchburg, Virginia,
24505-0638, with a copy to Joseph C. Knakal, Jr., Esq., Caskie & Frost, P. 0.
Box 6360, 2306 Atherholt Road, Lynchburg, Virginia, 24505, or if made to Tenant
shall be made by delivery or by certified mail (postage prepaid) addressed to
Tenant at 9300 Shelbyville Road, Suite 1300, Louisville, Kentucky 40222,
Attention: Randall J. Bufford.
22. SHORT FORM LEASE: The parties hereto shall forthwith execute a
memorandum or short form lease agreement, in recordable form, including such
provisions hereof as either party may desire to incorporate therein.
23. NON-DISTURBANCE AND ATTORNMENT: Tenant agrees upon request of
Landlord's mortgagee to attorn to such mortgagee, subordinate this Lease to any
deed of trust constituting a lien on the premises, and to provide such other
reasonable assurances as such mortgagee may reasonably require in connection
with the financing of the Premises and the improvements thereon provided,
however, any such agreement or document shall provide, and such mortgagee shall
covenant, that Tenant's use and possession of the Premises shall not be
disturbed so long as Tenant shall not make or suffer any material default
hereunder, and further that in the event Landlord shall default in any payment
due to such mortgagee, Tenant shall have the right upon ten (10) days written
notice to pay such amount due and thereby cure such default.
24. PERFORMANCE BY LANDLORD: Landlord covenants to perform all of its
obligations to any mortgagee or other secured lender
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holding a lien on any property subject to this lease and to make timely payments
on all such secured indebtedness. In the event payment is made by Tenant for
Landlord's account as hereinabove provided in Section 23 hereof, Tenant shall be
entitled to recover such payment from Landlord with interest from the date of
such payment at the same rate applicable with respect to the secured
indebtedness upon which such payment is made, but no such payment shall be
offset or otherwise relieve Tenant from making future rental payments as and
when the same come due.
25. ENTIRE AGREEMENT: No oral statement or prior written matter shall have
any force or effect. Tenant agrees that it is not relying on any representations
or agreements other than those contained in this Lease. This Lease shall not be
modified or cancelled except by writing subscribed to by all parties.
26. BROKERAGE: Each of the parties covenants and represents to the other
that neither has incurred brokerage fees with respect to the transaction herein
set forth.
27. PARTIES: The covenants, conditions, obligations and agreements
contained in this Lease shall bind and inure to the benefit of Landlord and
Tenant and their respective successors and assigns. Each member of the Cardinal
Group jointly and severally endorses this Lease for the purpose of guaranteeing
all of Tenant's obligations to Landlord during the first thirty-six. (36) months
of the term, including without limitation, the obligation to make timely payment
of all installments of rent becoming due during such period.
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28. RIGHT OF FIRST REFUSAL: In the event Landlord desires during the term
(including any optional term which becomes effective) to sell the premises or
any part thereof, Landlord shall notify Tenant of such desire to sell in writing
by certified mail setting forth the amount of the proposed sale price and all
other terms and conditions of such proposed sale and Tenant shall have the right
of first refusal to purchase said premises upon the same terms and conditions by
giving Landlord written notice of its election so to do within sixty (60) days
after receipt of Landlord's notice. In the event Tenant fails to notify Landlord
of its election within such sixty (60) day period, or notifies Landlord it does
not wish to exercise its right to purchase, Landlord shall have the right to
sell the premises upon terms and conditions no more favorable to a purchaser
than those contained in said notice to Tenant.
In the event Landlord desires to relet to any person or entity the
Premises upon the expiration of the original term, Landlord shall notify Tenant
of such desire to relet in writing by certified mail, setting forth the proposed
terms of such lease, and Tenant shall have the right of first refusal to relet
said premises upon the same terms and conditions by giving Landlord written
notice of its election to do so within thirty (30) days after receipt of
Landlord's notice. In the event Tenant fails to notify Landlord of its election
within the thirty (30) day period or notifies Landlord it does not wish to
exercise its right to relet, Landlord shall have the right to relet the
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premises upon terms and conditions no more favorable to a tenant than those
contained in said notice to Tenant.
Tenant's right to notice and/or exercise either of the rights of
first refusal hereinabove specified shall be subject to the condition that
Tenant shall not be in default hereunder. If Tenant shall have lost its right to
purchase by reason of default as hereinabove set forth, or if after receiving
notice Tenant shall not exercise its right to acquire the Premises and the
Premises shall be sold by Landlord to a third party, the rights of first refusal
herein granted shall be terminated as of the recordation of the deed conveying
the Premises.
IN WITNESS WHEREOF, the parties hereto have each, pursuant to due
corporate authority, caused this Lease to be executed in its name and on its
behalf, each by its duly authorized officer, all as of this day and year first
above written.
LANDLORD:
ELDERBERRY NURSING HOME, INC.
By/s/ C. Lynch Christian, Jr.
------------------------------------
Its: President
TENANT:
CARDINAL OF KENTUCKY, INC.
By: /s/ Randall J. Bufford
------------------------------------
Its: Vice President
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EXHIBIT 10.22
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT (the "Lease"), executed and dated as of this 27th day
of April, 1989, between Sheridan Health Care Center, Inc., an Indiana
corporation (hereinafter referred to as "Lessor"), and Cardinal Development Co.,
Inc, a Kentucky corporation which is duly qualified to do business in the State
of Indiana (hereinafter referred to as "Lessee" or "Cardinal").
In consideration of the mutual undertakings and covenants hereinafter
contained and the acts to be performed hereunder, Lessor and Lessee hereby agree
to the within Lease Agreement for the Danville Health Care Center facility
(hereinafter referred to as the "Facility") and certain other property herein
identified, both of which are owned by Lessor and located in Danville, Indiana,
as follows:
RECITALS
Representations and Warranties of Lessor. Lessor makes the following
representations and warranties in reliance on the representations and warranties
of Lessee in an Assets Purchase and Exchange Agreement, among Lessee, Lessor,
Cicero Children's Center, Inc. and joined in by James Guttman and M. Lane
Guttman. Lessee has relied on said representations and warranties in entering
into this Lease for which Lessor shall be liable for any damages incurred in the
event they are untrue:
a) Except as provided in Exhibit A, there exist no leases, liens and/or
monetary encumbrances (the Facility Mortgages) against the Facility or related
to the business at the Facility.
b) Lessor has no collective bargaining agreements or employment contracts
for employees of the Facility that would extend to Cardinal;
c) On the Commencement Date (as hereinafter defined) Lessor will provide
Lessee with a fully equipped facility with all furniture, fixtures and equipment
as set forth in Exhibit B needed to operate the Facility in compliance with all
applicable local, state and/or federal law;
d) The Facility has current provider agreements under Med- icaid Programs;
e) There is no litigation, investigation or other proceeding pending and,
to the best knowledge of Lessor, threatened against or relating to Lessor, its
property or business, which is material to the Facility, the Premises and the
Leased Equipment or to this Lease, and the transaction contemplated herein has
not been challenged by any governmental agency or other person, nor does Lessor
<PAGE>
know or have reasonable grounds to know of any basis for such litigation,
investigation or other proceeding; and
f) To the best of Lessor's knowledge and in reliance on the
representations and warranties of Lessee in an Assets Purchase and Exchange
Agreement, among Lessee, Lessor, Cicero Children's Center, Inc. and joined in by
James Guttman and M. Lane Guttman:
(a) The Facility and its operation and use now are in substantial
compliance with all applicable municipal, county, state and federal laws,
regulations, ordinances, statutes and orders and with all municipal,
health, building and zoning bylaws and regulations (including, without
limitation, the fire safety code) where the failure to comply therewith
could have a material adverse effect on the business, property, condition
(financial or otherwise) or operation of the Facility;
(b) There are no outstanding deficiencies or work orders of any
authority having jurisdiction over the Facility requiring conformity to
any applicable statute, regulation, ordinance or bylaw pertaining to
nursing homes, including, but not limited to the Medicare and/or Medicaid
Programs;
(c) Lessor is not aware of any notice of any claim, requirement or
demand of any licensing or certifying agency supervising or having
authority over the Facility or otherwise to rework or redesign it or to
provide additional furniture, fixtures, equipment or inventory so as to
conform to or comply with any existing law, code or standard which have
not been fully satisfied prior to the Commencement Date (as hereinafter
defined); and
(d) Lessor has no knowledge that the Facility is not in material
compliance with all conditions and/or standards of participation in the
Medicare and/or Medicaid Programs.
ARTICLE I
Section 1.1 Leased Premises. Lessor hereby demises and leases to Lessee,
and Lessee hereby leases and takes from Lessor, the two tracts of real estate
located in Danville, Indiana and described in Exhibit C attached hereto and by
reference made a part hereof (the "Premises"), together with all improvements
located thereon including but not limited to the Facility and all rights,
privileges and easements appertaining thereto.
Section 1.2 Leased Equipment. Lessor hereby demises and leases to Lessee,
and Lessee hereby leases and takes from Lessor, the equipment, furniture,
furnishings and fixtures listed on Exhibit B attached hereto and by reference
made a part hereof and any additional items added thereto from time to time by
written agreement among Lessor and Lessee (such equipment, furniture,
furnishings and fixtures, together with all additions and acces-
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sories thereto or replacements thereof, being hereinafter referred to as the
"Leased Equipment").
Section 1.3 Maintenance of Leased Equipment. Lessee shall keep all of the
Leased Equipment in as good working order and condition as it is in on the
Commencement Date (as hereinafter defined), and at the expiration of the Lease
shall return and deliver all of such property to Lessor in as good order and
condition as when received hereunder, reasonable wear and tear and damage by
Acts of God or insurable perils excepted. Lessee shall replace all items of
Leased Equipment which may be damaged or destroyed or which may become worn out
or obsolete during the Term of this Lease. Lessee may place additional property
on the Leased Premises or may substitute equipment of its own choosing for the
Leased Equipment (subject to Lessee's obligation to replace the Leased Equipment
so removed upon expiration of the Term of this Lease), and the same shall be and
remain the property of Lessee ("Lessee's Equipment").
Section 1.4 Subordination of Landlord's Lien. Lessor agrees to execute a
subordination of any statutory or landlords lien that Lessor may have to any
security interest granted by Lessee to secure a purchase money obligation or a
lease of any additional Leased Equipment or of Lessee's Equipment.
ARTICLE II
Section 2.1 Term. The initial term of this Lease shall commence on April
27, 1989, provided Lessee has obtained the necessary permits and licenses (if
any) to operate the Facility as currently operated from local, federal and state
authorities, as may be applicable (the "Commencement Date") and shall extend for
a period of ten (10) years from the Commencement Date. unless earlier terminated
as provided herein (the "Initial Term").
Section 2.2 Renewal Terms. Provided (i) Lessee shall not be in default in
performance of any of its obligations under this Lease, and (ii) this Lease
shall not have previously been terminated, Lessee shall have the option upon the
expiration of the Initial Term to extend the Initial Term for an additional term
of five (5) years (the 'First Renewal Term'), Should Lessee elect to exercise
such option, it shall do so by written notice to Lessor at least ninety (90)
days prior to the expiration of the Initial Term. During the First Renewal Term,
this Lease shall continue in effect upon the same terms (except for renewal
options) and subject to the same conditions applicable to the Initial Term;
provided, however, that the Base Rent for the First Renewal Term shall be as
stated in Section 3.2.
Section 2.3 Term. The Initial Term and any additional term of this Lease
resulting from the exercise of the option granted in Section 2.2 are
collectively referred to in this Lease as the "Term."
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Section 2.4 Holding Over. In the event Lessee remains in possession of the
Premises or the Facility after the expiration of the Term and without the
execution of a new lease, it shall be deemed to be occupying the Premises and
Facility as a tenant from month to month, subject to all conditions, provisions
and obligations of this Lease insofar as the same are applicable to a
month-to-month tenancy.
ARTICLE III
Section 3.1 Base Rent. Lessee shall pay to Lessor as annual Base Rent
during the initial Term the sum of $310,742.76, payable in equal monthly
installments of $25,895.23 each in advance on the first day of each and every
calendar month during the Initial Term.
Section 3.2 Base Rent Adjustment for initial Term and Renewal Term.
Section 3.2.1 Lessee shall pay an Annual Base Rent during the second five
(5) years of the Initial Term ("Adjusted Term Base Rent") which shall be the
greater of (i) the Base Rent payable during the first five years of the Initial
Term ("Initial Term Base Rent") or (ii) the sum of the Initial Term Base Rent
plus a percentage of the initial Term Base Rent equal to 66% of the percentage
increase in the Consumer Price index -- Seasonally Adjusted U.S. City Average
for All Items for all Urban Consumers (1982-1984 = 100), as published by the
Bureau of Labor Statistics, United States Department of Labor ("CPI-U") for the
period from April 27, 1999 to April 27, 2004, but in no event more than 130% of
the Initial Term Base Rent.
Section 3.2.2 Lessee shall pay an annual Base Rent during the First
Renewal Term provided for in Section 2.2 ("First Renewal Term Base Rent") which
shall be the greater of (i) the Base Rent payable during the last five years of
the initial Term ("Initial Term Base Rent") or (ii) the sum of the Initial Term
Base Rent plus a percentage of the Initial Term Base Rent equal to 66% of the
percentage increase in the CPI-U, for the period April 27, 1999 to April 27,
2004, but in no event more than 130% of the Initial Term Base Rent.
Section 3.2.3 If the CPI-U shall no longer be published, another index
generally recognized as authoritative shall be substituted by agreement of the
parties. If they are unable to agree within sixty (60) days after demand by
either party, the substitute index shall, on application of either party, be
selected by the chief officer of the Atlanta Regional Office of the Bureau of
Labor Statistics or its successor. If the base year "(1982-84=100)" is changed,
the figures used in calculating the base rent for any remaining renewal term
shall be changed accordingly, so that all increases in the CPI-U are taken into
account notwithstanding any change in the base year.
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The minimum annual rental for each year of each renewal term shall be paid
in twelve (12) equal monthly installments, which installments shall be due and
payable in advance on the first day of each and every calendar month of the
renewal term year. If, at the beginning of any renewal term, sufficient
published data is not available to allow calculation of the percentage increase
in the CPI-U for the entire comparison period relevant to the renewal term,
Lessor shall estimate such percentage increase and Lessee shall pay, in advance,
on the first day of each calendar month occurring prior to the availability of
such data, a rental installment based on such estimated percentage increase in
the CPI-U. After such data becomes available and the renewal term base rent has
been determined, Lessee shall pay, with the next monthly installment of rental
falling due, any rental deficiency accrued during the preceding months of the
renewal term. If any excess rental has been paid during the preceding months,
Lessor shall credit the amount of such excess against the next monthly
installment of rent falling due.
Section 3.3 Payment of Net Rental. Except as otherwise provided in this
Article III, all rental payments shall be payable in advance on the first day of
each calendar month during the Term. The rent shall be payable to Lessor at the
address set forth in Article XVI or to such other person, firm or corporation at
such other address as Lessor may designate by notice in writing to Lessee.
Section 3.4 Additional Rent. Except as otherwise provided herein, all
impositions, insurance premiums, costs, fees, interests charges, expenses,
reimbursements and obligations of every kind and nature whatsoever relating to
the Premises, the Facility and the Leased Equipment (except payments of
principal and interest on any Facility Mortgage) which may arise or become due
during the Term, and which relate to the Term, shall be paid or discharged by
Lessee, and Lessee agrees to indemnify and to save Lessor harmless from and
against such costs, fees, charges, expenses, reimbursements, and obligations and
any interest thereon. Lessee shall pay all sales, business privilege, and other
taxes that are now or hereafter payable by Lessor in connection with the rent
specified in Section 3.1 or the payment or receipt thereof, or as the result of
any other payment or expenditure required to be made by Lessee hereunder,
provided, however, that Lessor shall utilize its best efforts to determine
whether it is exempt from said business privilege tax. All sales, business
privilege and other taxes payable by Lessee shall be paid monthly on the due
date of each rent payment, and with respect to other amounts required to be paid
or expended by Lessee, shall be paid upon demand of Lessor.
Section 3.5 Payment of Additional Rent. Except as otherwise provided
herein, Lessee shall pay or cause to be paid (except as hereinafter in Section
3.7 provided) before any penalty, interest or cost may be added thereto, all
sewer rents, water meter and water charges, excise, levies, licenses and permit
fees, charges for public utilities, and other charges or burdens of an
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operational nature, without particularizing by any known name or by whatever
name hereafter called, and whether any of the foregoing be general or special,
ordinary or extraordinary (all of which are herein referred to as "Impositions"
and as to any one such item as an "Imposition"), which at any time during the
Term may have been, or may be imposed upon, or grow or become a lien on the
Premises, the Facility, the Leased Equipment or any part thereof or any
appurtenances thereto. If, by law, any Imposition may, at the option of the
payor, be paid in installments, Lessee may exercise the option to pay the same,
including any accrued interest on the unpaid balance of such Imposition, in
installments and in such event shall pay only such installments as may become
due during the Term as the same become due and payable and before any fine,
penalty, further interest or cost may be added thereto. Any Imposition (except
Impositions which have become converted into installment payments as provided
above) relating to a fiscal period of the taxing authority, a part of which is
included in a period of time prior to the Commencement Date and/or after the
expiration of the Term shall be adjusted between Lessor and Lessee as of the
Commencement Date and/or as of the expiration of the Term, as appropriate.
Section 3.6 Exclusions from Additional Rent. Nothing in this Lease shall
require Lessee to pay municipal, state or federal income or excess profits taxes
assessed against Lessor or any estate, succession, inheritance or transfer taxes
of Lessor or corporation franchise taxes imposed upon any corporate owner of the
Premises, the Facility, the Leased Equipment, or any portion thereof.
Section 3.7 Permitted Contests. Lessee shall have the right to contest the
amount or validity in whole or in part of any Imposition by appropriate
proceedings diligently conducted in good faith but only after payment of such
Imposition unless such payment or a payment thereof under protest would operate
as a bar to such contest or interfere materially with the prosecution thereof in
which event, notwithstanding the provisions of this Section 3.7, Lessee may
postpone or defer payment of such imposition if neither the Premises, the
Facility, the Leased Equipment nor any part thereof would by reason of such
postponement or deferment be in danger of being forfeited or lost. Upon the
termination of any such proceedings, Lessee shall pay the amount of such
Imposition or part thereof, if any, as finally determined in such proceedings,
together with costs, fees, including reasonable attorneys' fees, interest,
penalties and any other liability in connection therewith. Lessee shall be
entitled to any refund of any Impositions and penalties and interest thereon
received by Lessor which have been paid by Lessee. Lessor shall not be required
to join in any proceedings referred to in this Section unless the provisions of
any law, rule or regulation at the time in effect shall require that such
proceedings be brought by or in the name of Lessor, in which event Lessor shall
join in such proceedings or permit the same to be brought in Lessor's name upon
compliance with such conditions as Lessor may reasonably require. Lessor shall
not
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be subjected to any liability for the payment of any fees, including attorneys
fees, costs or expenses in connection with such proceedings, all of which shall
be paid by Lessee.
Section 3.8 Payment of Facility Mortgages. Lessor shall be obligated to
make any and all principal and interest payments owing under the Facility
Mortgages. If any holder of any such mortgage encumbering the Premises and the
Facility requires a deposit of taxes or insurance or for replacement reserves to
be made with such holder, Lessee shall either pay to Lessor monthly the amounts
required and Lessor shall thereafter transfer such amounts to each holder, or,
pursuant to written direction by Lessor, Lessee shall make such deposits
directly with such holder. Lessor shall notify Lessee of any default of Lessor
under the Facility Mortgages as soon as Lessor becomes aware of such default
upon learning of a default under any of the Facility Mortgages, Lessee may, at
its option, take any steps necessary or desirable to cure the default and
thereafter reduce the next rental payment (or payments) due to Lessor under this
Lease by the amounts paid by Lessee to cure the default.
ARTICLE IV
Section 4.1 Use of the Premises, the Facility, and the Leased Equipment.
Lessee covenants to proceed with all due diligence to obtain or maintain all
approvals (if any) needed to operate the Facility under applicable local, state
and federal law, Including, but not limited to licensure and Medicare and/or
Medicaid certification. No use shall be made or permitted to be made of the
Premises, the Facility, the Leased Equipment or other improvements, and no acts
shall be done, which will cause the cancellation of any insurance policy
covering the Facility or any part thereof, nor shall Lessee sell or permit to be
kept, used or sold in or about the Premises or the Facility any article which
may be prohibited by the standard form of fire insurance policies.
Section 4.2 Waste Prohibited. Lessee shall not commit or suffer to be
committed any waste on the Premises or Facility, nor shall Lessee cause or
permit any nuisance thereon.
ARTICLE V
Section 5.1 Compliance with Law. Lessee covenants and agrees that the
Premises and Facility shall not be used for any unlawful purpose.
Section 5.2 Impairment of Title. Lessee shall neither suffer nor permit
the Premises or the Facility or any portion thereof to be used in such a manner
as (i) might reasonably tend to impair Lessor's title to the Premises, the
Facility or the Leased Equipment or any portion thereof, or (ii) may reasonably
make possible a claim or claims of adverse usage or adverse possession by the
public, as such, or of implied dedication of the Premises or any portion
thereof.
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ARTICLE VI
Section 6.1 Maintenance. Lessee shall, at its own cost, and without
expense to Lessor, keep and maintain the Premises, the Facility and the Leased
Equipment, including all sidewalks, buildings, surface parking lots and
improvements of any kind which may be a part thereof in as good condition and
repair as they are in on the Commencement Date, ordinary wear and tear,
obsolescence in spite of repair, acts of God and damages from insurable perils
excepted, Lessee shall also maintain the grounds in a good and sightly
appearance, including regular mowing, pruning, fertilizing, and other
appropriate care of all grass, plants, and trees. Lessor shall not be obligated
to make any repairs, replacements or renewals of any kind, nature or description
whatsoever to the Premises or the Facility or other improvements thereon or to
the Leased Equipment. At the expiration of this Lease, Lessee may remove any
equipment purchased by Lessee and kept at the Facility, Lessee may also remove
any improvements made to the Premises by Lessee, provided that such improvements
may be removed with little or no damage to the Premises.
Section 6.2 Alterations. Lessee shall make no changes alterations, or
additions to Tract I of the Premises, as set forth in Exhibit C, or the Facility
without the prior written consent of Lessor, except as hereinafter provided,
which consent shall not be unreasonably withheld. Lessee may make alterations to
Tract I of the Premises, as set forth in Exhibit C, or the Facility without
Lessor's consent that do not result in a substantial modification of the floor
plan or exterior appearance of the Facility and that do not reduce the fair
market value of the Facility for use as a long-term care facility. All
alterations shall be completed in compliance with all applicable codes,
regulations and other governmental requirements. Lessee may change, alter or add
to Tract II of the Premises, as set forth in Exhibit C, without the prior
consent of Lessor; however, Lessee shall provide Lessor written notice of any
proposed change, alteration or addition to Tract II of the Premises, as set
forth in Exhibit C, ninety (90) days prior to the effective date or date of
undertaking any such change, alteration or addition.
Section 6.3 Utilities. Lessee shall pay all charges for water,
electricity, gas, sewerage, waste, trash and garbage disposal, telephone, cable
television, and other services furnished to the Premises or the improvements
thereon.
ARTICLE VII
Section 7.1 Liens and Encumbrances. Lessee will not cause the Premises,
the Facility, the Leased Equipment or any improvements thereon to become subject
to any lien, charge, or encumbrance, except for purchase money security
interests in Leased Equipment purchased by Lessee for the Facility.
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Section 7.2 Mechanic's Liens. Lessee shall pay all costs incurred by
Lessee in connection with the alteration, maintenance and repair of any and all
improvements on the Premises. Should a lien or claim of lien be filed against
Lessor's interest in the Premises, the Facility or the Leased Equipment by any
contractor, subcontractor, mechanic, laborer, materialman or any other person as
a result of work done on behalf of Lessee, Lessee shall, within forty-five (45)
days after the filing thereof, cause the same to be discharged of record.
ARTICLE VIII
Section 8.1 Non-Liability and Indemnification of Landlord. During the
Term, Lessee agrees to protect, indemnify and save harmless Lessor from and
against all claims arising out of or connected with Lessee's use and occupancy
of the Premises, the Facility and the Leased Equipment and shall pay all costs
and expenses incurred by Lessor in connection with such claims, including,
without limitation, court costs and reasonable attorneys' fees for trial and
appellate proceedings, the amount of which shall be determined by a court of
law. This excludes any claim relating to Lessor's ownership or operation of the
Premises, the Facility and/or the Leased Equipment prior to the Commencement
Date.
ARTICLE IX
Section 9.1 Insurance. During the Term of this Lease, Lessee shall at all
times keep the Premises, the Facility, and the Leased Equipment insured with the
kinds and amounts of insurance described below. This insurance shall be written
by companies authorized to do insurance business in the State of Indiana. The
policies must name Lessor as an additional insured. Losses shall be payable to
Lessor and Lessee as provided in Section 10.1 of this Lease. In addition, the
policies shall name as an additional insured any mortgagee by way of a standard
form of mortgagees loss payable endorsement. Any loss adjustment shall require
the written consent of Lessor, Lessee, and each mortgagee. Evidence of insurance
shall be deposited with Lessor and, if requested, with any mortgagee(s). The
policies on the Premises, the Facility and the Leased Equipment shall insure
against the following risks:
(a) Loss or damage by fire and such other risks as may be included
in the broadest form of extended coverage insurance from time to time available,
including but not limited to loss or damage from leakage of any sprinkler system
now or hereafter installed in the Facility or on the Premises, in amounts
sufficient to prevent Lessor or Lessee from becoming a coinsurer within the
terms of the applicable policies and in any event in an amount not less than one
hundred percent (100%) of the then full replacement value thereof (as defined
below in Section 9.2);
(b) Loss or damage by explosion of steam boilers, pressure vessels
or similar apparatus, now or hereafter installed
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in the Facility, in such limits with respect to any one accident as may be
reasonably agreed by Lessor and Lessee from time to time;
(c) Claims for personal injury or property damage under a policy of
general public liability insurance with amounts not less than One Million and
No/100 Dollars ($1,000,000.00) per occurrence in respect of bodily injury and
Five Hundred Thousand No/100 Dollars ($500,000.00) for property damage;
(d) Claims arising out of malpractice in an amount not less than One
Million and No/100 Dollars ($1,000,000.00) for each person and for each
occurrence; and
(e) Such other hazards and in such amounts as may be customary for
comparable properties in the area and is available from insurance companies
authorized to do business in the State of Indiana; and
(f) Loss of rental under a rental value insurance policy covering a
risk of loss during the first six (6) months of reconstruction resulting from
the occurrence of any of the hazards described in Subsections (a) and (b) of
this Section 9.1 in an amount sufficient to prevent Lessor from becoming a
coinsurer.
Section 9.2 Replacement Cost. The term full replacement value of
improvements as used herein, shall mean the actual replacement cost thereof from
time to time, less exclusions provided in the normal fire insurance policy.
Section 9.3 Additional Insurance. In addition to the insurance described
above, Lessee shall maintain such additional insurance as may be reasonably
required from time to time by any mortgages.
Section 9.4 Waiver of Subrogation. All insurance policies carried by
either party covering the Premises, the Facility and the Leased Equipment,
including without limitation, contents, fire and casualty insurance, shall
expressly waive any right of subrogation on the part of the insurer against the
other party. Lessor and Lessee hereby waive and relinquish, and release each
other from, any and all rights and claims which either may have or hereafter
acquire against the other arising out of damage to the Premises, the Facility
and the Leased Equipment resulting from fire or other peril insurable under
available forms of fire and extended coverage insurance policies whether or not
such damage is caused by any alleged negligence of either Lessor or Lessee,
their respective employee, invitees, agents or licensees.
ARTICLE X
Section 10.1 Insurance Proceeds. All proceeds payable by reason of any
loss or damage to any of the improvements comprising the Premises or the
Facility or the Leased Equipment and insured under any policy of insurance
required by Article IX of this Lease
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shall be paid to Lessor and held by Lessor in trust (subject to the provisions
of Section 10.2 and the rights of the holders of the Facility Mortgages) and
shall be made available for reconstruction or repair, as the case may be, of any
damage to or destruction of the Premises, the Facility, and the Leased Equipment
and shall be paid out by Lessor from time to time for the reasonable costs of
such work. Any excess proceeds of insurance remaining after the completion of
the restoration or reconstruction of the Premises, the Facility or the Leased
Equipment shall be retained by Lessor and shall be credited against future
rental payments due from Lessee under this Lease. All salvage resulting from any
such loss covered by insurance shall belong to Lessor.
Section 10.2 Damage or Destruction. If, during the Term, the Facility, the
Premises or the Leased Equipment are totally or partially destroyed from a risk
covered by the insurance described in Article IX, Lessor shall, as soon as
practicable, restore the Facility to substantially the same condition as existed
immediately before the destruction. If the costs of the restoration exceed the
amount of proceeds received by Lessor from the insurance required under Article
IX, Lessor shall be solely responsible for paying the difference between the
amount of insurance proceeds and such cost of restoration.
Section 10.3 Restoration of Lessee's Property. If Lessor is required to
restore the Facility as provided in Section 10.2, Lessor shall not be required
to restore alterations made by Lessee, Lessee's improvements, trade fixtures or
personal property, such excluded items being the sole responsibility of Lessee
to restore.
Section 10.4 Abatement of Rent. During the period required for repair and
restoration, payments of rent provided for in Section 3.1 shall be abated in the
manner and to the extent that is fair, just and equitable to both Lessee and
Lessor, taking into consideration, among other relevant factors, the number of
useable beds affected by such damage or destruction.
ARTICLE XI
Section 11.1 Definitions.
(a) "Condemnation" means (a) the exercise of any governmental power,
whether by legal proceedings or otherwise, by a condemnor, and (b) a voluntary
sale or transfer by Lessor to any condemnor, either under threat of condemnation
or while legal proceedings for condemnation are pending.
(b) "Date of Taking" means the date the condemnor has the right to
possession of the property being condemned.
(c) "Award" means all compensation, sums or anything of value
awarded, paid or received on a total or partial condemnation.
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(d) "Condemnor" means any public or quasi-public authority, or
private corporation or individual, having the power of condemnation.
Section 11.2 Parties' Rights and Obligations. If during the term of this
Lease there is any taking of all or any part of the Premises or the Facility or
any interest in this Lease by condemnation, the rights and obligations of the
parties shall be determined by this Article XI.
Section 11.3 Total Taking. If the Facility and the Premises are totally
taken by condemnation, this Lease shall terminate on the Date of Taking.
Section 11.4 Partial Taking. If a portion of the Premises and/or all or a
portion of the Facility is taken or condemned, this Lease shall remain in effect
providing that the Facility is not thereby rendered unsuitable for use. The
Facility shall be deemed to have been rendered unsuitable for use if, in the
good faith and judgment of Lessee, reasonably exercised, after any such taking
by condemnation, the Facility cannot be operated on a commercially practicable
basis as a long term care facility of the type and quality existing and licensed
immediately prior to such taking or condemnation, taking into account, among
other relevant factors, the number of useable beds affected by such taking or
condemnation.
If as the result of any such partial taking or condemnation, this Lease is
not terminated but the number of beds available for operation of the Facility of
the type and quality existing prior to the taking has been reduced, Lessee shall
be entitled to a reduction as of the Date of Taking in the amount of rent to the
extent that is fair, just and equitable to both Lessee and Lessor, taking into
consideration, among other relevant factors, the number of beds affected by such
taking or condemnation.
Section 11.5 Restoration. If there is a partial taking of the Premises or
the Facility and this Lease remains in full force and effect pursuant to Section
11.4, Lessor shall, as soon as practicable, at its cost, accomplish all
necessary restoration to restore the Facility to substantially the same
condition as existed immediately before the taking, provided, however, that
Lessor shall have no obligation to repair or restore alterations made by Lessee,
Lessee's leasehold improvements, Lessee's trade fixtures and Lessee's Equipment.
Section 11.6 Award--Distribution.
The entire Award shall belong to and be paid to Lessor except that Lessee
shall be entitled to receive from the award the following:
(a) Any amounts in excess of $2,825,000.
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(b) Any sum specifically included in the award for loss of goodwill
by Lessee or moving expenses.
ARTICLE XII
Section 12.1 Events of Default. The occurrence of any of the events, acts
or circumstances described in Sections 12.2 and 12.3 shall constitute an Event
of Default under this Lease.
Section 12.2 Failure in Payment. Failure by Lessee to pay in full any rent
payable under this Lease when due, and the continuance of such failure for seven
(7) days after Lessor has given Lessee notice of such failure.
Section 12.3 Failure in Other Performance. Failure by Lessee to observe,
perform or comply with any of the terms covenants, agreements or conditions
contained in this Lease (other than as specified in Section 12.2), and the
continuance of such failure for thirty (30) days after Lessor have given Lessee
notice of such failure. If Lessee has promptly commenced and diligently pursued
remedial action within said thirty (30) day period but has been unable to cure
its default prior to the expiration thereof, said thirty (30) day period shall
be extended for the minimum time reasonably required for the completion of
Lessee's remedial action.
Section 12.4 Remedies. Upon the occurrence of any Event of Default,
Lessor, in addition to the other rights or remedies they may have, shall have
the immediate right of reentry. Should Lessor elect to reenter, as herein
provided, or should it take possession pursuant to legal proceedings or pursuant
to any notice provided for by law, Lessor may either terminate this Lease or it
may from time to time, without terminating this Lease, relet for the account of
Lessee the Premises, the Facility, the Leased Equipment or any part thereof for
such term or terms, which may be for a term shorter than or for a term extending
beyond the term of this Lease, and at such rental or rentals and on such other
terms and conditions as Lessor, in its sole discretion, may deem advisable.
Should Lessor at any time terminate this Lease as a result of an Event of
Default, in addition to any other remedy it may have, Lessor may recover from
Lessee all damages incurred by reason of such Event of Default, including the
cost of recovering the Premises. Notwithstanding the foregoing, should Lessor
terminate this Lease, Lessee shall have the right to reenter the Premises and
the Facility for the sole purpose of removing any of Lessee's Equipment located
thereon or therein.
Section 12.5 No Remedy Exclusive. No remedy herein conferred upon or
reserved to Lessor is intended to be exclusive of any other available remedy or
remedies, but each and every such remedy shall be cumulative and shall be in
addition to every other remedy given under this Lease or now or hereafter
existing at law or in equity or by statute. No delay or omission to exercise any
right, remedy, or power accruing upon any Event of Default shall impair any such
right, remedy or power or shall be construed to be
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a waiver thereof unless and until such Event of Default has been cured.
ARTICLE XIII
Section 13.1 Lessor's Right to Perform Lessee's Covenants. If Lessee
defaults in the making of any of the payments, or the performance of any of the
obligations provided for in this Lease, Lessor may, at its option and on behalf
of Lessee, make any such payments or perform any such obligations.
Section 13.2 Notice of Default. Before exercising the option in Section
13.1, however, Lessor must give Lessee written notice of Lessee's default, and
of Lessor's intention to correct that default. If thirty (30) days after such
notice, or such shorter time period as Lessor may specify in the notice if
further delay would impair materially any substantial right, property, or
benefit of Lessor, Lessee has not corrected such default, Lessor may exercise
its rights under this Article XIII.
Section 13.3 Lessee's Obligations to Lessor. In the event Lessor performs
any obligation on Lessee's behalf, Lessee shall reimburse Lessor for any amounts
reasonably paid or expended. This reimbursement shall be due and payable on the
next date after the expense is incurred that rent is otherwise due.
ARTICLE XIV
Section 14.1 Quiet Enjoyment. Lessor covenants and agrees that, so long as
Lessee observes and performs all of the covenants, conditions, and stipulations
of this Lease, Lessee may lawfully and quietly hold, occupy and enjoy the
Premises, the Facility and the Leased Equipment during the Term.
Section 14.2 Inspection by Lessor. Notwithstanding the foregoing, Lessor
shall have the right, during normal business hours upon not less than
twenty-four (24) hours advance notice, to enter upon the Premises and into the
Facility and to examine and inspect the same.
ARTICLE XV
Section 15.1 Assignment and Subletting.
Section 15.1.1 To a Lessee Affiliate. Lessee may, without prior approval
from Lessor, sublease both Tract I and Tract II of the Premises, as set forth on
Exhibit C, the Facility and the Leased Equipment or assign its rights and
obligations under this Lease to any corporation which is a parent, sister or
wholly-owned subsidiary of Lessee (a "Lessee Affiliate"). Lessee shall give
Lessor written notice of any such assignment or subletting. No assignment or
subletting shall release Lessee from its liability under this Lease, unless
Lessor specifically consents to a release.
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Section 15.1.2 To other than a Lessee Affiliate - The Facility. Lessee may
sublease Tract I of the Promises as set forth on Exhibit C, the Facility and the
Leased Equipment or assign its rights and obligations under this Lease to a
person or entity that is not a Lessee Affiliate with the prior written consent
of Lessor, which consent shall not be unreasonably withheld if Lessor is
satisfied as to the ability of the proposed transferee to make the rent payments
due and owing hereunder and to comply with Lessee's other obligations under this
Lease. No assignment or subletting shall release Lessee from its liability under
this Lease, unless Lessor specifically consents to a release.
Section 15.1.3 To other than a Lessee Affiliate - Additional Property.
Lessee may sublease Tract II of the Premises, as set forth on Exhibit C. or
assign its rights and obligations under this Lease with respect to Tract II to a
person or entity that is not a Lessee Affiliate without the prior written
consent of Lessor. No assignment or subletting shall release Lessee from its
liability under this Lease, unless Lessor specifically consents to a release.
Section 15.2 Assignment and Subletting By Lessor. Lessor may at any time
assign its rights and obligations under this agreement, provided, however, that
Lessor shall furnish to Lessee a written statement from Lessor's assignee that
such assignee recognizes all of the Lessee's rights under this agreement.
Section 15.3 Subsequent Assignments. No assignment or subletting that is
approved pursuant to this Article XV shall be deemed to remove any subsequent
assignment or subletting from the provisions of this Article XV, it being the
intent hereof that every assignment and subletting, whenever occurring, shall
require the same approval as is set forth herein for an original assignment or
subletting.
ARTICLE XVI
Section 16.1 Notices. All notices provided for in this Lease or related to
this Lease shall be in writing and shall be delivered to the parties at the
addresses set forth below. All such notices or other papers or instruments
related to this Lease shall be deemed sufficiently served or delivered on the
third day after the date of mailing, provided that they are sent by United
States Registered or Certified Mail, postage prepaid, in an envelope properly
sealed.
Notices intended for the Lessor should be sent to:
Sheridan Health Care Center, Inc.
301 East Third Street
Sheridan, Indiana 46069
Attn: James Guttman
Notices intended for the Lessee should be sent to:
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Cardinal Development Co., Inc.
9300 Shelbyville Road
Suite 1300
Louisville, Kentucky 40222
Attn: Randall J. Bufford
Section 16.2 Change in Address. Both Lessor and Lessee may change the
address or the name of the addressee applicable to subsequent notices by giving
notice as provided above. However, notice of such a change shall not be
effective until the fifth day after mailing.
ARTICLE XVII
Section 17.1 Captions. The captions in this Lease are for convenience of
reference only. In no way do those captions define, limit or describe the scope
or intent of this Lease.
Section 17.2 Gender. Words showing number shall be taken to include both
the singular and the plural forms. Words showing gender shall be taken to
include masculine, feminine and neuter.
Section 17.3 Successors and Assigns. This Lease shall inure to the benefit
of and be binding upon Lessor and Lessee and their respective successors and
assigns.
Section 17.4 Governing Law. This Lease shall be governed, construed, and
enforced in accordance with the Laws of the State of Indiana.
Section 17.5 Memorandum of Lease. Lessor and Lessee shall execute a
Memorandum of this Lease in form and substance satis- factory to Lessee. The
Memorandum may be recorded in the Public Records of Hendricks County, Indiana.
Lessee shall pay the cost of recording.
Section 17.6 Severability. Each term and provision of this Lease shall be
enforced to the fullest extent permitted by law. Should any term or provision of
this Lease, or the application thereof, prove illegal or unenforceable, the
remainder of this Lease shall still be valid and enforceable.
Section 17.7 Amendments and Modifications. Neither this Lease nor any
provision hereof may be changed, waived, discharged or terminated orally, but
only by an instrument in writing signed by the party against whom enforcement of
the change, waiver, discharge or termination is sought.
Section 17.8 Interpretation. No provision of this Lease shall be construed
against or interpreted to the disadvantage of either Lessor or Lessee by any
court or other governmental or
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judicial authority by reason of such party's having or being deemed to have
structured, written, drafted or dictated such pro visions.
IN WITNESS WHEREOF, the parties hereby execute this Agreement as of the
day and year first written above.
WITNESSES: LESSOR:
SHERIDAN HEALTH CARE CENTER, INC.
/s/ Alice A. O'Brien /s/ James M. Guttman
- ---------------------------- ---------------------------------
As to Lessor James M. Guttman, President
Date:4/28/89
LESSEE:
CARDINAL DEVELOPMENT CO., INC.
/s/ Joyce McCubbin /s/ Randall J. Bufford
- ---------------------------- ---------------------------------
As to Lessee Randall J. Bufford, Vice President
Date:4/28/89
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FIRST AMENDMENT TO LEASE AGREEMENT
This is a FIRST AMENDMENT TO LEASE AGREEMENT (the "First Amendment")
executed and dated as of the 5th day of August, 1992 between SHERIDAN HEALTH
CARE CENTER, INC., an Indiana corporation ("Lessor") and CARDINAL DEVELOPMENT
CO, INC., a Kentucky corporation ("Lessee").
Recital
Lessor and Lessee entered into a certain Lease Agreement executed and
dated as of April 27, 1989 (the "Original Lease"), pursuant to which the Lessor
leased to Lessee a certain nursing home facility in Danville, Indiana. The
parties wish to amend the Original Lease as provided below.
NOW, THEREFORE, in consideration of the Lessor's execution and delivery of
a certain Settlement Agreement of even date herewith by and among Lessor, Cicero
Children's Center, Inc., Lessee, and Sheridan Acquisition Corporation (to which
the form of this First Amendment is attached as Annex A), and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Lessor and Lessee hereby amend the Original Lease as follows:
1. Section 3.1 of the Original Lease is hereby modified and
amended to add the following sentence:
Lessee shall pay to Lessor a late payment charge equal to five
percent (5%) of the monthly Base Rent payment if such payment is
posted later than the 12th day of each calendar month during the
Initial Term and any Renewal Term.
2. For purposes of Article XV of the Original Lease, Lessor hereby
acknowledges and approves Lessee's good faith attempts through and until January
31, 1993, to qualify and obtain a subtenant to sublet and operate the Danville
facility, and Lessee agrees not to unreasonably withhold its consent to such
subletting or assignment of the Original Lease.
IN WITNESS WHEREOF, the parties have executed and delivered this First
Amendment effective as of the date set forth in the preamble hereto, but
actually on the date set forth below.
SHERIDAN HEALTH CARE CENTER, INC.
By:/s/ James Guttman
------------------------------
James Guttman
President
<PAGE>
Date:8/10/92
CARDINAL DEVELOPMENT CO., INC.
By:/s/ David V. Hall
------------------------------
David V. Hall
President
Date:8-6-92
<PAGE>
SECOND AMENDMENT TO LEASE AGREEMENT
This is a Second Amendment to Lease Agreement (the "Second Amendment")
executed and dated as of October 25, 1993 between SHERIDAN HEALTHCARE CENTER,
INC., an Indiana corporation ("Lessor") and CARDINAL DEVELOPMENT CO., INC, a
Kentucky corporation ("Lessee").
Recital
Lessor and Lessee entered into a certain Lease Agreement executed and
dated as of April 27, 1989, as amended by a certain First Amendment to Lease
Agreement dated August 5, 1992 (the "Original Lease"), pursuant to which the
Lessor leased to Lessee a certain nursing home facility in Danville, Indiana
(the "Facility"). The parties wish to amend the Original Lease as provided
below.
NOW, THEREFORE, in consideration of the consents, releases and other
covenants provided for below and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledge, Lessor and Lessee agree
as follows:
1. Lessee hereby releases to Lessor the real estate described as Tract II
to the Original Lease pursuant to the Partial Release of Lease of even date
herewith, a copy of which is attached hereto (the "Release of Lease").
2. Lessor hereby covenants and agrees that during the Term of the Original
Lease and any and all Renewal Terms, Lessor shall not directly or indirectly
construct, develop, own, manage, operate, join, control or participate in the
ownership, management, development, construction or control of, or be connected
in any manner with, as agent, partner, proprietor, shareholder, officer,
director, consultant, developer, or otherwise, a nursing home or related
long-term healthcare business on the real property released to Lessor pursuant
to the Release of Lease (the "Real Property"). Subject to the foregoing
constraint, which Lessor agrees shall run with the land, Lessee and Lessor agree
that Lessor is free to alienate and use said Real Property for any other use or
purpose whatsoever. Lessor and Lessee agree that, in the event of a breach of
the covenant set forth in the preceding sentence, damages would be difficult to
ascertain, and that Lessee will be entitled to injunctive and/or other equitable
relief, without prejudice to other rights or remedies, and that the Lessor shall
not assert in any such action that there is an adequate remedy at law for the
breach upon with the action is based, Lessor agrees that any subsequent
alienation or conveyance of the Real Property by deed or lease shall prohibit
the Grantee or other Lessee from using the Real Property in contravention of the
terms of this paragraph.
3. The Original Lease is hereby amended to add a new Section 17.9 as
follows:
<PAGE>
Within thirty (30) days of the end of each calendar quarter
commencing September 1, 1993, Lessee shall furnish Lessor with a
copy of Lessee's unaudited financial statements pertinent to the
operation of the Facility, including but not limited to an income
statement and balance sheet, together with any and all other
financial information reasonably requested by Lessor. Additionally,
within one hundred and twenty (120) days of the end of Lessee's
fiscal year, Lessee shall deliver to Lessor an annual financial
report containing a combined or combining balance sheet and
statement of operations for the Lessee for the year then ended,
together with an audit report issued by Lessee's certified public
accounting firm. Any request by Lessor for Lessee's financial
information shall not be unreasonable, provided such information is
maintained and/or otherwise generated in the normal course of
Lessee's operations.
4. Lessor hereby consents to and otherwise agrees to execute and deliver
to Lessee the certain Lease Assignment, Consent and Release dated and effective
as of November 1, 1993, a copy of which is attached hereto. Lessee agrees to
cooperate with Lessor and Lessor's mortgagee with respect to the execution and
delivery of appropriate subordinations, attornment and non-disturbance
agreements as may be necessary to complete the transactions contemplated
thereby.
5. Except as otherwise set forth herein, the remaining terms and
conditions of the Original Lease and all amendments thereto remain in full force
and effect.
IN WITNESS WHEREOF, the parties hereby execute this Second Amendment
effect as of October 25, 1993, but actually on the dates set forth below.
LESSOR: DAN HEALTHCARE CENTER, INC.
By: /s/ James M. Guttman
------------------------------
James M. Guttman
President
Date:10/27/93
Attest:
/s/ Alice O'Brien
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Alice O'Brien
Attorney
<PAGE>
LESSEE: CARDINAL DEVELOPMENT CO., INC.
By: /s/ Randall J. Bufford
------------------------------
Randall J. Bufford
Vice President
Date:10/25/93
Attest:
/s/ John G. Hundley
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John G. Hundley
Assistant Secretary
<PAGE>
PARTIAL RELEASE OF LEASE
This is a Partial Release of Lease dated October 25, 1993 from:
Cardinal Development Co, Inc, ("LESSEE")
9300 Shelbyville Road, Suite 1300
Louisville, KY 40222
to
Sheridan Healthcare Center, Inc. ("LESSOR")
c/o James M. Guttman
301 East Third Street
Sheridan, IN 46069
W I T N E S S E T H:
For valuable consideration received, Lessee hereby releases and discharges
in full to Lessor the real property described on Exhibit A hereto constituting a
part of the real estate originally leased by Lessor to Lessee pursuant to a
certain Lease Agreement dated April 27, 1989, as amended by a certain First
Amendment to Lease Agreement dated August 5, 1992, and a Second Amendment to
Lease Agreement dated October 25, 1993 (evidenced by recorded Memorandum of
Lease recorded as Instrument No. 7823 in Miscellaneous Book 117, Page 295, with
the Register of Deeds of Hendricks County, Indiana).
WITNESS the signature of Lessee on the above date.
CARDINAL DEVELOPMENT CO., INC.
By:/s/ Randall Bufford
------------------------------
Title:Vice President
<PAGE>
COMMONWEALTH OF KENTUCKY )
)
COUNTY OF JEFFERSON )
The foregoing Partial Release of Lease was acknowledged before me on
October 25, 1993, by Randall J. Bufford, Vice President of Cardinal Development
Co., Inc., on behalf of the Corporation.
My commission expires:July 24, 1994
/s/ JoAnn Taylor
------------------------------
NOTARY PUBLIC
State-at-Large, Kentucky
Printed Name:JoAnn Taylor
County of Residence:Jefferson
THIS INSTRUMENT PREPARED BY:
/s/ John G. Hundley
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John G. Hundley, Esq.
Cardinal Group Corporation
9300 Shelbyville Road
Suite 1300
Louisville, KY 40222
Indiana Bar No. 15327-22
<PAGE>
EXHIBIT A
TRACT II: Part of the Northwest Quarter of Section 8 Township 15 North, Range 1
East of the Second Meridian in Washington Township, Hendricks County, Indiana
described as follows, to-wit:
Commencing at a brass plug found marking the Northwest corner of said Quarter
Section; thence South 01 degrees 02 minutes 12 seconds West (assumed bearing)
along the West line of said Quarter Section 663.13 feet to the beginning point
of this description; thence continue South 01 degrees 02 minutes 12 seconds West
along the last described course 259.01 feet; thence North 90 degrees 00 minutes
00 seconds East parallel with the North line of said Quarter Section 603.06
feet; thence South 01 degrees 02 minutes 12 seconds West parallel with the West
line of said Quarter Section 120.00 feet; thence North 90 degrees 00 minutes 00
seconds East parallel with the North line of said Quarter Section on an
extension of the Northerly boundary of "Amended Saddlebrook Farm West-Section
Two" as recorded in Plat Book 8, page 104, in the office of the Recorder of
Hendricks County, Indiana, 1411.14 feet; thence North 00 degrees 07 minutes 41
seconds East along the Northwesterly boundary of "Amended Saddlebrook Farm
West-Section Two" and the Westerly boundary of "Saddlebrook Farm West-Section
One" as recorded in Plat Book 8, page 97 in the office of the Recorder of
Hendricks County, Indiana, 518.02 feet; thence South 90 degrees 00 minutes 00
seconds West parallel with the North line of said Quarter Section 1805.98 feet;
thence South 01 degrees 02 minutes 12 seconds West parallel with the West line
of said Quarter Section 139.09 feet; thence South 90 degrees 00 minutes 00
seconds West parallel with the North line of said Quarter Section 200.00 feet to
the point of beginning. Containing 21.604 acres, more or less.
<PAGE>
EXHIBIT 10.23
<PAGE>
LEASE AGREEMENT
THIS LEASE, made as of the 5th day of October, 1995, by and between ODELL
INVESTORS I, LIMITED PARTNERSHIP, a North Carolina limited partnership
("Landlord") and TRANSITIONAL HEALTH PARTNERS d/b/a TRANSITIONAL HEALTH
SERVICES, a Delaware general partnership authorized to do business in North
Carolina (hereinafter referred to as "Tenant");
W I T N E S S E T H:
In consideration of the mutual covenants and obligations herein contained,
it is agreed:
1. Lease: Landlord does hereby demise and lease unto Tenant, and Tenant
does hereby take, hire and let from Landlord that certain tract or parcel of
real estate, together with the buildings, improvements and all fixtures
constructed thereon, and the privileges and appurtenances thereunto pertaining,
situate, lying and being in or around Concord, North Carolina and being more
particularly described on EXHIBIT A attached hereto (hereinafter referred to as
"Premises" and "Demised Premises"), including but not limited to the nursing
facility located at Demised Premises ("Facility"), together with all furniture,
equipment and other items listed on EXHIBIT B attached hereto (the "Personal
Property").
2. Covenant of Title and Quiet Enjoyment. Landlord covenants and warrants
that at the commencement date of this Lease it alone shall have full right and
lawful authority to enter into this Lease for the full term hereof; that it is
lawfully seized of the Premises in fee simple and has good title thereto, free
and clear of all tenancies, restrictions and encumbrances (with the exception of
liens securing Lenders providing financing for the Facility, and other matters
not adversely affecting the intended use of the Premises or merchantability of
title, or other matters agreed to between the parties, as specified on EXHIBIT C
attached hereto) and that at all times during the term of this Lease and any
extensions of said term, Tenant's quiet and peaceful enjoyment of the Premises
shall not be disturbed or interfered with by anyone.
3. Governmental Authorizations and Use of Premises: Landlord hereby
represents and warrants to Tenant, that the use of the Premises as a nursing
home facility will be a permitted use by right under all applicable zoning or
other use restrictions or federal or state regulations. In particular, Landlord
represents and warrants to Tenant that the Facility, as designed, will meet all
standards presently required for federal Medicare and Medicaid certification.
Landlord further represents and warrants to Tenant that the Facility, as
designed, will be in compliance with all applicable municipal, county, state and
federal laws and regulations (including, without limitation, health care laws,
building codes and the fire safety code).
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<PAGE>
4. Term:
a. The initial term of this Lease shall be for fifteen (15) (the
"Initial Term"). For purposes of computing the term of the Lease and
calculating the rent due under paragraph 5, the Commencement Date of the
Lease shall be December 1, 1994.
b. Provided (i) Lessee shall not be in default in performance of its
obligations under this Lease, and (ii) this Lease shall not have
previously been terminated, Lessee shall have the option upon the
expiration of the Initial Term to extend the Lease for an additional term
of five (5) years (the "Renewal Term"). Should Lessee elect to exercise
such option, it shall do so by written notice to Lessor at least one (1)
year prior to the expiration of the Initial Term. During the Renewal Term,
this Lease shall continue in effect upon the same terms and rent schedule
(i.e., rental increases of three percent (3%) per year, noncompounded: for
Lease Year 16 the sum of $52,071.63 per month; for Lease Year 17 the sum
of $53,395.49 per month; for Lease Year 18 the sum of $54,719.34 per
month; for Lease Year 19 the sum of $56,043.20 per month; for Lease Year
20 the sum of $57,367.05 per month and subject to the same conditions
applicable to the Initial Term. The Initial Term and Renewal Term are
collectively referred to herein as the "Term."
5. Rent:
a. Tenant shall pay the following rent to Landlord at its offices at
4645 Brambleton Avenue, Roanoke, Virginia 24016, or at such other place as
Landlord may advise in writing, in advance, on the first (1st) day of each
calendar month, without notice, demand, offset or deduction, in lawful
money of the United States of America, during and throughout the term of
this Lease:
(1) For the first twelve (12) months of the term (Lease Year
1) the sum of Thirty-Six Thousand One Hundred Twenty-One and 31/100
Dollars ($26,121.31) ($10.15 per bed per day) per month.
(2) For the next twelve (12) months of the term (Lease Year 2)
the sum of Thirty-Seven Thousand Eleven and No/100 Dollars
($37,011.00) ($10.40 per bed per day) per month.
(3) For the next twelve (12) months of the term (Lease Year 3)
the sum of Thirty-Seven Thousand Nine Hundred and 69/100 Dollars
($37,900.69) ($10.65 per bed per day) per month.
(4) For the next twelve (12) months of the term (Lease Year 4)
the sum of Thirty-Eight Thousand Seven Hundred Ninety and 38/100
Dollars ($38,790.38) ($10.90 per bed per day) per month.
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<PAGE>
(5) For the next twelve (12) months of the term (Lease Year 5)
the sum of Thirty-Nine Thousand Six Hundred Eighty and 06/100
Dollars ($39,680.06) ($11.15 per bed per day) per month.
(6) For the next twelve (12) months of the term (Lease Year 6)
the sum of Forty Thousand Five Hundred Sixty-Nine and 79/100 Dollars
($40,589.79) ($11.40 per bed per day) per month.
(7) For the next twelve (12) months of the term (Lease Year 7)
the sum of Forty-One Thousand Four Hundred Fifty-Nine and 44/100
Dollars ($41,459.44) ($11.65 per bed per day) per month.
(8) For the next twelve (12) months of the term (Lease Year 8)
the sum of Forty-Two Thousand Three Hundred Forty-Nine and 13/100
Dollars ($42,349.13) ($11.90 per bed per day) per month.
(9) For the next twelve (12) months of the term (Lease Year 9)
the sum of Forty-Three Thousand Two Hundred Thirty-Eight and 81/100
Dollars ($43,238.81) ($12.15 per bed per day) per month.
(10) For the next twelve (12) months of the term (Lease Year
10) the sum of Forty-Four Thousand One Hundred Twenty-Eight and
50/100 Dollars $44,128.50) ($12.40 per bed per day) per month.
(11) For the next five (5) twelve- (12-) month periods of the
term (Lease Years 11 through 15), the sum of one hundred three
percent (103%) of Lease Year 10's monthly rent, or Forty-Five
Thousand Four Hundred FiftyTwo and 36/100 ($45,452.36) per month,
and increasing three percent (3%) a year thereafter (noncompounded)
(for example, Lease Year 15's monthly rent will be $50,747.78 per
month).
b. If Landlord does not receive from Tenant any monthly rental
payment within fifteen (15) days after such payment is due, Landlord, at
its option, may charge Tenant a late charge and handling fee equal to five
percent (5%) of the monthly rental payment. Such fee shall be considered
additional rent and shall be due and payable by Tenant to Landlord
immediately upon delivery of written notice to Tenant. In addition, if any
check of Tenant is returned to Landlord unpaid, Tenant shall reimburse
Landlord for all charges associated with such returned check and Landlord,
at its option, may thereafter require that Tenant pay the rent and any
other charges payable hereunder by a certified or cashier's check.
c. All additional sums payable by Tenant to Landlord under the
provisions of this Lease shall constitute additional rent.
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<PAGE>
d. (1) Except as otherwise expressly provided in this Lease, this
Lease is a "net lease" pursuant to which the parties intend to yield "net"
to Landlord the rental provided for in Section 5a. above.
(2) To further ensure that the rent to Landlord is absolutely
"net" to Landlord, Tenant further agrees to timely pay during the
term of this Lease, all costs and expenses, including but not
limited to the following:
(a) All occupational licenses and other permits
necessary in the operation of the business to be conducted on
the Demised Premises;
(b) All utility charges for water, sewer, electricity,
gas, telephone or any other services provided to or consumed
on the Demised Premises;
(c) All sales and use taxes due as a result of the
business conducted on the Demised Premises and any real and
personal property taxes assessed against any property located
on or used in connection with the Demised Premises;
(d) All real property taxes and assessments levied on
the Demised Premises as provided in Section 10; and
(e) All premiums for all insurance required by this
Lease as provided in Section 11,
and Tenant agrees to hold Landlord harmless from any such cost or expense
related thereto.
6. Use of Premises: The Tenant shall use the Premises for a federal
Medicare (Title XVIII) or Medicaid (Title XIX) certified facility and home for
adults which shall be operated in full compliance with all laws and regulations
applicable thereto. Tenant covenants that no part of the Premises shall be used
for any unlawful purpose, nor will any unlawful condition or nuisance be
permitted to exist thereon. Tenant further warrants and represents that the
Premises will be certified for participation in the Medicare and Medicaid
programs and that it will maintain such certifications at all times during the
term of this lease or any extensions thereof.
7. Reports: Tenant agrees to provide Landlord quarterly unaudited
financial statements and yearly audited financial statements of the Tenant
including balance sheets and income statements certified by an officer of Tenant
to have been prepared in accordance with generally accepted accounting
principles and to fairly present the financial condition and the results of
operations of Tenant on the dates and for the periods indicated, subject in the
case of the quarterly financial statements, to normally recurring year-end
adjustments. Such statements shall be delivered promptly upon their completion
and in no event later than thirty (30) days after the close of each of the
Tenant's quarters and no later than one hundred twenty (120) days after the
close of each of Tenant's fiscal years. Tenant will also provide
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<PAGE>
such other financial information as Landlord or its mortgagee may require after
notice. Tenant further will provide Landlord as the same are filed with the
State of North Carolina, copies of all Medicaid Cost Reports and further will
immediately provide Landlord, to the extent reasonably required, copies of all
communications received from the State of North Carolina or any agency thereof
regarding violations or alleged violations of applicable laws, rules, codes or
regulations.
8. Repair and Maintenance of Improvements: Landlord warrants that the
entire Premises and the building and improvements thereon shall be in good, safe
condition and repair on the Commencement Date of this Lease. Landlord shall be
responsible for the structural integrity of the building and repair of exterior
walls, excluding windows and glass panels, and except for damages caused or
suffered to be caused by Tenant, or Tenant's invitees and licenses, during the
term of this Lease. Tenant shall promptly notify Landlord of any condition known
to Tenant that Landlord is required to repair. Landlord shall not be liable to
Tenant for any damages arising in connection with Landlord's responsibility as
provided above unless Landlord fails to pursue the applicable repair within a
reasonable time after receipt of written notice from Tenant. Except for such
responsibility undertaken by Landlord, Tenant shall be responsible, during the
term of this Lease, for maintaining the Premises in good repair, including
without limitation, the roof, all interior surfaces, electrical, plumbing,
heating, air conditioning, generator and other systems, as well as the exterior
grounds, and shall at the end of the term, return the same to Landlord in good
repair and condition, with the exception of casualties insured against and
ordinary wear and tear. If Tenant fails to make any repairs, and/or perform any
maintenance for which it is responsible, within thirty (30) days after written
notice thereof, Landlord may, at its sole option, make the repairs and/or
perform the maintenance and the reasonable expense thereof shall be paid by
Tenant, together with interest at a rate equal to one and one-half percent (1
1/2% above the prime rate then in effect at the financial institution financing
the Facility if such expense is not paid within thirty (30) days. Tenant shall
not make or construct any parking areas, driveways, additions, buildings,
structures or other improvements without the prior written consent of Landlord,
which consent shall not be unreasonably withheld after review of all applicable
architectural plans and building permits and, if applicable, obtaining approval
of Landlord's mortgagee. All improvements shall be at Tenant's sole cost and
expense and shall become the property of Landlord at the termination of this
Lease. Tenant agrees to indemnify Landlord against all claims by laborers and
materialmen for any improvements constructed by Tenant. Tenant shall cause any
mechanic's lien filed against the Premises as a result of any act or interest of
Tenant or any party claiming through Tenant to be removed within thirty (30)
days of the filing thereof.
9. Taxes and Assessments: Tenant agrees to pay when due all taxes (as
hereinafter defined) on or with respect to the Premises. Landlord will promptly
send Tenant copies of all bills for taxes received by Landlord and Tenant will
pay the same to the appropriate governmental authority. Tenant shall promptly
send Landlord reasonable evidence of payment of such bill after such payment.
Such payments shall be further in accordance with the following provisions:
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<PAGE>
a. Definitions: The term "Taxes" shall mean all taxes payable with
respect to the Premises or any property located on or used in connection
with the Premises, or any activity conducted on the Premises, including
but not limited to, real estate, personal property, and sales and use
taxes. Tenant may be required to make escrow payments of taxes. In such
event Tenant agrees to timely make such payments to Landlord's mortgagee,
or as otherwise directed, in accordance with the escrow requirements.
Tenant shall in no event be liable for Taxes with respect to any time
Tenant is not entitled to the Demised Premises, and Landlord shall in no
event be liable for Taxes with respect to any time Landlord is not
entitled to the Demised Premises. If, at any time during the term of this
Lease, any tax or excise on rents or other Taxes, however described, are
levied or assessed upon, or against, or measured by the rent payable to
Landlord hereunder, either wholly or partially in substitution for, or in
addition to, Taxes, such tax or excise in respect of rents shall be
included in Taxes. Taxes shall not include franchise, estate, inheritance,
succession, capital levy, transfer, income, or excess profit taxes
assessed on Landlord.
b. Reimbursement of Taxes:
(1) If, after Tenant shall have paid any Taxes pursuant to
this Section, Landlord shall receive a refund of any portion of
Taxes paid by Tenant with respect to any tax year during the term
hereof as a result of an abatement of such Taxes by legal
proceedings, the net refund will be paid over to Tenant.
(2) At the request of Tenant, Landlord will execute any and
all proper documents to permit the Tenant, in the name of the
Landlord, and at Tenant's sole cost and expense, to protest,
institute and pursue any and all legal proceedings necessary or
appropriate to obtain reduction in any Tax assessment or refund of
any Taxes. In the event Landlord elects to undertake any such
protest or legal proceedings for such purpose, Landlord will permit
Tenant to participate therein at Tenant's sole cost and expense in
order that Tenant may assure itself that all appropriate steps are
being taken to reduce the tax obligations for which Tenant is liable
hereunder.
(3) In the event this Lease shall commence, or shall end (by
reason of expiration of the term or earlier termination pursuant to
the provisions hereof), on any date other than the first or last day
of the year, or should the year or period of assessment of real
estate taxes be changed to more or less than one year, as the case
may be, then the amount of Taxes payable by Tenant as provided
hereunder shall be appropriately apportioned.
10. Insurance Indemnity:
a. During the original term of this Lease, Tenant shall at all times
keep the Demised Premises insured with the kinds and amounts of insurance
described below. This insurance shall be written by companies authorized
to do insurance
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<PAGE>
business in the State of North Carolina. The policies must name Landlord
as additional insured. Losses shall be payable to Landlord and Tenant as
provided in Section 11e. below. In addition, the policies shall name as an
additional insured any mortgagee by way of a standard form of mortgagee's
loss payable endorsement. Any loss adjustment shall require the written
consent of Landlord, Tenant, and each mortgagee. Evidence of insurance
shall be deposited with Landlord and, if requested, with any mortgagee(s).
The policies on the Demised Premises shall insure against the following
risks:
(1) Loss or damage by fire and such other risks as may be
included in the broadest form of extended coverage insurance from
time to time available, including but not limited to loss or damage
from leakage of any sprinkler system now or hereafter installed in
the Facility or on the Premises, in amounts sufficient to prevent
Landlord or Tenant from becoming a coinsurer within the terms of the
applicable policies and in any event in an amount not less than one
hundred percent (100%) of the then full replacement value thereof
(as defined below in paragraph b.);
(2) Loss or damage by explosion of steam boilers, pressure
vessels or similar apparatus, now or hereafter installed in the
Facility, in such limits with respect to any one accident as may be
reasonably agreed by Landlord and Tenant from time to time;
(3) Claims for personal injury or property damage under a
policy of general public liability insurance with amounts not less
than One Million and No/100 Dollars ($1,000,000.00) per occurrence
in respect of bodily injury, Two Million and No/100 Dollars
($2,000,000.00) aggregate per occurrence, and Three Hundred Thousand
and No/100 Dollars ($300,000.00) for property damage;
(4) Claims arising out of malpractice in an amount not less
than One Million and No/100 Dollars ($1,000,000.00) for each persons
and for each occurrence;
(5) Such other hazards and in such amounts as may be customary
for comparable properties in the area and is available from
insurance companies authorized to do business in the State of North
Carolina;
(6) Loss of rental under a rental value insurance policy
covering a risk of loss during the first six (6) months of
reconstruction resulting from the occurrence of any of the hazards
described in subsections (i) and (ii) of paragraph a. in an amount
sufficient to prevent Landlord from becoming a cinsurer; and
(7) Worker's compensation.
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<PAGE>
b. Replacement Cost. The term "full replacement value" of
improvements as used herein, shall mean the actual replacement cost
thereof from time to time, less exclusions provided in the normal fire
insurance policy.
c. Additional Insurance. In addition to the insurance described
above, Tenant shall maintain such additional insurance as may be
reasonably required from time to time by any mortgagee.
d. Insurance Proceeds. All proceeds payable by reason of any loss or
damage to any of the Improvements comprising the Demised Premises and
insured under any policy of insurance required by (a) above of this Lease
shall be paid to Landlord and held by Landlord in trust (subject to the
provisions of paragraph e. below and the rights of the holders of the
Facility mortgages) and shall be made available for reconstruction or
repair, as the case may be, of any damage to or destruction of the Demised
Premises, and shall be paid out by Landlord from time to time for the
reasonable costs of such work. Any excess proceeds of insurance remaining
after the completion of the restoration or reconstruction of the Demised
Premises shall be retained by landlord and shall be credited against
future rental payments due from Tenant under this Lease. All salvage
resulting from any such loss covered by insurance shall belong to
Landlord.
e. Damage or Destruction. If, during the Term, the Premises are
totally or partially destroyed from a risk covered by the insurance
described in paragraph a., Landlord shall, as soon as practicable, restore
the Demised Premises to substantially the same condition as existed
immediately before the destruction. If the costs of the restoration exceed
the amount of proceeds received by Landlord from the insurance required
under paragraph a., Tenant shall be solely responsible for paying the
difference between the amount of insurance proceeds and such cost of
restoration.
f. Restoration of Tenant's Property. If Landlord is required to
restore the Facility as provided in paragraph e., Landlord shall not be
required to restore alterations made by Tenant, or Tenant's improvements,
trade fixtures or personal property, such excluded items being the sole
responsibility of Tenant to restore, Landlord shall be required to restore
tangible personal property owned by Landlord and leased to Tenant pursuant
to this Lease (and scheduled on EXHIBIT B hereto) or otherwise.
g. Abatement of Rent. During the period required for repair and
restoration, payments of rent provided for in Section a. shall be abated
in the manner and to the extent that is fair, just and equitable to both
Tenant and Landlord, taking into consideration, among other relevant
factors, the number of useable beds affected by such damage or
destruction, and availability of business interest insurance proceeds to
satisfy Tenant's obligations to pay rent.
h. Tenant Blanket Policy. Notwithstanding anything to the contrary
contained in this Section, Tenant's obligation to carry the insurance
provided for
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<PAGE>
herein may be brought within the coverage of a so-called blanket policy,
carried and maintained by Tenant; provided, however, that the coverage
afforded Landlord will not be reduced or diminished or otherwise be
different from that which would exist under a separate policy meeting all
other requirements of this Lease.
11. Signs: Tenant shall have the right, upon Landlord's prior written
consent, which consent shall not be unreasonably withheld, to install, maintain
and replace in, on or over, or in front of, the Premises or any part thereof,
such signs and advertising matter as Tenant may desire. Tenant shall comply with
all applicable requirements of governmental authorities having jurisdiction and
shall obtain any necessary permits for such purpose. As used in this paragraph,
the word "sign" shall be construed to include any placard, light or other
advertising symbol or object, irrespective of whether same be temporary or
permanent.
12. Eminent Domain: If the whole or substantially all of the Premises, or
all or substantially all of the means of access thereto, be acquired by eminent
domain or by purchase in lieu thereof, so that the Premises cannot be licensed
as a 117-bed nursing home and home for the aged facility, or as otherwise
amended by the approval of an amendment to the CON, this Lease shall terminate
as of the date of the actual taking. Should, however, only a portion of the
Premises be so condemned or taken, so as not to materially and adversely affect
the usefulness of the Premises for the purposes for which it is leased
hereunder, this Lease shall continue in full force and effect; provided,
however, that the rent payable under the unexpired portion of this Lease shall
be adjusted to such extent as may be fair and reasonable under the
circumstances. Landlord shall, in such event, promptly restore the Demised
Premises as nearly as feasible to the condition of such Premises immediately
prior to the taking, subject to reasonable delays, but Landlord shall not be
required to restore or rebuild the Demised Premises during the last year of the
lease term or to restore Tenant's fixtures, furnishings, floor coverings,
equipment, stock or other personalty; provided, however, that if Landlord elects
not to restore or rebuild the Demised Premises or to restore Tenant's fixtures,
furnishings, floor coverings, equipment, stock or other personalty, Tenant shall
have the option of terminating this Lease. Tenant shall not be entitled to any
part of the condemnation proceeds arising from any partial taking, except that
Tenant shall be entitled to make a claim for any of Tenant's property which is
condemned other than Tenant's interest in the Lease. Notwithstanding the
foregoing, this Lease shall terminate if, as the result of only a portion of the
Premises being condemned or taken, Tenant is prevented from operating or using
the Premises under the then existing governmental and quasi-governmental
licenses, permits, approvals and certifications. In such case, Landlord and
Tenant shall have such rights to condemnation awards as are set forth above for
a total or substantial taking.
13. Utility Easements: Landlord agrees, without expense to it, to execute
all necessary documents for utility easements required to service the buildings
constructed on the Premises.
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<PAGE>
14. Default:
a. Any one or more of the following events shall constitute an event
of default:
(1) Tenant's failure to make any payment of rent (whether
monthly or additional rent) when the same is due and payable, or
certify the Premises for participation in the Medicare (Title XVIII)
and Medicaid (Title XIX) programs and to further ensure that the
Premises maintains such certifications at all times during the term
of this lease or any extensions thereof, or license the Premises for
the operation as a Nursing and Home for the Aged Facility pursuant
to the laws of the State of North Carolina and maintain such license
in good order at all times during the term of this lease or any
extensions thereof, and the continuance of such failure for a period
of ten (10) days after written notice to Tenant by Landlord.
(2) Tenant's failure to perform any of the other covenants,
conditions and agreements imposed by it under the Lease and the
continuance of such failure without the curing of same for a period
of thirty (30) days after receipt of notice in writing from Landlord
specifying in detail the nature of such failure and provided Tenant
shall not cure said failure as provided in paragraph b. below.
(3) The adjudication of Tenant as a bankrupt, or the
appointment of a receiver or trustee for Tenant's property and
affairs, or the making by Tenant of any assignment for the benefit
of its creditors or the filing by or against Tenant of a petition in
bankruptcy which is not vacated or set aside within fifteen (15)
days of such filing.
b. In the event Landlord gives notice of a default of such a nature
(other than a default which may be cured by a payment of money) that it
cannot be cured within the applicable cure period, and Tenant initiates
and proceeds to cure or mitigate the default, then such default shall not
be deemed to exist for so long as Tenant proceeds to cure the same with
reasonable diligence or is delayed in or prevented from curing the same by
Force Majeure (as hereinafter defined).
c. After the applicable cure periods have elapsed, pursuant to the
respective provision hereinbefore set forth and in the event of default,
Landlord, in addition to any other right or remedy it may have with
respect to default, may terminate this Lease immediately, and re-enter the
Premises and take possession of the Premises and the Personal Property, or
in such event Landlord may, at its option, without declaring this Lease
terminated, re-enter the Premises and occupy or lease the whole or any
part of the Premises and the Personal Property, for and on account of
Tenant and on such terms and conditions and for such rental as Landlord
may deem proper, and Landlord shall in such event collect such rent and
apply the same upon the rents due from Tenant and upon the expenses of
such subletting, and any and all
-10-
<PAGE>
other damages sustained by Landlord. In the event of default, Landlord
shall exercise reasonable efforts to mitigate damages hereunder and to
re-let the Premises and the Personal Property, but Landlord's failure to
so re-let shall not prevent or delay the exercise by Landlord, at its
option, of its right to accelerate and recover as damages rents due and
owing for the remainder of the term, together with all costs, expenses of
collecting the same, subject to Landlord's obligation to repay or credit
Tenant with all recoveries made by Landlord.
15. Holding Over: In the event Tenant remains in possession of the
Premises after the expiration of the term hereof, including any extensions of
the term, and without the execution of a new lease, Tenant shall occupy the
Premises as a tenant from month to month, subject to all of the conditions of
this Lease insofar as consistent with such a tenancy, and rent shall increase by
fifty percent (50%) during any such holdover period.
16. Attornment and Subordination:
a. In the event of the exercise of any power of sale under the
provisions of any mortgage or deed of trust now or hereafter encumbering
the premises, Tenant agrees that it shall attorn to the purchaser at such
sale and that it shall recognize such purchaser as Landlord under the
terms and provisions of this Lease and shall continue this Lease in full
force and effect regardless of whether such mortgage or deed of trust was
superior or subordinate to this Lease, provided such purchaser recognizes
Tenant hereunder; and provided further that in the event Landlord shall
default in any payment due in respect of such mortgage, Tenant shall have
the right under Landlord's mortgage, but not the obligation, upon ten (10)
days' written notice from either Landlord's mortgagee to pay such amount
due and thereby cure such default. Landlord further agrees that it shall
execute and deliver no mortgage on the Demised Premises purporting to
limit and prohibit Tenant from collaterally assigning this Lease or its
leasehold interest arising hereunder as security for Tenant's financing.
b. Tenant agrees that this Lease shall be and is subordinate to any
deeds of trust or mortgages now or hereafter encumbering the land and
buildings of which the Demised Premises are a part or against any
buildings hereafter placed upon the land on which the Demised Premises is
situated.
c. Upon request by Landlord, Tenant agrees to promptly enter into
and deliver to Landlord such written instruments in form reasonably
acceptable to Landlord and its mortgagee which confirm the above
subordination and effect the above attornment.
17. Attornment and Subordination: Tenant agrees to indemnify, protect and
hold harmless Landlord from and against all liabilities and damages (a) arising
from or out of any occurrence in, upon or at the Demised Premises or any part
thereof, or the occupancy or use by Tenant of the Demised Premises, the Personal
Property or any part thereof, or occasioned wholly or in part by any act or
omission of Tenant, its agents, contractors, employees or invitees in connection
with the Demised Premises or the Personal Property during the term of
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<PAGE>
this Lease, or any renewal hereof, or (b) related to any claims, assessments,
charge backs or other expenses (whether owed to or assessed by a private or
governmental party) arising in connection with the operation or other use of the
Demised Premises or the Personal Property during the term of this Lease, or any
renewal hereof.
18. Landlord's Indemnification: Landlord agrees to indemnify, protect and
hold harmless Tenant from and against any and all liabilities and damages
arising from or occasioned wholly or in part by any act or omission of Landlord,
its agents, contractors, employees or invitees in connection with the Demised
Premises or the Personal Property during the term of this Lease, or any renewal
hereof.
19. Compliance with Governmental Programs: Landlord covenants that the
Premises will, during the term hereof, meet all standards required for Federal
Medicare (Title XVIII) or Medicaid (Title XIX) certified nursing programs and
that it will make any alterations necessary to remain in compliance with same.
Any alterations, changes or expansions required to bring the Leased Premises
into compliance with such standards as in effect on the date of execution of
this Lease shall, unless otherwise agreed, be paid for by Landlord. Any
alterations, changes or expansions required by subsequent changes in such
standards will be negotiated at the then-current cost of construction, which
cost, together with interest at the rate of interest at which such construction
is financed, shall be amortized in level monthly additional rent payments over
the agreed-upon remaining lease period.
20. Waivers: Failure of Landlord or Tenant to complain of any act or
omission on the part of either other party, no matter how long the same may
continue, shall not be deemed to be a waiver by said party of any of its rights
hereunder. No waiver by Landlord or Tenant at any time, expressed or implied, of
any breach of any provisions of this Lease, shall be deemed a consent to any
subsequent breach of the same or any other provision. No acceptance by landlord
of any partial payment shall constitute an accord or satisfaction but shall only
be deemed a part payment on account.
21. Force Majeure: In the event that Landlord or Tenant shall be delayed,
hindered in or prevented from the performance of any act required hereunder by
reason of strikes, lock-outs, labor troubles, inability to procure materials,
failure of power, restrictive governmental laws or regulations, riots,
insurrection, the act, failure to act or default of the other party, war or
other reason beyond their control, then performance of such act (except the
payment of rent which shall not in any case be executed) shall be excused for
the period of the delay and the period for the performance of any such act shall
be extended for a period equivalent to the period of such delay.
22. Surrender of Premises: Upon the expiration or other termination of
this Lease, Tenant covenants and agrees that it will peaceably leave and
surrender possession of the Premises and the Personal Property to Landlord. Upon
such surrender, the Premises and the Personal Property shall be in good repair,
ordinary wear and tear and alterations, additions and improvements herein
permitted, excepted.
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<PAGE>
23. Inspection: Landlord reserves the right to inspect the Demised
Premises and all buildings situated thereon at all reasonable times and show the
property through agents or otherwise to bona fide purchasers or prospective
tenants.
24. Further Assurances: Tenant agrees to execute and deliver to landlord
any additional or supplemental instruments or documents as may be reasonably
requested by Landlord or its mortgagee in connection with this Lease, including
any memorandum of lease.
25. No Joint Venture: The relationship between Landlord and Tenant shall
always and only be that of Lessor and Lessee. Tenant is not the agent of
Landlord. Landlord shall not be responsible for the acts or omissions of Tenant
or its agents. This Agreement is, and is intended to be, a lease. Tenant does
not acquire hereby any right, title or interest whatsoever, legal or equitable,
in the Premises, except as the Lessee hereunder.
26. Personal Liability: In no event shall any partners, principals or
stockholders of Landlord ever be personally liable for any judgment of Tenant
against Landlord.
27. No Representation: It is understood and agreed by the parties hereto
that this Lease contains all of the covenants, agreements, terms, provisions,
and conditions relating to the leasing of the Premises and the Personal
Property, and that Landlord has not made and is not making, and Tenant in
executing and delivering this Lease is not relying upon any warranties,
representations, promises or statements, except to the extent that the same may
expressly be set forth in this Lease.
28. Validity: In the event that any provisions of this Lease shall be held
invalid, the same shall not affect in any respect whatsoever the validity of the
remainder of this Lease.
29. Applicable Law: This Lease and the rights of the parties hereunder
shall be interpreted in accordance with the laws of the State of North Carolina.
30. Notices: Until notice to the contrary to the other party has been
given, all notices and payments of money if made to Landlord shall be made or
given by delivery or by mail (postage prepaid) addressed to Landlord at 4645
Brambleton Avenue, S.W., Roanoke, Virginia 24016, Attn: Mr. Charles E. Trefzger,
Jr., or if made to Tenant shall be made by delivery or by certified mail
(postage prepaid) addressed to Tenant at the Premises with a copy to:
Transitional Health Services, 9300 Shelbyville Road, Suite 1300, Louisville,
Kentucky 40222, Attention: Randall J. Bufford.
31. Short Form Lease: The parties hereto shall forthwith execute a
memorandum or short form lease agreement, in recordable form, including such
provisions hereof as either party may desire to incorporate therein.
32. Entire Agreement: No oral statement or prior written matter shall have
any force or effect. Tenant agrees that it is not relying on any representations
or agreements
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<PAGE>
other than those contained in this Lease. This Lease shall not be modified or
canceled except by writing subscribed to by all parties.
33. Brokerage: Each of the parties covenants and represents to the other
that neither has incurred brokerage fees with respect to the transactions herein
set forth.
34. Parties: The covenants, conditions, obligations and agreements
contained in this Lease shall bind and inure to the benefit of Landlord and
Tenant and their respective successors and assigns.
IN WITNESS WHEREOF, each of the parties hereto has caused this Lease to be
executed under seal in its name and on its behalf, each by its duly authorized
officer or general partner, all as of this day and year first above written.
LANDLORD:
ODELL INVESTORS I, LIMITED
PARTNERSHIP, a North Carolina Limited
Partnership
By:/s/ James R. Smith
----------------------------------
James R. Smith, General Partner
TENANT:
TRANSITIONAL HEALTH PARTNERS d/b/a
TRANSITIONAL HEALTH SERVICES, a
Delaware General Partnership
By: THS PARTNERS I, INC., a Delaware
Corporation, a General partner
By:/s/ James J. TerBeest
----------------------------------
Title:Exec. V.P. / CEO
ATTEST:
/s/ John G. Hundley
- --------------------------
(Assistant) Secretary
[CORPORATE SEAL]
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<PAGE>
By: THS PARTNERS II, INC., a Delaware
Corporation, a General partner
By:/s/ James J. TerBeest
----------------------------------
Title:Exec. V.P. / CEO
ATTEST:
/s/ John G. Hundley
- --------------------------
(Assistant) Secretary
[CORPORATE SEAL]
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<PAGE>
STATE OF Virginia )
)
COUNTY OF Roanoke )
I, Chris Chiappa , a Notary Public for said County and State, do hereby
certify that JAMES R. SMITH, a general partner in ODELL INVESTORS I LIMITED
PARTNERSHIP, a North Carolina limited partnership, personally appeared before me
this day and acknowledged the due execution of the foregoing instrument on
behalf of such partnership.
WITNESS my hand and official seal, this the 5th day of October , 1995.
/s/ Chris Chiappa
-------------------------
Notary Public
My Commission Expires:
May 31 1999
[SEAL]
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<PAGE>
STATE OF Kentucky )
)
COUNTY OF Jefferson )
I, JoAnn Pope , a Notary Public for said County and State, do hereby
certify that John G. Hundley personally came before me this day and acknowledged
that he/she is (Assistant) Secretary of THS PARTNERS I, INC. and THS PARTNERS
II, INC., Delaware corporations, and general partners in TRANSITIONAL HEALTH
PARTNERS d/b/a TRANSITIONAL HEALTH SERVICES, a Delaware general partnership, and
that by authority duly given and as the act of the corporation, the foregoing
instrument was signed in its name by its Exec. V.P. / CEO , sealed with its
corporate seal, and attested by him/her as its (Assistant) Secretary).
WITNESS my hand and official seal, this the 18 day of September , 1995.
/s/ JoAnn Pope
-------------------------
Notary Public
My Commission Expires:
October 13, 1998
[SEAL]
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<PAGE>
EXHIBIT 10.24
<PAGE>
LEASE AGREEMENT
BETWEEN POMEROY HEALTH, INC.
AND
TRANSITIONAL HEALTH PARTNERS
D/B/A
TRANSITIONAL HEALTH SERVICES
<PAGE>
LEASE
THIS LEASE is made as of the 22nd day of May , 1995, by and between
POMEROY HEALTH, INC., a Michigan corporation, the address of which is 745
Barclay Circle, Suite 310, Rochester Hills, Michigan 48307, as Lessor, and
TRANSITIONAL HEALTH PARTNERS d/b/a TRANSITIONAL HEALTH SERVICES, a Delaware
general partnership, with principal offices at 9300 Shelbyville Road,
Louisville, Kentucky 40222, as Lessee.
IN CONSIDERATION OF the rents to be paid and the mutual covenants,
promises and agreements herein set forth, Lessor and Lessee agree as follows:
Lessor hereby leases unto Lessee the following described premises:
One (1) 102-bed skilled nursing facility; one (1) 82-bed skilled nursing
facility; one (1) 31-bed home for the aged; and one (1) 9-unit apartment
complex; said facilities being situated upon and consisting of the real
property described on the Exhibit "A" attached hereto and made a part
hereof, together with all structures, fixtures, pavings, surfacing and
improvements thereon; additionally, all fixtures, furnishings, equipment
and all other personal property located thereon (a list of which is
attached hereto as Exhibit "B"), including, without limitation, all drugs,
medications, food, linens and supplies utilized in connection with the
operation of said facilities, all available proprietary rights in the
names and related trademarks, logos and telephone numbers of said
facilities, all patient records and agreements, personnel records,
provider agreements, governmental records, and all other contracts,
records and information (irrespective of the manner in which stored) as
are available and are related to the operation of said facilities, a 1992
Dodge Pickup and 1954 Ford Tractor and Mower, and all other available
property, tangible and intangible, utilized in the operation of said
facilities;
ALL OF THE FOREGOING, including all replacements thereof (irrespective of
which party paid for such replacements), are hereinafter collectively referred
to as the "leased premises" or "premises". As to patient records and agreements,
personnel records, provider agreements, governmental records, other contracts,
records and the like, Lessee acknowledges that Lessor's ability to grant actual
possession or control thereof to Lessee pursuant to this Lease is subject to the
availability thereof and to applicable laws, ordinances, rules and regulations
<PAGE>
pertaining to same. Possession of all of the foregoing records, agreements and
the like is transferred hereunder only for the purpose of continuing patient
services at the facilities and the same shall be preserved and held confidential
in accordance with state and federal law.
TO HAVE AND TO HOLD for a term of ten (10) years from and after the
commencement of the term as hereinafter provided.
SECTION 1.
CONDITION OF PREMISES
1.01 Lessor shall deliver the leased premises in "as is" condition.
Subject to Lessee's option to terminate as hereinafter provided, upon delivery
of possession, Lessee covenants and agrees to take unconditional physical
possession of the leased premises and accepts the leased premises in "as is"
condition without representation by Lessor or any person, firm or corporation on
behalf of Lessor as to the condition thereof, and acknowledges that the leased
premises are in satisfactory condition. Subject to Lessee having commissioned an
engineering survey within (seven) 7 days of the date of execution hereof, during
the twenty-one (21) days following the date of execution hereof, Lessee shall
have access to the leased premises for purposes of inspecting the condition of
same. In the event that Lessee shall notify Lessor in writing within such 21 day
period that Lessee shall have discovered a significant defect or disrepair in
the leased premises (subject to independent verification, if Lessor deems same
reasonably necessary), then Lessee shall have the option of terminating this
Lease by giving written notice thereof to Lessor within such 21 day period. For
purposes of the foregoing sentence, a "significant defect or disrepair" in the
leased premises shall be deemed to mean defects or items of disrepair of such a
nature as to require aggregate capital expenditures or repair costs of more than
$100,000, within the 120 day period immediately following the commencement date
of the term hereof. Upon Lessor's receipt of Lessee's notice to terminate,
Lessor shall have ten (10) days during which Lessor may nullify and vitiate
Lessee's option by agreeing to bear the cost of correction or disrepair in
excess of $100,000.00.
SECTION 2.
POSSESSION AND COMMENCEMENT OF TERM
2.01 This Lease is contingent upon the consummation of Lessor's
acquisition of title to the leased premises. Except as herein provided, Lessor
covenants that actual possession of the leased premises (with personal property
to be in sufficient quantities so as to continue the operation of the nursing
facilities) shall be delivered to Lessee on or about the date Lessor shall close
on Lessor's acquisition of the leased premises; such closing scheduled for July
31, 1995, subject to adjustment. Lessor shall give Lessee at least thirty (30)
days' prior written notice of the date on which Lessor shall actually deliver
possession of the leased premises to Lessee (the
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<PAGE>
"delivery of possession date", which shall be deemed to be the commencement date
of the term of this Lease). Lessee shall be permitted to enter the leased
premises at least ten (10) days prior to the delivery of possession date for the
sole purpose of preparing for Lessee's tenancy. By occupying the leased
premises, Lessee will be deemed to have accepted the leased premises and
acknowledged that they are in satisfactory condition.
2.02 In the event Lessor fails to deliver the leased premises because of
the delay in consummating Lessor's acquisition of the leased premises or for any
other cause whatsoever, Lessor shall not be liable to Lessee for damages as a
result of Lessor's delay in delivering the leased premises, and Lessee shall
have no right to terminate the Lease or contest the validity of the Lease, and
the commencement date of the Lease shall be postponed until such time as the
leased premises are delivered to Lessee and the termination date of this Lease
shall be extended for a period equivalent to the period of such postponement
provided such postponed termination date shall occur on the last day of a
calendar month; if not, then such termination date shall be extended by an
additional period so as to fall on the last day of such calendar month in which
it would otherwise occur. Notwithstanding anything to the contrary contained
herein, if for any reason whatsoever, the term of this Lease shall not have
commenced by September 30, 1995 (subject to a reasonable extension thereof in
the event of pending but uncompleted licensure approvals), then this Lease shall
be automatically terminated without further act of either party hereto, and the
parties hereto shall be released from all obligations hereunder, except as
otherwise specifically provided herein.
2.03 On the commencement date or within fifteen (15) days thereafter upon
request by Lessor, Lessor and Lessee shall execute a written instrument
confirming the commencement date and the termination date of the Lease and that
the Lease is in full force and effect, the rent is paid currently, the amount of
rent, if any, paid in advance, and that there are no known uncured defaults by
Lessor or Lessee, or stating those claimed by Lessor and/or Lessee.
2.04 Provided Lessee is not then in default of any of the terms of this
Lease, Lessee shall have the option to extend the term hereof for one (1)
additional period of ten (10) years. Said option shall be exercised, if at all,
by written notice to Lessor at least one hundred eighty (180) days prior to the
expiration of the original term. All terms and conditions contained in this
Lease shall apply during the option period. The annual minimum net rental for
the first year of the option period shall equal the annual minimum net rental
for the final year of the original term plus the annual increase per Section
3.01 hereof, subject to further annual increases as provided therein. In the
event Lessee shall fail to exercise the foregoing option to extend the term
hereof within the required time period, such option shall then automatically be
null and void and be of no further force or effect.
On or before the date which is one hundred eighty (180) days prior
to the expiration of the original term hereof (but no sooner than four hundred
twenty-five (425) days prior to expiration of the original term hereof), Lessee
shall be required to provide a Lessor financial statements prepared by an
independent certified public accountant establishing and certifying that the
Guarantor of this Lease shall then have a minimum net worth of at least
twenty-five million and 00/100ths Dollars ($25,000,000.00). In the event Lessee
shall fail to provide such financial statements during such period, Lessor shall
have the option to nullify and
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<PAGE>
vitiate Lessee's exercise of its option to extend the term pursuant to this
Section 2.04 by giving written notice thereof to Lessee.
SECTION 3.
RENTAL
3.01 In consideration of the leasing aforesaid, commencing on the
commencement date of the term hereof, Lessee hereby covenants and agrees to pay
Lessor, at such place as Lessor may hereafter from time to time designate in
writing, annual minimum net rental of Seven Hundred Thousand and no/100 Dollars
($700,000.00), in United States funds, payable monthly in advance on the tenth
(10th) day of each and every month in equal monthly installments of Fifty-Eight
Thousand, Three Hundred Thirty Three and 33/100 Dollars ($58,333.33). Receipt of
Fifty-Eight Thousand, Three Hundred Thirty Three and 33/100 Dollars
($58,333.33), representing the first month's rent is hereby acknowledged. The
rental payments shall be made by Lessee at the office of Lessor without any
prior demand therefor and without any deductions or set-offs whatsoever.
Commencing with the second year of the term hereof, and for each subsequent year
during the initial term and extended term, if any, the annual minimum net rental
owing for the year in question shall equal the annual minimum net rental payable
for the immediately preceding year increased by three percent (3%), on a
non-compounded basis. (As an illustration of the foregoing, the annual minimum
net rental owing for the second year of the term hereof shall be $700,000.00 x
1.03, or $721,000.00; the annual minimum net rental owing for the third year
shall be $700,000.00 x 1.06, or $742,000.00, and so on.) Lessor shall notify
Lessee of the adjusted annual minimum net rental for each year following the
determination of same by Lessor, and Lessee shall pay such rent for the
applicable year in the manner set forth hereinabove in this Section 3.01.
3.02 Lessor and Lessee intend that the minimum net rental shall be net to
Lessor, so that this Lease shall yield, net, to Lessor, not less than the
minimum net rent specified in Section 3.01 hereof during the term of this Lease,
and that all costs, expenses and charges of every kind and nature relating to
the leased premises which may be attributable to, or become due during the term
of this Lease, shall be paid by Lessee and that Lessor shall be indemnified and
saved harmless by Lessee from and against the same. In the event that the Lease
term shall commence on a day other than the first day of a calendar month or
shall end on a day other than the last day of a calendar month, then the rental
for such month shall be prorated upon a daily basis based upon a thirty (30) day
calendar month. Lessor and Lessee agree that no portion of annual minimum net
rental paid by Lessee after the expiration of any period during which such
rental was abated shall be allocated by Lessor or Lessee to such abatement
period, nor is such rental intended by the parties to be allocable to any
abatement period.
3.03 Any rental unpaid for more than ten (10) days after such rental is
due and any rental received and accepted more than ten (10) days after such
rental is due shall be subject to a late charge of three percent (3%) of such
rental, and such late charges shall be due from Lessee to Lessor as additional
rental on or before the next rental due date. Any default in the payment of
rental shall not be considered and cured unless and until such late charges are
paid
-4-
<PAGE>
by Lessee to Lessor. On default of payment of such late charges, Lessor shall
have the same remedies as on default in payment of rental; provided, however,
that Lessee shall be entitled to notice and an opportunity to cure as provided
in Section 18.01 hereof. Such late charges shall be in addition to any other
rights or remedies Lessor may have as provided by this Lease or as allowed by
law. Lessor and Lessee agree that such late charges represent a fair and
reasonable estimate of administrative costs suffered by Lessor as a result of
such nonpayment by Lessee.
3.04 If any rental, any late charges, or any other sums payable by Lessee
to Lessor under this Lease are not paid within ten (10) days after such rental,
late charges or other sums are due (after giving effect to the ten (10) day
grace period set forth in Section 3.03 above), such rental, late charges or
other sums shall bear interest at the rate of two (2) percentage points above
the effective prime interest rate per annum then charged by Comerica
Bank-Detroit as publicly announced from time to time as its prime rate,
provided, however, that such rate of interest shall never be less than seven
percent (7%) per annum nor more than eighteen percent (18%) per annum, or the
highest rate permitted by law, whichever is less. Such interest shall be due
from Lessee to Lessor as additional rental on or before the next rental due date
and shall accrue from the date that such rental, late charges or other sums are
payable under the terms of this Lease. Such interest for rental, late charges or
other sums shall continue to accrue through the date such rental, late charges
or other sums are paid by Lessee. Any default in the payment of rental, late
charges or other sums shall not be considered cured unless and until such
interest is paid by Lessee to Lessor. On default of payment of such interest,
Lessor shall have the same remedies as on default in payment or rental. such
interest shall be in addition to any other rights or remedies Lessor may have as
provided by this Lease or as allowed by law.
3.05 "Rent" or "rental", as those terms are used throughout this Lease
shall be defined to include the minimum net rental and all other charges of
whatever nature required to be paid by Lessee under this Lease.
SECTION 4.
TAXES, ASSESSMENTS AND UTILITIES
4.01 Lessee agrees to pay, as the same shall become due, all ad valorem
taxes and assessments, general and special, and all other government impositions
which may be levied upon or levied against the leased premises or any part
thereof until the termination of the original term and of any extended term of
this Lease. The property taxes and assessments for the first and last year of
the original term or any extended term, as the case may be, shall be prorated
between Lessor and Lessee so that Lessee will be responsible for any such tax or
assessment attributable to the period during which Lessee has Lease obligations
for the leased premises. Any tax and/or assessment of any kind or nature
presently or hereafter imposed or assessed, either by way of substitution for or
in lieu of all or any part of the taxes and assessments levied or assessed
against the leased premises or any part thereof by the State of Michigan or any
political subdivision thereof or any governmental authority having jurisdiction
there over upon, against or with respect to the rentals payable by Lessee to
Lessor or on the income of Lessor derived from the leased premises or with
respect to the Lessor's, or the
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individuals or entities which form the Lessor herein, ownership of the leased
premises, shall be deemed to constitute a tax and/or assessment against the
leased premises for the purpose of this Section and Lessee shall be obligated to
pay those taxes. Notwithstanding anything contained herein to the contrary,
Lessee's obligation hereunder shall not include the payment of any income, gross
receipts, rentals, or other form of use, tax of general applicability assessed
on or against or with respect to the rentals payable by Lessee to Lessor, except
to the extent that such tax is assessed in lieu of or in substitution for
existing ad valorem taxes on real property which are hereafter modified,
abolished or repealed in whole or in part.
4.02 In the event any or all of the foregoing taxes and assessments are to
be paid from any escrowed fund required to be established by Lessor's financial
institution under the terms of any financing, the Lessor shall notify Lessee and
Lessee shall be required to include with the monthly payments of rent under
Section 3.01 hereof a monthly amount equal to the amount required to be paid by
Lessor under the terms of such financing to the escrowed fund on account of such
taxes and assessments. If such taxes and assessments, when due, exceed the total
amount then in the escrow then the Lessee shall, within fifteen (15) days after
Lessor's written demand therefor, pay any deficiency to Lessor. If such payments
by Lessee, over the term of the Lease, exceed the amount of taxes and
assessments paid from the escrow, such excess shall be refunded by Lessor to
Lessee following an annual reconciliation thereof. The escrow for such taxes and
assessments shall be adjusted as often as necessary to provide sufficient funds
to pay current taxes and assessments.
4.03 Lessee also agrees to pay all charges made against the premises for
gas, heat, electricity, water, sewer, and all other utilities (all of the
foregoing hereinafter collectively referred to as the "utilities") during the
continuance of this Lease as the same shall become due.
SECTION 5.
USE OF LEASED PREMISES
5.01 It is understood and agreed between the parties that the leased
premises during the continuance of this Lease shall be used and occupied,
continuously throughout the term hereof, for the operation of two (2) skilled
nursing facilities, one (1) home for the aged, and one (1) apartment complex,
consistent with the use and operation of such facilities as they currently
exist; and for no other purpose without the prior written consent of Lessor,
such consent not to be unreasonably withheld. Lessee shall at all times during
the term of this Lease be required to obtain and maintain full and proper
licensing by the State of Michigan for (a) the operation of the two (2) skilled
nursing facilities on the leased premises, with a combined minimum total of one
hundred eighty-four (184) licensed beds, (b) the operation of the home for the
aged on the leased premises, with a minimum total of thirty-one (31) licensed
beds, and (c) the operation of the apartment complex on the leased premises.
Lessee covenants and represents to Lessor that the leased premises shall be
operated in a manner to maintain such licensing. Lessee shall comply or conform
to all laws, rules, regulations and the like, relating to the condition, use or
occupancy of the leased premises necessary to maintain such licensing and
certification of the nursing facilities as providers under Medicaid and Medicare
legislation or any successor
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legislation. A voluntary reduction in licensed beds shall be permitted only as
approved in writing in advance by Lessor; except, however, that Lessee may from
time to time, place beds in escrow on a temporary basis provided the same shall
not risk the permanent loss of such beds. Lessee covenants to work diligently at
all times during the Lease term to achieve maximum occupancy in the facilities
on the leased premises. The risk of loss or decrease in the enjoyment and
beneficial use of the leased premises (including, without limitation, a mandated
reduction in licensed beds) is assumed by Lessee, and Lessee shall not be
entitled to any abatement or reduction of rent as a result thereof, except as
specifically provided herein. Lessee agrees that it will not use or permit any
person to use the leased premises or any part thereof for any use or purpose in
violation of the laws of the United States, the State of Michigan, the laws,
ordinances, rules, regulations and the like of the County and City in which the
leased premises are situated, or of any other lawful authorities. Lessee shall
comply with all labor and employment laws applicable to all persons working on
or about the leased premises. During the original term or any extended term, the
Lessee will keep the leased premises and every part thereof in a clean and
wholesome condition and will comply with all lawful health and police
regulations. All signs and advertising displayed in and about the leased
premises shall be such only as to advertise the business carried on upon the
leased premises and shall otherwise comply with all applicable law, ordinances,
rules and regulations. No signs or awnings shall be displayed in or about the
leased premises unless Lessor shall have been notified in writing thereof in
advance. Lessee shall give prompt notice to Lessor of any notice it receives of
the violation of any law or requirement of any public authority with respect to
the leased premises or the use or occupation thereof.
5.02 Lessee hereby covenants and warrants that each and every contract or
agreement of whatever nature entered into by Lessee in connection with Lessee's
use and occupancy of the leased premises, including, but not limited to, any
union contract(s), shall be for a term which shall in no event extend beyond the
then current term of this Lease. It is the intent of the parties hereto that at
such time that Lessee shall surrender possession of the leased premises to
Lessor, the terms of all contracts and agreements pertaining to Lessee's use and
occupancy of the leased premises shall have expired. Lessee agrees that none of
such contracts or agreements shall contain any provisions which shall purport to
impose upon Lessee's successor any obligation to assume such contract or
agreement.
SECTION 6.
INSURANCE AND INDEMNITY
6.01 (a) During the term of this Lease, Lessee shall at all times keep the
leased premises (as well as Lessee's property located in or on the leased
premises) insured with the kinds and amounts of insurance described below. This
insurance shall be written by companies authorized to do insurance business in
the State of Michigan and having a rating of no less than "A" in the most
current edition of Best's Insurance Reports. The policies must name Lessor as an
additional insured as its interest appears. Losses shall be payable to Lessor
and Lessee as provided below. In addition, the policies shall name as an
additional insured Lessor's mortgagee(s), if any, by way of a standard form of
mortgagee's loss payable endorsement. Any
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loss adjustment shall require the written consent of Lessor, Lessee, and each
mortgagee. Evidence of insurance shall be deposited with Lessor and, if
requested, with any mortgagee(s). The policies on the leased premises shall
insure against the following risks:
(i) Loss or damage by fire and such other risks as may be included
in the broadest form of extended coverage insurance from time to time available,
including but not limited to, loss or damage from leakage of any sprinkler
system now or hereafter installed on the premises, in amounts sufficient to
prevent Lessor or Lessee from becoming a co-insurer within the terms of the
applicable policies and in any event in an amount not less than one hundred
percent (100%) of the then full replacement value thereof (as defined below);
(ii) Loss or damage by explosion of steam boilers, pressure vessels
or similar apparatus, now or hereafter installed in the facilities, in such
limits with respect to any one accident as may be reasonably agreed by Lessor
and Lessee from time to time;
(iii) Claims for personal injury or property damage under a policy
of general public liability insurance with amounts not less than One Million and
no/100 Dollars ($1,000,000.00) per occurrence in respect of bodily injury, Two
Million and no/100 Dollars ($2,000,000.00) aggregate per occurrence, and Three
Hundred Thousand and no/100 Dollars ($300,000.00) for property damage;
(iv) Claims arising out of malpractice in an amount not less than
Two Million and no/100 Dollars ($2,000,000.00) for each person and for each
occurrence;
(v) Such other hazards and in such amounts as may be customary for
comparable properties in the area and is available from insurance companies
authorized to do business in the State of Michigan;
(vi) Loss of rental under a rental value insurance policy covering a
risk of loss during the first six (6) months of reconstruction resulting from
the occurrence of any of the hazards described in subsection (i) and (ii) of
paragraph (a) above in an amount sufficient to prevent Lessor from becoming a
co-insurer; and
(vii) Worker's compensation.
(b) The term "full replacement value" of improvements as used herein,
shall mean the actual replacement cost thereof from time to time, less
exclusions provided in the normal fire insurance policy.
(c) In addition to the insurance described above, Lessee shall maintain
such additional insurance as may be reasonably required from time to time by any
mortgagee.
(d) Any provision in this Lease to the contrary notwithstanding, each
party hereto, to the extent it is permitted so to do by the terms and provisions
of any such policy or policies, hereby waives any and all rights to recover from
the other, its agents, or employees, any loss or damage from risks ordinarily
insured against under such policies, but only to the extent that
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such loss or damage is in fact covered by such insurance and is collectible by
such insured party. Each party further covenants and agrees that it will, upon
request of the other, request each such insurance company to attach to such
policy or policies issued by it a waiver of subrogation with respect to the
other party, its agents and employees.
(e) All proceeds payable by reason of any loss or damage to any of the
improvements comprising the leased premises and insured under any policy of
insurance required by (a) above shall be paid to Lessor and held by Lessor in
trust (subject to the provisions of paragraph (f) below and the rights of any
mortgagee(s)) and shall be made available for reconstruction or repair, as the
case may be, of any damage to or destruction of the leased premises, and shall
be paid out by Lessor from time to time for the reasonable costs of such work.
Any excess proceeds of insurance remaining after the completion of the
restoration or reconstruction of the leased premises shall be retained by Lessor
and shall be credited against future rental payments due from Lessee under this
Lease. All salvage resulting from any such loss covered by insurance shall
belong to Lessor.
(f) If, during the term hereof, the leased premises are totally or
partially destroyed from a risk covered by the insurance described in paragraph
(a) above, Lessor shall, as soon as practicable, restore the leased premises to
substantially the same condition as existed immediately before the destruction.
If the costs of the restoration exceed the amount of proceeds received by Lessor
from the insurance required under paragraph (a) above, Lessee shall be solely
responsible for paying the difference between the amount of insurance proceeds
and such costs of restoration, the failing of which shall constitute a default
hereunder as well as relieving Lessor (at Lessor's option) of Lessor's
obligation to so restore the leased premises.
(g) If Lessor is required to restore the facilities as provided in
paragraph (f) above, Lessor shall not be required to restore alterations made by
Lessee, Lessee's improvements, trade fixtures or personal property, such
excluded items being the sole responsibility of Lessee to restore.
(h) During the period required for repair and restoration, payment of rent
hereunder shall be abated in the manner and to the extent that is fair, just and
equitable to both Lessee and Lessor, taking into consideration, among other
relevant factors, the number of useable beds affected by such damage or
destruction, and availability of business interruption insurance proceeds to
satisfy Lessee's obligations to pay rent.
(i) Notwithstanding anything to the contrary contained herein, Lessee's
obligation to carry the insurance provided for herein may be brought within the
coverage of Lessee's so-called blanket policy (including, without limitation,
its "umbrella" liability policy of not less than Ten Million Dollars
($10,000,000.00) coverage), carried and maintained by Lessee; provided, however
that the coverage afforded Lessor will not be reduced or diminished or otherwise
be different from that which would exist under a separate policy meeting all
other requirements of this Lease. Further, such insurance policy or policies
shall provide not less than thirty (30) days notice of cancellation or amendment
to all parties named therein as insured.
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6.02 Except to the extent that the same shall result from the negligence,
willful misconduct or wrongful acts of Lessor, its agents or employees, Lessee
covenants to indemnify Lessor, and save it harmless from and against any and all
claims, actions, damages, liability and expense, including attorneys' fees, in
connection with loss of life, personal injury and/or damage to property arising
from or out of any occurrence in, upon or at the leased premises or the
occupancy or use by Lessee of the leased premises or any part thereof, arising
from or out of Lessee's failure to comply with any provision of this Lease, or
occasioned wholly or in part by any act or omission of Lessee, its agents,
contractors, employees, servants, customers or licensees. In case Lessor shall,
without fault on its part, be made a party to any litigation commenced by or
against Lessee, then Lessee shall protect and hold harmless and shall pay all
costs, expenses and reasonable attorneys' fees incurred or paid by Lessor in
connection with such litigation. Lessee shall also pay all costs, expenses and
reasonable attorneys' fees that may be incurred in enforcing the Lessee's
covenants and agreements in this Lease.
SECTION 7.
REPAIRS
7.01 Lessee covenants and agrees, at its sole expense, to keep the leased
premises, including, without limitation, its structure, roof, walls, electrical,
mechanical and plumbing systems, fixtures, furnishings, equipment, personal
property, the grounds, sidewalks, driveways and parking areas, at all times in
good maintenance, appearance and repair and otherwise as required by any law,
statute, ordinance, rule, regulation, government or licensing authority, or
insurance carrier. Lessee's obligation hereunder shall include (without
limitation) the responsibility for capital expenditures as may be necessary or
appropriate, from time to time, in order to maintain the leased premises in
good, safe and operable condition. If so requested by Lessor, Lessee shall
promptly deliver to Lessor a bill of sale or other appropriate instrument
evidencing the transfer of all right, title and interest to Lessor, other than
the leasehold estate created hereby, in and to such replacement item.
All damages or injury done to the leased premises by the Lessee, or
by any person who may be in or upon the leased premises with the consent,
invitation or license of the Lessee, shall be repaired and paid for by the
Lessee.
In the event that Lessee fails to commence and complete repairs
promptly and adequately, or otherwise to perform any act or fulfill any
obligation required of Lessee pursuant to this Section 7.01, Lessor may, but
shall not be required to, after thirty (30) days prior notice to Lessee (except
for emergency, in which event no notice shall be required), make or complete any
such repairs or perform such act without prior notice to, but at the sole cost
and expense of, Lessee, and Lessee shall reimburse Lessor for all costs and
expenses of Lessor thereby incurred within twenty (20) days after receipt by
Lessee from Lessor of a statement setting forth the amount of such costs and
expenses. The failure by Lessee so to make repairs, to perform any act required
under this Section, or to reimburse Lessor (in the case of reimbursement, within
such ten-day period) shall constitute a default by Lessee under this Lease and
shall carry with it the same consequences as failure to pay any installment of
rental.
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SECTION 8.
ALTERATIONS
8.01 Except as otherwise specifically provided in this Lease, Lessee
agrees that the leased premises shall not be altered, improved, or changed
without the written consent of Lessor, which consent shall not be unreasonably
withheld, and that unless otherwise provided by written agreement, all
alterations, improvements and changes which may be desired by the Lessee shall
be done, at Lessee's cost, after written notice thereof to Lessor. Any such
improvements constructed by Lessee shall be performed in accordance with plans
and specifications approved in writing in advance by Lessor, and otherwise in
accordance with applicable laws, ordinances, rules and regulations. All
alterations, additions and improvements made in or to the leased premises shall,
unless otherwise provided by written agreement, be the property of the Lessor
upon the expiration or earlier termination of this Lease, and remain upon and be
surrendered with the leased premises; provided, however, the Lessor may
designate by written notice to Lessee those alterations, additions and
improvements which shall be removed by Lessee at the expiration or termination
of the Lease and Lessee shall promptly remove the same and repair any damage to
the leased premises caused by such removal.
SECTION 9.
LIENS
9.01 Lessee shall keep the leased premises free from any and all liens,
including, without limitation, mortgage liens, or any liens arising out of any
work performed, materials furnished or obligations incurred by or for Lessee
(but excluding any liens created by Lessor), and agrees to bond against or
discharge any construction lien within ten (10) days after written request
therefor by Lessor. Lessee shall reimburse Lessor for any and all costs and
expenses which may be incurred by Lessor by reason of the filing of any such
liens and/or the removal of same, such reimbursement to be made within ten (10)
days after receipt by Lessee from Lessor of a statement setting forth the amount
of such costs and expenses.
SECTION 10.
[Intentionally Omitted]
SECTION 11.
[Intentionally Omitted]
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SECTION 12.
EMINENT DOMAIN
12.01 In the event, during the term of this Lease, proceedings shall be
instituted under the power of eminent domain which shall result in the taking of
all of the leased premises, then at the time of such eviction, this Lease shall
be void and the term hereof shall cease and terminate. If there is only a
partial taking that does not result in Lessee's eviction, actual or
constructive, from the leased premises, the Lessor shall, as promptly and
practicable (taking into account all of the then existing circumstances),
restore the leased premises substantially to its original condition and all of
the terms of this Lease shall continue in effect, except that, as of the day
possession of a portion of the leased premises is taken by public authority, the
annual minimum net rental owing pursuant to Section 3.01 hereof shall be reduced
in proportion to the number of licensed beds necessarily eliminated by reason of
such taking; provided, however, that Lessee shall be entitled to such abatement
of annual minimum net rental only to the extent that Lessor shall actually
receive proceeds pursuant to the "rental abatement" insurance provided for in
Section 6 above. The entire award for all or any portion of the leased premises
shall be the sole property of, and be payable to the Lessor and provided
further, that the entire award specifically made for Lessee's trade fixtures,
loss of business and for removal and relocation expenses in any condemnation
proceedings shall be the sole property of, and be payable to, the Lessee. It is
further agreed that in any such condemnation proceedings, the Lessor and Lessee
shall each seek its own award and at its own expense.
SECTION 13.
ASSIGNMENT
13.01 Lessee shall not assign, pledge, license, or encumber this Lease, or
sublet the leased premises or any part thereof, except, however, that the Lessee
shall have the right, with Lessor's written consent, such consent not to be
unreasonably withheld, to assign or sublet the entirety of the leased premises
to an acquiring or merging partner (provided that such acquiring or surviving
entity shall possess a post-acquisition or post-merger net worth of not less
than that of Lessee's consolidated net worth on the effective date of such
transaction), or Lessee's parent company, affiliate or wholly owned subsidiary
of the Lessee, for a use permitted pursuant to Section 5.01 hereof, provided
that Lessee is not at such time in default hereunder, and provided further that
such successor shall execute an instrument in writing assuming all of the
obligations and liabilities to the Lessor, and provided further that such
assignment or subletting shall not operate to release Lessee from its
obligations under the Lease.
SECTION 14.
INSPECTION OF LEASED PREMISES
14.01 Lessee agrees to permit Lessor and the authorized representatives of
Lessor to enter the leased premises at all reasonable times after twenty-four
(24) hours written notice to
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Lessee (except that no notice shall be required in the event of emergency),
during normal business hours (but at any time in the event of emergency) for the
purpose of inspecting the same, determining Lessee's compliance with its
obligations under this Lease, or performing such acts necessary for the safety
or preservation of the leased premises (without any obligation on the part of
Lessor, however, to do so).
SECTION 15.
[PAGE 10 OF HARD COPY MISSING]
SECTION 16.
[TEXT MISSING]
days following the delivery of the same to the United States Post Office for
mailing.
SECTION 17.
BANKRUPTCY
17.01 Lessee covenants and agrees that if any one or more of the following
events occur, namely:
(a) Lessee shall be adjudged a bankrupt or insolvent or a trustee
shall be appointed for Lessee after a petition has been filed for Lessee's
reorganization or arrangement under the federal bankruptcy laws, as now or
hereafter amended, or under the laws of the any State, and any such
adjudication or appointment shall not have been vacated or stayed or set
aside within ninety (90) days from the date of the entry or granting
thereof; or
(b) Lessee shall file, or consent to, any petition in bankruptcy or
arrangement under the federal bankruptcy laws, as ow or hereafter amended,
or under the laws of the State; or
(c) A decree or order appointing a receiver of the property of
Lessee shall be made and such decree or order shall not have been vacated,
stayed or set aside within ninety (90) days from the date of the entry or
granting thereof or Lessee shall apply for or consent to the appointment
of a receiver for Lessee; or
(d) Lessee shall make any assignment for the benefit of creditors;
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then it shall be lawful for Lessor, at its election, to declare this Lease in
default and proceed to pursue its rights and remedies as set forth in Section 18
below.
SECTION 18.
DEFAULT, RE-ENTRY AND DAMAGES
18.01 In case any of the following shall occur:
(a) any rent or other payments required to be made by Lessee shall
be due and remain unpaid for more than ten (10) days after written notice that
the same are due; or
(b) Lessee fails to comply with any of the provisions of this Lease
which results in (i) a deficiency, non-compliance item or the like cited by the
applicable Medicare, Medicaid or other licensing agency, and Lessee's failure to
correct same or cause same to be corrected within the time frame established by
such agency (or such additional reasonable period of time pending Lessee's good
faith contest and/or appeal of same), and (ii) revocation or suspension of any
of Lessee's licensing or certification as a medicaid or Medicare provider at the
leased premises, or any portion thereof (unless Lessor shall have consented to
decertification), or (iii) the removal of twenty (20) or more patients from the
leased premises, and any such failure shall continue for more than 48 hours
after written notice thereof; or
(c) Lessee fails to materially comply with any of the other
covenants, agreements, stipulations or conditions herein contained and such
failure shall continue for a period of thirty (30) days after written notice
from Lessor to Lessee of such default (provided, however, that such period shall
be extended for an additional, reasonable period if Lessee has diligently
commenced the curing of such default and is diligently pursuing the same to
completion); or
(d) if the leased premises shall be deserted or _________, then
Lessor, in addition to other rights or remedies it may have, shall have the
immediate right of re-entry pursuant to the Michigan Summary Proceedings Act or
any other statue enacted as a replacement or substitute therefor (or any other
application law in the event there shall exist no such replacement or
substitute) and may remove all persons and property from the leased premises;
such property may be removed and stored in any other place, for the account of,
and at the expense and at the risk of Lessee.
18.02 Should Lessor elect to re-enter as herein provided or should it take
possession pursuant to legal proceedings or pursuant to any notice provided for
by law, it may either terminate this Lease or it may from time to time, without
terminating this Lease, re-let the leased premises or any part thereof for such
term or terms and at such rentals and upon such other terms and conditions as
Lessor in its sole discretion may deem advisable, with the right to make
alterations (at Lessor's expense, except to the extent necessitated by reason of
Lessee's default hereunder, and then at Lessee's expense) and repairs (at
Lessee's expense) to the leased premises. Rentals received by Lessor from such
re-letting shall be applied as follows:
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First, to the payment of Lessee's obligations accruing
pursuant of Section 6.02 hereof;
Second, to the payment of rent and other payments required
hereunder of Lessee for taxes, insurance or utilities due and
unpaid hereunder;
Third, to the payment of any other sum specified in Section
3.02 hereof;
Fourth, to the payment of any cost of such re-letting;
Fifth, to the payment of the cost of any repairs to the leased
premises necessary to permit the re-letting thereof;
and the residue, if any, shall be held by Lessor and applied in payment of
future rent as the same may become due and payable hereunder. Should such
rentals received from such re-letting during any month be less than that amount
agreed to be paid that month by Lessee hereunder, the Lessee shall pay such
deficiency to Lessor. Such deficiency shall be calculated and paid monthly.
No such re-entry or taking possession of the leased premises by
Lessor shall be construed as an election on its part to terminate this Lease
unless a written notice of such intention be given to Lessee or unless the
termination thereof be decreed by a court of competent jurisdiction.
Notwithstanding any such re-letting without termination, Lessor may at time
thereafter elect to terminate this Lease for previous breach. Should Lessor at
any time terminate this Lease for any breach, in addition to any other remedy,
it may recover from Lessee all damages it may incur by reason of such
termination of the amount of rent and other payments required of Lessee
hereunder for the remainder of the stated term, subject to Lessor's obligation
to credit Lessee with all recoveries (including the proceeds of any reletting or
subletting of the leased premises) made by Lessor; and provided further, Lessor
shall at all times exercise its reasonable efforts to mitigate damages
hereunder.
SECTION 19.
SURRENDER OF LEASED PREMISES ON TERMINATION
19.01 Subject to Section 11 hereof, whenever this Lease shall be
terminated, whether by lapse of time, forfeiture, or in any other way, Lessee
will yield and deliver up the leased premises peaceably to Lessor in as good
repair as when taken, except for reasonable and normal wear and tear and
casualty loss or damage caused by Lessor. Additionally, at such time, Lessee
shall be required to relinquish to Lessor its interest in and possession of all
patient records, patient trust funds and accounting for same, as well as copies
of all financial and operating records relating to the leased premises and the
business operations therein, and to reasonably cooperate with Lessor in all
license, certificate of need, and certifications necessary or appropriate for
Lessor to operate in the leased premises to a condition and quality at least
substantially equal to as they existed on the commencement date of the term
hereof, including,
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without limitation, restoring the drugs, medications, food, linens, supplies,
inventory and the like to substantially the levels existing as of the
commencement date of the term hereof. For all purposes under this Lease, the
parties agree to hereafter execute such instruments and perform such acts as are
reasonably necessary to carry out the intent and purposes of the provisions of
this Lease.
SECTION 20.
PERFORMANCE BY LESSOR OF THE COVENANTS OF LESSEE
20.01 Should Lessee at any time fail to materially comply with any of the
provisions of this Lease, Lessor at its option, and in addition to any and all
other rights and remedies of Lessor in such event, may (but shall not be
required to), after thirty (30) days prior written notice to Lessee (except for
emergency, in which event no notice shall be required) do the same or cause the
same to be done, and the reasonable amount of any money expended by Lessor in
connection therewith shall be due from Lessee or Lessor as additional rent on or
before the next rental due date bearing interest at a rate of two (2) percentage
points above the effective prime interest rate then charged by Comerica
Bank-Detroit, as publicly announced from time to time as its prime rate, but in
the event that such rate shall exceed the highest rate permitted by law, then at
the highest legal rate, from the date of payment until the repayment thereof to
Lessor by Lessee. On default in such payment, Lessor shall have the same
remedies as on default in payment of rent.
20.02 If Lessor defaults in the performance of any condition or obligation
in this Lease and if Lessee gives Lessor notice of the default stating the
default complained of and referring to the Section in the Lease relied on by
Lessee, Lessor shall have thirty (30) days after receiving written notice from
Lessee to commence the cure of any default and shall thereafter cure same in
good faith, with diligence, and within a reasonable period of time. If Lessor
fails to cure any such default or to diligently and in good faith pursue the
cure as provided for herein, then Lessee may sue Lessor for its damages, and may
further obtain injunctive relief if necessary to maintain operation of the
facilities or conform with applicable law. Anything to the contrary herein
contained notwithstanding, there shall be absolutely no personal liability on
the part of Lessor or persons or entities who have an ownership interest in
Lessor with respect to any of the terms, covenants, conditions and provisions of
this Lease, and Lessee shall, subject to the rights of any prior mortgagee, look
solely to the interest of Lessor in the leased premises in accordance with
Section 33.05 hereof for the satisfaction of each and every remedy of Lessee in
the event of default by Lessor hereunder; such exculpation of personal liability
being absolute and without any exception whatsoever.
Whenever this Lease requires any action (other than the payment of a
liquidated sum of money, e.g. rent, taxes, insurance, utilities, etc.) by Lessor
or Lessee within a certain period of time or a certain time, the time for the
performance of such act shall be extended by the period of any delay caused by
war, strikes, lockouts, civil commotion, unpreventable material shortages,
casualties, acts of God or other conditions or events beyond the control of the
obligated party; provided, however, than written notice of such delay and the
cause and
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circumstances thereof shall be given to the other party immediately after
commencement of such delay and knowledge of such delay becoming known by the
obligated party.
SECTION 21.
RIGHTS TO MORTGAGE
21.01 Lessor reserves the right to subject and subordinate this Lease at
all time, to the lien of any mortgage or mortgages now or hereafter placed upon
Lessor's interest in the leased premises. Lessee also agrees that any mortgage
of Lessor may elect to have this Lease constitute a prior lien to its mortgage,
and in the event of such election and upon notification by such mortgagee to
Lessee to that effect, this Lease shall be deemed prior in lien to such
mortgage, whether this Lease is dated prior to or subsequent to the date of said
mortgage. Lessee covenants and agrees to execute and deliver upon request such
further instrument or instruments as may be reasonably required by Lessor or
Lessor's mortgagee to carry out the intent of this Section. In consideration of
Lessee's execution of any subordination and/or attornment agreement which may be
required of Lessee hereunder, such instrument shall contain a non-disturbance
agreement. Lessor agrees to exercise its reasonable effort to procure such
mortgagee's agreement in such instrument to notify Lessee of, and granting
Lessee an opportunity to cure, any breach by Lessor of the terms of the mortgage
on the leased premises.
In the event any proceedings are brought for the foreclosure of or
in the event of exercise of the power of sale under any mortgage made by Lessor
covering the leased premises, Lessee shall, at the option and request of the
purchaser, and so long as the purchaser shall perform the obligations of
"Lessor" hereunder from and after the date of sale to such purchaser, attorn to
the purchaser upon any such foreclosure or sale and recognize such purchaser as
the Lessor under this Lease.
SECTION 22.
COVENANT OF QUIET ENJOYMENT
22.01 Lessor covenants and agrees to and with Lessee that at all times
during the term of this Lease when Lessee is not in default under the terms
hereof, Lessee's quiet and peaceable enjoyment of the leased premises shall not
be disturbed or interfered with by Lessor or any person claiming by, through, or
under Lessor.
SECTION 23.
SECURITY DEPOSIT
23.01 The Lessor herewith acknowledges the receipt of Three Hundred
Thousand and 00/100 Dollars ($300,000.00), ($100,000 of which shall be in the
form of an Irrevocable
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Standby Letter of Credit (payable upon demand) in form satisfactory to Lessor.
Lessor shall retain same as security for the faithful performance of all of the
covenants, conditions, and agreements of this Lease, but in no event shall the
Lessor, prior to Lessor's declaration of default and the termination of this
Lease, be obligated to apply the same upon rents or other charges in arrears or
upon damages for the Lessee's failure to perform the said covenants, condition
and agreements. The Lessor shall so apply the security upon Lessor's declaration
of default and the termination of this Lease or upon any other termination of
the lease. The Lessor's right to the possession of the leased premises for
nonpayment of rent or for any other reason shall not in any event be affected by
reason of the fact that the Lessor holds such security. Provided Lessee is not
then in default under any of the terms of this Lease, and further provided that
no portion of said security has been applied toward the payment of rent or other
charges in arrears or toward the payment of damages suffered by Lessor by reason
of the Lessee's breach of this Lease, then upon the expiration of the fifth
(5th) year of the term hereof, Lessee shall have the option, exercisable by
written notice to Lessor, of requiring the release of $100,000 of said security
(from the cash deposit), to be either refunded to Lessee or applied against
Lessee's rental obligations hereunder, at Lessee's option. The balance of said
security, if not applied toward the payment of rent or other charges in arrears
or toward the payment of damages suffered by the Lessor by reason of the
Lessee's breach of this Lease, shall be released and/or returned to the Lessee
within thirty (30) days after the expiration of the term hereof, provided that
Lessee shall have vacated the leased premises, delivered possession to the
Lessor in the condition required under the terms of this Lease, and shall have
otherwise fully satisfied all of its obligations under this Lease.
In the event that the Lessor repossesses itself of the leased
premises because of the Lessee's default or because of the Lessee's failure to
carry out the covenants, conditions and agreements of the Lease, the Lessor
shall apply the said security upon all damages suffered to the date of said
repossession and may retain the balance of the said security to pay upon such
damages as may be suffered or shall accrue thereafter by reason of the Lessee's
default or breach. The Lessor shall not be obliged to keep the said security as
separate fund, but may mix the said security with its own funds. On or before
ninety (90) days prior to the expiration of the initial term of this Lease
(provided Lessee has not extended the term hereof) or the extended term, as the
case may be, if Lessor shall fail to show Lessee that the unrestricted and
unapplied cash portion of Lessee's security deposit is then available and shall
thereafter remain available, then Lessee may apply same against rentals accruing
thereafter, provided that Lessee shall not then be in default under this Lease
and, further provided, that Lessee shall give Lessor five (5) days written
notice and opportunity to cure its failure hereunder before such application may
be permitted.
Lessee hereby agrees not to look to the mortgagee, as mortgagee,
mortgagee in possession, or successor in title to the land of which the leased
premises are a part, for accountability for any security deposit required by
Lessor hereunder, unless said deposit shall have actually been received by said
mortgagee as security for Lessee's performance under the terms of this Lease.
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SECTION 24.
HOLDING OVER
24.01 In the event of Lessee holding over after the termination of this
Lease, thereafter the tenancy shall be from month to month in the absence of a
written agreement to the contrary, subject to all the conditions, provisions and
obligations of this Lease insofar as the same are applicable to a month to month
tenancy; except that such month to month tenancy shall be at a monthly minimum
net rental in an amount equal to 150% of the monthly minimum net rental
stipulated in Section 3 if Lessee shall be holding over without Lessor's written
consent.
SECTION 25.
REMEDIES NOT EXCLUSIVE; WAIVER
25.01 Each and every of the rights, remedies and benefits provided by this
Lease shall be cumulative, and shall not be exclusive of any other of said
rights, remedies and benefits, or of any other rights, remedies and benefits
allowed by law.
25.02 One or more waivers of any covenant or condition by Lessor shall not
be construed as a waiver of a further or subsequent breach of the same covenant
or condition, and the consent or approval by Lessor to or of any act by Lessee
requiring Lessor's consent or approval shall not be deemed to waive or render
unnecessary Lessor's consent or approval to or of any subsequent similar act by
Lessee.
SECTION 26.
RIGHT TO SHOW LEASED PREMISES
26.01 Provided that Lessor shall not materially disrupt Lessee's
operations in the leased premises, the Lessee hereby agrees that, during the
term hereof, Lessor may show the leased premises to prospective lessees and
purchasers.
SECTION 27.
LESSEE'S PROPERTY
27.01 Lessee shall be responsible for and shall pay before delinquency all
municipal, county, state and federal taxes or fees of any nature assessed during
the term of this Lease against any leasehold interest, fixtures, furnishing,
equipment or personal property of any kind, owned by or placed in, upon or about
the leased premises.
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<PAGE>
27.02 The Lessor shall not be responsible or liable to the Lessee for any
loss or damage that may be occasioned by or through the acts or omissions of
persons occupying adjoining premises, or any part of the premises adjacent to or
connected with the leased premises, or for any loss or damage resulting to the
Lessee or its property from bursting, stoppage or leaking of water, gas, sewer
or steam pipes or for any damage or loss of property or within the leased
premises from any cause whatsoever except to the extent that the same shall
result from the negligent or wrongful acts of Lessor, its agents or employees.
27.03 Less shall give immediate notice to Lessor in case of fire or other
casualty in the leased premises or of defects therein or in any fixtures or
equipment.
SECTION 28.
[Intentionally Omitted]
SECTION 29.
MEMORANDUM OF LEASE
30. Upon either party's request, the parties agree to prepare and record a
mutually acceptable form of Memorandum of this Lease, to be recorded at the
office of the County Register of Deeds.
SECTION 31.
LESSOR'S OPTION TO PURCHASE
31.01 Upon the expiration or earlier termination of the term of this
Lease, Lessor and/or Lessor's partners shall have the option to purchase all of
the assets, tangible and intangible, owned by Lessee which are utilized in
connection with the business operations conducted on the leased premises,
including, but not limited to, all fixtures, furnishings, equipment and personal
property of Lessee on or about the leased premises, and, to the extent
assignable, Lessee's interest in all licenses and certificates pertaining to
Lessee's use and operation of the leased premises (collectively the "Assets");
which option may be exercised by Lessor by notifying Lessee in writing not prior
to ninety (90) days prior to the expiration or earlier termination of this lease
or within ninety (90) days after the expiration or earlier termination of the
term hereof. In the event Lessor shall exercise the foregoing option to
purchase, the total consideration therefor to be paid by lessor at the closing
of the transaction shall be One Dollar ($1.00) plus the fair market value of the
Assets on the date of expiration or earlier termination of this Lease, such
value to be determined by independent appraisal, performed by an appraiser
mutually acceptable to the parties, the cost of which shall be borne equally by
the parties.
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<PAGE>
31.02 Lessee agrees that in the event of exercise by Lessor of the
foregoing option to purchase, Lessee shall execute all necessary and required
documents to consummate the transaction, and Lessee shall utilize its best
efforts to consummate the transaction in an expeditious manner; and Lessee
agrees, at all times during the term of this Lease, to fully cooperate with
Lessor in connection with the transfer and/or issuance of all licenses,
certificates and governmental approvals necessary for Lessor's operation of the
facilities on the leased premises. The option to purchase as set forth in this
Section shall be freely assignable, in whole or in part, by Lessor.
SECTION 31
FINANCIAL STATEMENTS
31.03 Lessee shall furnish Lessor, as soon as available and in any event
within forty-five (45) days after the end of the first three quarters of each
fiscal year of the Lessee, the consolidated balance sheet of the Lessee and
affiliates at the end of such fiscal quarter, and the related consolidated
statements of income, retained earnings and changes in financial positions for
the period commencing at the end of the previous fiscal year and ending with the
end of such fiscal quarter, setting forth in each case in comparative form the
corresponding figures for the corresponding date or period of the preceding
fiscal year, all in reasonable detail and duly certified (subject to year-end
audit adjustments) by an officer of the Lessee as having been prepared in
accordance with generally accepted accounting principles, together with a
certificate of an officer of the Lessee stating that no default or event which,
with notice or lapse of time or both, would constitute a default, has occurred
or, if a default or such event has occurred, a statement setting forth the
details thereof and the action which the Lessee has taken or proposes to take
with respect thereto.
31.04 As soon as available and in any event within one hundred eighty
(180) days after the end of each fiscal year of the Lessee, the Lessee shall
furnish to Lessor a consolidated and consolidating financial statement for such
year, including a balance sheet as of the close of such fiscal year, statements
of income and retained earnings and changes in financial position for such year,
prepared in accordance with generally accepted accounting principles
consistently applied and certified by Lessee's independent certified public
accountants and supported by the opinion of such independent certified public
accountants, together with a certificate of an officer of the Lessee stating
that no default or event which, with notice or lapse of time or both, would
constitute a default, has occurred or, if a default or such event has occurred,
a statement setting forth the details thereof and action which the Lessee has
taken or proposes to take with respect thereto.
31.05 Additionally, within forty-five (45) days after the end of each
quarter of each fiscal year of the Lessee, Lessee shall furnish to Lessor an
income and operations statement (in such form and detail reasonably satisfactory
to Lessor) and such other information as shall reflect the business operations
and financial for each of the facilities operated on the leased premised for
such quarter and the year to date.
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SECTION 32.
HAZARDOUS SUBSTANCES
32.01 Lessee shall at all times use, store, generate, treat, or dispose of
any Hazardous Substance associated with the operation of the leased premises in
compliance with applicable environmental laws, ordinances, rules and
regulations. For purposes of this section, the term "Hazardous Substance" means
any substance, the manufacturer, use, treatment, storage, transportation, or
disposal of which is regulated by any law having as its object the protection of
public health, natural resources, or the environment, including, by the way of
illustration only and not as a limitation, the following: the Resource
Conservation and Recovery Act; the Comprehensive Environment Response,
Compensation, and Liability Act; the Toxic Substances Control Act; the Federal
Water Pollution Control Act; the Clean Air Act; the Michigan Hazardous Waste
Management Act; the Michigan Water Resources Commission Act, the Michigan Solid
Waste Management Act; and the Michigan Environmental Response Act as each of
such acts shall be amended from time to time. Lessor hereby represents and
warrants to Lessee that it has commissioned a Phase I environmental assessment
of the leased premises (the results of which shall be reasonably satisfactory in
all respects to Lessee prior to the commencement date hereof) and (ii) Lessor
has no knowledge that there as "Hazardous Substances" or underground storage
tanks on, in, at or under the leased premises. Lessor shall be responsible for
all indicated and recommended remediation in said Phase I environmental
assessment as and when required by an governmental authority unless such
environmental problem should reasonably present a serious threat to the health,
safety or welfare of the residents or employees of the premises, in which case
Lessor shall effect such remediation immediately.
32.02 Lessee shall promptly supply to Lessor a copy of all notices,
demands, inquiries, or claims received from any person or entity as a result of
Hazardous Substances alleged to be on or emanating from the leased premises or
adjacent property, and any notices, reports, or applications for licenses,
permits, or approvals submitted by or on behalf of Lessee to any environmental
regulatory agency affecting the leased premises or adjacent property.
32.03 Lessor reserves the right (but shall not have the obligation) to
enter upon and inspect the leased premises at any time, and from time to time,
during Lessee's business hours and, on reasonable notice, at other times. Such
inspection may include, without limitation, the taking and analysis of soil
borings, samples of ground water or surface water, installation of observation
wells, and investigation of the surface or subsurface of the leased premises by
geophysical means. Lessee shall promptly furnish to Lessor any information
requested by or on behalf of Lessor concerning Lessee's operations on the leased
premises and on adjacent property, whether or not such information is a
proprietary nature.
32.04 Lessee shall, at its sole cost and expense, take all steps necessary
from and after the commencement date hereof to forthwith remove and properly
dispose of all Hazardous Substances and clean up and remediate any contamination
or damage resulting therefrom caused by, resulting from, or attributable to,
Lessee's operations on, or possession of, the leased premises, in full
compliance with all applicable laws and regulations. Lessee agrees to defend,
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indemnify and hold Lessor harmless from and against any liabilities including,
without limitation, judgments, fines, penalties, court costs, and actual
attorney fees claimed or asserted against or sustained by Lessor resulting from
lessee's failure to fully comply with the provisions of the Section 32.
SECTION 33.
MISCELLANEOUS
33.01 This Lease shall be governed by, and construed in accordance with,
the laws of the State of Michigan. If any provision of this Lease or the
application thereof to any person or circumstances shall, to any extent, be
invalid or unenforceable, the remainder of this Lease shall not be affected
thereby and each provision of the Lease shall be valid and enforceable to the
fullest extent permitted by the law.
33.02 The captions of this Lease are for convenience only and are not to
be construed as part of this Lease and shall not be construed as defining or
limiting in any way the scope of intent of the provisions hereof.
33.03 Whenever herein the singular member is used, the same shall include
the plural and the masculine gender shall include the feminine and neuter
genders.
33.04 This Lease shall constitute the entire agreement of the parties
hereto; all prior agreements between the parties, whether written or oral, are
merged herein and shall be of no force and effect. This Lease cannot be changed,
modified or discharged orally but only by an agreement in writing, signed by the
party against whom enforcement of the change, modification or discharge is
sought.
33.05 If Lessor shall fail to perform any covenant, term or condition of
this Lease upon Lessor's part to be performed, and if as a consequence of such
default Lessee shall recover a money judgment against Lessor, such judgment
shall be satisfied only out of the proceeds of sale received upon execution of
such judgment and levied thereon against the right, title and interest of Lessor
in the leased premises, and neither Lessor nor any of the co-partners comprising
the partnership which is the Lessor herein shall be liable for any deficiency.
33.06 Lessor may freely transfer, assign or otherwise encumber its
interest herein and/or in the leased premises. In the event of any such
transfer, the transferor shall be automatically relieved of any and all
obligations and liabilities on the part of Lessor accruing from and after the
date of such transfer provided that such obligations and liabilities are assumed
by the transferee. lessor shall give Lessee at least three (3) business days
notice prior to entering a binding agreement to sell the leased premises.
33.07 All rights and liabilities herein given to, or imposed upon, the
respective parties hereto shall extend to and bind the several respective heirs,
executors, administrators, successors, and assigns of the said parties; and if
there shall be more than one Lessee, they shall
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all be bound jointly and severally by the terms, covenants and agreements
herein. No rights, however, shall inure to the benefit of any assignee of Lessee
unless the assignment of such assignee is permissible in accordance with the
terms and conditions of Section 13.01.
33.08 No payment by Lessor or receipt by Lessor of a lesser amount than
the monthly rent herein stipulated shall be deemed to be other than on account
of the earliest stipulated rent, nor shall any endorsement or statement on any
check or any letter accompanying any check or payment as rent be deemed an
accord and satisfaction, and Lessor shall accept such check or payment without
prejudice to Lessor's right to recover the balance of such rent or pursue any
other remedy in this Lease provided.
33.09 The submission of this Lease for examination does not constitute a
reservation of or option for the leased premises, and this Lease shall become
effective as a Lease only upon execution and delivery thereof by Lessor and
Lessee.
33.10 Lessee shall not interpose any non-compulsory counterclaims or
claims for set-off, recoupment or deduction of rent in a summary proceeding for
nonpayment of rent or other action or summary proceeding based on termination,
holdover or other default in which Lessor seeks repossession of the leased
premises from Lessee.
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IN WITNESS WHEREOF, the Lessor and Lessee have executed this Lease as of
the date set forth at the outset hereof.
LESSOR:
WITNESSES: POMEROY HEALTH, INC.,
a Michigan corporation
/s/ signature illegible By: /s/ Howard Leshman
- -------------------------------- ------------------------------
Vice President of Acquisitions
/s/ Maureen Lewis Its: Vice President
- --------------------------------
LESSEE:
TRANSITIONAL HEALTH PARTNERS, d/b/a
TRANSITIONAL HEALTH SERVICES, a
Delaware general partnership
/s/ John G. Hundley By: THS PARTNERS I, INC.,
- -------------------------------- a Delaware corporation,
Vice President of Legal Affairs General Partner
/s/ signature illegible By: /s/ Randall J. Bufford
- -------------------------------- ------------------------------
V.P. of Bus. Dev.
Its: G. M.
/s/ John G. Hundley And: THS PARTNERS II, INC.,
- -------------------------------- a Delaware corporation,
V. P. of Legal Affairs General Partner
/s/ signature illegible By: /s/ Randall J. Bufford
- -------------------------------- ------------------------------
V. P. of Bus. Dev.
Its: G. M.
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EXHIBIT 10.25
<PAGE>
WILORA LAKE HEALTH CARE CENTER, INC.
LEASE AGREEMENT
THIS LEASE, made as of the 1st day of March 1996 by and between WILORA
HEALTH CARE CENTER, INC., a North Carolina corporation ("Landlord") and
TRANSITIONAL HEALTH SERVICES, a Delaware general partnership qualified to do
business in North Carolina ("Tenant");
INTRODUCTION
A. Landlord is the owner of the premises herein demised;
B. Landlord has received governmental approval for the construction and
operation of a nursing home Facility with ninety (90) beds;
C. Landlord has undertaken to construct the Facility and, upon licensure
and obtaining of all governmental approvals, desires to lease the Facility to
Tenant and Tenant desires to lease the Facility from Landlord.
AGREEMENT
For valuable consideration, the receipt and sufficiency of which is hereby
acknowledged and in consideration of the mutual covenants and obligations herein
contained, it is agreed:
1. Lease: Landlord does hereby demise and lease unto Tenant, and Tenant
does hereby take, hire and let from Landlord that certain tract or parcel of
real estate, together with the buildings, improvements and all fixtures
constructed thereon, and the privileges and appurtenances thereunto pertaining,
situate, lying and being in or around Charlotte, North Carolina and being more
particularly described on Exhibit A attached hereto (hereinafter referred to as
"Premises" and "Demised Premises"), including but not limited to the nursing
Facility located at Demised Premises ("Facility"), together with all furniture,
equipment and other items listed on Exhibit B attached hereto (the "Personal
Property"). (The parties acknowledge that Exhibit B may not be capable of
description at the execution hereof, but agree that such exhibit shall be
attached prior to the commencement date.)
2. Covenant of Title and Quiet Enjoyment: Landlord covenants and warrants
that at the commencement date of this Lease it alone shall have full right and
lawful authority to enter into this Lease for the full term hereof; that it is
lawfully seized of the Premises in fee simple and has good title thereto, free
and clear of all tenancies, restrictions and encumbrances (with the exception of
liens securing Lenders providing financing for the Facility, and other matters
not adversely affecting the intended use of the Premises or merchantability of
title, or other matters agreed to between the parties, as specified on Exhibit C
attached hereto) and that at all times during the term of this Lease and any
extensions of said term, Tenant's quiet and peaceful enjoyment of the Premises
shall not be disturbed or interfered with by anyone.
<PAGE>
3. Governmental Authorizations and Use of Premises: Landlord hereby
represents and warrants to Tenant, that the use of the Premises as a nursing
home Facility will be a permitted use by right under all applicable zoning or
other use restrictions or Federal or State regulations. In particular, Landlord
represents and warrants to Tenant that the Facility, as designed, will meet all
standards presently required for Federal Medicare and Medicaid certification.
Landlord further represents and warrants to Tenant that the Facility, as
designed, will be in compliance with all applicable municipal, county, state and
federal laws and regulations (including, without limitation, health care laws,
building codes and the fire safety code). Landlord and Tenant agree not to
effect any voluntary reduction in the Facility's bed capacity without the prior
written approval of HUD and the North Carolina Division of Facility services.
4. Term:
(a) The initial term of this Lease shall be for ten (10) years
commencing with the first day of the calendar month following the date
that the Tenant exercises its option to lease the Facility pursuant to
this Lease (following the date the Facility is licensed, has received all
necessary governmental approvals, and becomes operational) (the
"Commencement Date"). Landlord shall give Tenant written notice of the
licensure of the Facility and, therefore, the Commencement Date. The
effectiveness of this lease is specifically contingent upon prior
licensure of the Facility and the receipt of all necessary governmental
approvals pursuant to the Certificate of Need authorizing the Facility or
otherwise required.
(b) Provided (i) Tenant shall not be in default in performance of
any of its obligations under this Lease, and (ii) this Lease shall not
have previously been terminated, Tenant shall have the option upon the
expiration of the Initial Term to extend the Initial Term for an
additional term of ten (10) years (the "First Renewal Term"). Should
Tenant elect to exercise such option, it shall do so by written notice to
Lessor at least twelve (12) months prior to the expiration of the Initial
Term. During the First Renewal Term, this Lease shall continue in effect
upon the same terms (excluding renewal options) and rent schedule (i.e.,
three percent (3%) per year noncompounded increases) and subject to the
same conditions applicable to the Initial Term. The Initial Term and any
additional term of this Lease resulting from the exercise of the option
granted in this section are collectively referred to in this Lease as the
"Term."
(c) When used herein, the phrases "term of this Lease" or "term
hereof" or like phrases shall be deemed to include both the initial and
any renewal terms of this Lease.
5. Rent:
(a) Tenant shall pay the following rent to Landlord at its offices
at 1018 Second Street, S.W., Roanoke, Virginia 24016, or at such other
place as Landlord may advise in writing, in advance, on the 1st day of
each calendar month, without notice, demand, offset or deduction, in
lawful money of the United States of America, during
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<PAGE>
and throughout the term of this Lease (adjusted for such period as the
Tenant has managed the Facility pursuant to the Management Agreement):
(1) For the first twelve (12) months of the term (Lease Year
1) the sum of $394,200.00.
(2) For the next twelve (12) months of the term (Lease Year
2) the sum of $406,026.00.
(3) For the next twelve (12) months of the term (Lease Year
3) the sum of $417,852.00.
(4) For the next twelve (12) months of the term (Lease Year
4) the sum of $429,678.00.
(5) For the next twelve (12) months of the term (Lease Year
5) the sum of $441,504.00.
(6) For the next twelve (12) months of the term (Lease Year
6) the sum of $453,330.00.
(7) For the next twelve (12) months of the term (Lease Year
7) the sum of $465,156.00.
(8) For the next twelve (12) months of the term (Lease Year
8) the sum of $476,982.00.
(9) For the next twelve (12) months of the term (Lease Year
9) the sum of $488,808.00.
(10) For the next twelve (12) months of the term (Lease Year
10) the sum of $500,634.00.
(b) If Landlord does not receive from Tenant any monthly rental
payment within fifteen (15) days after such payment is due, Landlord, at
its option, may charge Tenant a late charge and handling fee equal to five
percent (5%) of the monthly rental payment. Such fee shall be considered
additional rent and shall be due and payable by Tenant to Landlord
immediately upon delivery of written notice to Tenant. In addition, if any
check of Tenant is returned to Landlord unpaid, Tenant shall reimburse
Landlord for all charges associated with such returned check and Landlord,
at its option, may thereafter require that Tenant pay the rent and any
other charges payable hereunder by a certified or cashier's check.
(c) All additional sums payable by Tenant to Landlord under the
provisions of this Lease shall constitute additional rent.
3
<PAGE>
(d) (1) Except as otherwise expressly provided in this Lease, this
Lease is a "net lease" pursuant to which the parties intend to yield "net"
to Landlord the rental provided for in section 5(a) above.
(2) To further ensure that the rent to Landlord is absolutely
"net" to Landlord, Tenant further agrees to timely pay during the
term of this Lease, all costs and expenses, including but not
limited to the following:
(i) All occupational licenses and other permits
necessary in the operation of the business to be
conducted on the Demised Premises;
(ii) All utility charges for water, sewer, electricity,
gas, telephone or any other services provided to
or consumed on the Demised Premises;
(iii) All sales and use taxes due as a result of the
business conducted on the Demised Premises and any
real and personal property taxes assessed against
any property located on or used in connection with
the Demised Premises;
(iv) All real property taxes and assessments levied on
the Demised Premises as provided in Section 9;
(v) All premiums for all insurance required by this
Lease as provided in Section 10; and
(vi) The Landlord's "replacement reserve" payments
required as a condition to the Landlord's
HUD-guaranteed mortgage in the monthly amount of
$3,448.09; provided, that Landlord assigns to
Tenant all its right, title and interest in and to
such reserves funded by Tenant on Landlord's
behalf, and shall, subject to applicable HUD
requirements, cooperate with Tenant in obtaining
the timely release of such reserve funds for the
purpose of replacing and upgrading the Facility's
tangible personal property as Tenant requests;
and Tenant agrees to hold Landlord harmless from any such cost or expense
related thereto.
6. Use of Premises: The Tenant shall use the Premises for a Federal
Medicare (Title XVIII) or Medicaid (Title XIX) certified Facility and home for
adults which shall be operated in full compliance with all laws and regulations
applicable thereto. Tenant covenants that no part of the Premises shall be used
for any unlawful purpose, nor will any unlawful condition or nuisance be
permitted to exist thereon. Tenant further warrants and represents that the
Premises
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will be certified for participation in the Medicare and Medicaid programs and
that it will maintain such certifications at all times during the term of this
lease or any extensions thereof.
7. Reports: Tenant agrees to provide Landlord quarterly unaudited
financial statements and yearly audited financial statements of the Tenant
including balance sheets and income statements certified by an officer of Tenant
to have been prepared in accordance with Generally Accepted Accounting
Principles and to fairly present the financial condition and the results of
operations of Tenant on the dates and for the periods indicated, subject, in the
case of the quarterly financial statements, to normally recurring year-end
adjustments. Such statements shall be delivered promptly upon their completion
and in no event later than thirty (30) days after the close of each of the
Tenant's quarters and no later than one hundred twenty (120) days after the
close of each of Tenant's fiscal years. Tenant will also provide such other
financial information as Landlord or its mortgagee may require after notice.
Tenant further will provide Landlord as the same are filed with the State of
North Carolina, copies of all Medicaid Cost Reports and further will immediately
provide Landlord, to the extent reasonably required, copies of all
communications received from the State of North Carolina or any agency thereof
regarding violations or alleged violations of applicable laws, rules, codes or
regulations.
8. Repair and Maintenance of Improvements: Landlord warrants that the
entire Premises and the building and improvements thereon shall be in good, safe
condition and repair on the Commencement Date of this Lease. Landlord shall be
responsible for the structural integrity of the building and repair of exterior
walls, excluding windows and glass panels, and except for damages caused or
suffered to be caused by Tenant, or Tenant's invitees or licensees, during the
term of this Lease. Tenant shall promptly notify Landlord of any condition known
to Tenant that Landlord is required to repair. Landlord shall not be liable to
Tenant for any damages arising in connection with Landlord's responsibility as
provided above unless Landlord fails to pursue the applicable repair within a
reasonable time after receipt of written notice from Tenant. Except for such
responsibility undertaken by Landlord, Tenant shall be responsible, during the
term of this Lease, for maintaining the Premises in good repair, including
without limitation, the roof, ail interior surfaces, electrical, plumbing,
heating, air conditioning, generator and other systems, as well as the exterior
grounds, and shall at the end of the term, return the same to Landlord in good
repair and condition, with the exception of casualties insured against and
ordinary wear and tear. If Tenant fails to make any repairs, and/or perform any
maintenance for which it is responsible, within thirty (30) days after written
notice thereof, Landlord may, at its sole option, make the repairs and/or
perform the maintenance and the reasonable expense thereof shall be paid by
Tenant, together with interest at a rate equal to one and one-half percent (1
1/2%) above the prime rate then in effect at the financial institution financing
the Facility if such expense is not paid within thirty (30) days. Tenant shall
not make or construct any parking areas, driveways, additions, buildings,
structures or other improvements without the prior written consent of Landlord,
which consent shall not be unreasonably withheld after review of all applicable
architectural plans and building permits and, if applicable, obtaining approval
of Landlord's mortgagee. All improvements shall be at Tenant's sole cost and
expense and shall become the property of Landlord at the termination of this
Lease. Tenant agrees to indemnify Landlord against all claims by laborers and
materialmen for any improvements constructed by Tenant. Tenant shall cause any
mechanic's lien filed against the
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Premises as a result of any act or interest of Tenant or any party claiming
through Tenant to be removed within thirty (30) days of the filing thereof.
9. Taxes and Assessments: Tenant agrees to pay when due all taxes (as
hereinafter defined) on or with respect to the Premises. Landlord will promptly
send Tenant copies of all bills for taxes received by Landlord and Tenant will
pay the same to the appropriate governmental authority. Tenant shall promptly
send Landlord reasonable evidence of payment of such bill after such payment.
Such payments shall be further in accordance with the following provisions:
(a) Definitions: The term "Taxes" shall mean all taxes payable with
respect to the Premises or any property located on or used in connection
with the Premises, or any activity conducted on the Premises, including
but not limited to, real estate, personal property, and sales and use
taxes. Tenant may be required to make escrow payments of taxes. In such
event Tenant agrees to timely make such payments to Landlord's mortgagee,
or as otherwise directed, in accordance with the escrow requirements.
Tenant shall in no event be liable for Taxes with respect to any time
Tenant is not entitled to the Demised Premises, and Landlord shall in no
event be liable for Taxes with respect to any time Landlord is not
entitled to the Demised Premises. If, at any time during the term of this
Lease, any tax or excise on rents or other Taxes, however described, are
levied or assessed upon, or against, or measured by the rent payable to
Landlord hereunder, either wholly or partially in substitution for, or in
addition to, Taxes, such tax or excise in respect of rents shall be
included in Taxes. Taxes shall not include franchise, estate, inheritance,
succession, capital levy, transfer, income, or excess profit taxes
assessed on Landlord.
(b) Reimbursement of Taxes:
(1) If, after Tenant shall have paid any Taxes pursuant to
this section, Landlord shall receive a refund of any portion of
Taxes paid by Tenant with respect to any tax year during the term
hereof as a result of an abatement of such Taxes by legal
proceedings, the net refund will be paid over to Tenant.
(2) At the request of Tenant, Landlord will execute any and
all proper documents to permit the Tenant, in the name of the
Landlord, and at Tenant's sole cost and expense, to protest,
institute and pursue any and all legal proceedings necessary or
appropriate to obtain reduction in any Tax assessment or refund of
any Taxes. In the event Landlord elects to undertake any such
protest or legal proceedings for such purpose, Landlord will permit
Tenant to participate therein at Tenant's sole cost and expense in
order that Tenant may assure itself that all appropriate steps are
being taken to reduce the tax obligations for which Tenant is liable
hereunder.
(3) In the event this Lease shall commence, or shall end (by
reason of expiration of the term or earlier termination pursuant to
the provisions hereof), on any date other than the first or last day
of the year, or should the year or
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period of assessment of real estate taxes be changed to more or less
than one year, as the case may be, then the amount of Taxes payable
by Tenant as provided hereunder shall be appropriately apportioned.
10. Insurance Indemnity:
(a) During the original term of this Lease, Tenant shall at all
times keep the Demised Premises insured with the kinds and amounts of
insurance described below. This insurance shall be written by companies
authorized to do insurance business in the State of North Carolina. The
policies must name Landlord as additional insured. Losses shall be payable
to Landlord and Tenant as provided in Section 10(e) below. In addition,
the policies shall name as an additional insured any mortgagee by way of a
standard form of mortgagees's loss payable endorsement. Any loss
adjustment shall require the written consent of Landlord, Tenant, and each
mortgagee. Evidence of insurance shall be deposited with Landlord and, if
requested, with any mortgagee(s). The policies on the Demised Premises
shall insure against the following risks:
(1) Loss or damage by fire and such other risks as may be
included in the broadest form of extended coverage insurance from
time to time available, including but not limited to loss or damage
from leakage of any sprinkler system now or hereafter installed in
the Facility or on the Premises, in amounts sufficient to prevent
Landlord or Tenant from becoming a coinsurer within the terms of the
applicable policies and in any event in an amount not less than one
hundred percent (100%) of the then full replacement value thereof
(as defined below in Paragraph (b);
(2) Loss or damage by explosion of steam boilers, pressure
vessels or similar apparatus, now or hereafter installed in the
Facility, in such limits with respect to any one accident as may be
reasonably agreed by Landlord and Tenant from time to time;
(3) Claims for personal injury or property damage under a
policy of general public liability insurance with amounts not less
than One Million and No/100 Dollars ($1,000,000.00) per occurrence
in respect of bodily injury, Two Million and No/100 Dollars
($2,000,000.00) aggregate per occurrence, and Three Hundred Thousand
and No/100 Dollars ($300,000.00) for property damage;
(4) Claims arising out of malpractice in an amount not less
than One Million and No/100 Dollars ($1,000,000.00) for each person
and for each occurrence;
(5) Such other hazards and in such amounts as may be customary
for comparable properties in the area and is available from
insurance companies authorized to do business in the State of North
Carolina;
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(6) Loss of rental under a rental value insurance policy
covering a risk of loss during the first six (6) months of
reconstruction resulting from the occurrence of any of the hazards
described in subsections (i) and (ii) of Paragraph (a) in an amount
sufficient to prevent Landlord from becoming a coinsurer; and
(7) Worker's compensation.
(b) Replacement Cost. The term "full replacement value" of
improvements as used herein, shall mean the actual replacement cost
thereof from time to time, less exclusions provided in the normal fire
insurance policy.
(c) Additional Insurance. In addition to the insurance described
above, Tenant shall maintain such additional insurance as may be
reasonably required from time to time by any mortgagee.
(d) Insurance Proceeds. All proceeds payable by reason of any loss
or damage to any of the Improvements comprising the Demised Premises and
insured under any policy of insurance required by (a) above of this Lease
shall be paid to Landlord and held by Landlord in trust (subject to the
provisions of Paragraph (f) below and the rights of the holders of the
Facility mortgages) and shall be made available for reconstruction or
repair, as the case may be, of any damage to or destruction of the Demised
Premises, and shall be paid out by Landlord from time to time for the
reasonable costs of such work. Any excess proceeds of insurance remaining
after the completion of the restoration or reconstruction of the Demised
Premises shall be retained by Landlord and shall be credited against
future rental payments due from Tenant under this Lease. All salvage
resulting from any such loss covered by insurance shall belong to
Landlord.
(e) Damage or Destruction. If, during the Term, the Premises are
totally or partially destroyed from a risk covered by the insurance
described in paragraph (a), Landlord shall, as soon as practicable,
restore the Demised Premises to substantially the same condition as
existed immediately before the destruction. If the costs of the
restoration exceed the amount of proceeds received by Landlord from the
insurance required under paragraph (a), Tenant shall be solely responsible
for paying the difference between the amount of insurance proceeds and
such cost of restoration.
(f) Restoration of Tenant's Property. If Landlord is required to
restore the Facility as provided in paragraph (f), Landlord shall not be
required to restore alterations made by Tenant, or Tenant's improvements,
trade fixtures or personal property, such excluded items being the sole
responsibility of Tenant to restore. Landlord shall be required to restore
tangible personal property owned by Landlord and leased to Tenant pursuant
to this Lease (and scheduled on Exhibit B hereto) or otherwise.
(g) Abatement of Rent. During the period required for repair and
restoration, payments of rent provided for in Section (a) shall be abated
in the manner and to the extent that is fair, just and equitable to both
Tenant and Landlord, taking into consideration, among other relevant
factors, the number of useable beds affected by such
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damage or destruction, and availability of business interest insurance
proceeds to satisfy Tenant's obligations to pay rent.
(1) Tenant Blanket Policy. Notwithstanding anything to the
contrary contained in this Section, Tenant's obligation to carry the
insurance provided for herein may be brought within the coverage of
a so-called blanket policy, carried and maintained by Tenant;
provided, however, that the coverage afforded Landlord will not be
reduced or diminished or otherwise be different from that which
would exist under a separate policy meeting all other requirements
of this Lease.
11. Signs: Tenant shall have the right, upon Landlord's prior written
consent, which consent shall not be unreasonably withheld, to install, maintain
and replace in, on or over, or in front of, the Premises or any part thereof,
such signs and advertising matter as Tenant may desire. Tenant shall comply with
all applicable requirements of governmental authorities having jurisdiction and
shall obtain any necessary permits for such purpose. As used in this paragraph,
the word "sign" shall be construed to include any placard, light or other
advertising symbol or object, irrespective of whether same be temporary or
permanent.
12. Eminent Domain: If the whole or substantially all of the Premises, or
all or substantially all of the means of access thereto, be acquired by eminent
domain or by purchase in lieu thereof, so that the Premises cannot be licensed
as a 90 bed nursing home Facility, or as otherwise amended by the approval of an
amendment to the CON, this Lease shall terminate as of the date of the actual
taking. Should, however, only a portion of the Premises be so condemned or
taken, so as not to materially and adversely affect the usefulness of the
Premises for the purposes for which it is leased hereunder, this Lease shall
continue in full force and effect; provided, however, that the rent payable
under the unexpired portion of this Lease shall be adjusted to such extent as
may be fair and reasonable under the circumstances. Landlord shall, in such
event, promptly restore the Demised Premises as nearly as feasible to the
condition of such Premises immediately prior to the taking, subject to
reasonable delays, but Landlord shall not be required to restore or rebuild the
Demised Premises during the last year of the lease term or to restore Tenant's
fixtures, furnishings, floor coverings, equipment, stock or other personalty;
provided, however, that if Landlord elects not to restore or rebuild the Demised
Premises or to restore Tenant's fixtures, furnishings, floor coverings,
equipment, stock or other personalty, Tenant shall have the option of
terminating this Lease. Tenant shall not be entitled to any part of the
condemnation proceeds arising from any partial taking, except that Tenant shall
be entitled to make a claim for any of Tenant's property which is condemned
other than Tenant's interest in the Lease. Notwithstanding the foregoing, this
Lease shall terminate if, as the result of only a portion of the Premises being
condemned or taken, Tenant is prevented from operating or using the Premises
under the then existing governmental and quasi-governmental licenses, permits,
approvals and certifications. In such case, Landlord and Tenant shall have such
rights to condemnation awards as are set forth above for a total or substantial
taking.
13. Utility Easements: Landlord agrees, without expense to it, to execute
all necessary documents for utility easements required to service the buildings
constructed on the Premises.
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14. Default:
(a) Any one or more of the following events shall constitute an
event of default:
(1) Tenant's failure to make any payment of rent (whether
monthly or additional rent) when the same is due and payable, or
certify the Premises for participation in the Medicare (Title XVIII)
and Medicaid Title (XIX) programs and to further ensure that the
Premises maintains such certifications at all times during the term
of this lease or any extensions thereof, or license the Premises for
the operation as a nursing Facility pursuant to the laws of the
State of North Carolina and maintain such license in good order at
all times during the term of this lease or any extensions thereof,
and the continuance of such failure for a period of ten (10) days
after written notice to Tenant by Landlord.
(2) Tenant's failure to perform any of the other covenants,
conditions and agreements imposed by it under this Lease and the
continuance of such failure without the curing of same for a period
of thirty (30) days after receipt of notice in writing from Landlord
specifying in detail the nature of such failure and provided Tenant
shall not cure said failure as provided in paragraph (b) below.
(3) The adjudication of Tenant as a bankrupt, or the
appointment of a receiver or trustee for Tenant's property and
affairs, or the making by Tenant of any assignment for the benefit
of its creditors or the filing by or against Tenant of a petition in
bankruptcy which is not vacated or set aside within fifteen (15)
days of such filing.
(b) In the event Landlord gives notice of a default of such a nature
(other than a default which may be cured by a payment of money) that it
cannot be cured within the applicable cure period, and Tenant initiates
and proceeds to cure or mitigate the default, then such default shall not
be deemed to exist for so long as Tenant proceeds to cure the same with
reasonable diligence or is delayed in or prevented from curing the same by
Force Majeure (as hereinafter defined).
(c) After the applicable cure periods have elapsed, pursuant to the
respective provision hereinbefore set forth and in the event of default,
Landlord, in addition to any other right or remedy it may have with
respect to default, may terminate this Lease immediately, and reenter the
Premises and take possession of the Premises and the Personal Property, or
in such event Landlord may, at its option, without declaring this Lease
terminated, reenter the Premises and occupy or lease the whole or any part
of the Premises and the Personal Property, for and on account of Tenant
and on such terms and conditions and for such rental as Landlord may deem
proper, and Landlord shall in such event collect such rent and apply the
same upon the rents due from Tenant and upon the expenses of such
subletting, and any and all other damages sustained by Landlord. In the
event of default, Landlord shall exercise reasonable efforts to mitigate
damages hereunder and to relet the Premises and the Personal Property, but
Landlord's failure to
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so relet shall not prevent or delay the exercise by Landlord, at its
option, of its right to accelerate and recover as damages rents due and
owing for the remainder of the term, together with all costs expenses of
collecting the same, subject to Landlord's obligation to repay or credit
Tenant with all recoveries made by Landlord.
15. Holding Over: In the event Tenant remains in possession of the
Premises after the expiation of the term hereof, including any extensions of the
term, and without the execution of a new lease, Tenant shall occupy the Premises
as a tenant from month to month, subject to all of the conditions of this Lease
insofar as consistent with such a tenancy, and rent shall increase by fifty
percent (50%) during any such hold-over period.
16. Attornment and Subordination:
(a) In the event of the exercise of any power of sale under the
provisions of any mortgage or deed of trust now or hereafter encumbering
the Premises, Tenant agrees that it shall attorn to the purchaser at such
sale and that it shall recognize such purchaser as Landlord under the
terms and provisions of this Lease and shall continue this Lease in full
force and effect regardless of whether such mortgage or deed of trust was
superior or subordinate to this Lease, provided such purchaser recognizes
Tenant hereunder; and provided further that in the event Landlord shall
default in any payment due in respect of such mortgage, Tenant shall have
the right under Landlord's mortgage, but not the obligation, upon ten (10)
days written notice from either Landlord or Landlord's mortgagee to pay
such amount due and thereby cure such default. Landlord further agrees
that it shall execute and deliver no mortgage on the Demised Premises
purporting to limit and prohibit Tenant from collaterally assigning this
Lease or its leasehold interest arising hereunder as security for Tenant's
financing.
(b) Tenant agrees that this Lease shall be and is subordinate to any
deeds of trust or mortgages now or hereafter encumbering the land and
buildings of which the Demised Premises are a part or against any
buildings hereafter placed upon the land on which the Demised Premises is
situated.
(c) Upon request by Landlord, Tenant agrees to promptly enter into
and deliver to Landlord such written instruments in form reasonably
acceptable to Landlord and its mortgagee which confirm the above
subordination and effect the above attornment.
17. Tenant's Indemnification: Tenant agrees to indemnify, protect and hold
harmless Landlord from and against all liabilities and damages (a) arising from
or out of any occurrence in, upon or at the Demised Premises or any part
thereof, or the occupancy or use by Tenant of the Demised Premises, the Personal
Property or any part thereof, or occasioned wholly or in part by any act or
omission of Tenant, its agents, contractors, employees or invitees in connection
with the Demised Premises Or the Personal Property during the term of this
Lease, or any renewal hereof, or (b) related to any claims, rents, chargebacks
or other expenses (whether owed to or assessed by a private or governmental
party) arising in connection with the
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operation or other use of the Demised Premises or the Personal Property during
the term of this Lease, or any renewal hereof.
18. Landlord's Indemnification: Landlord agrees to indemnify, protect and
hold harmless Tenant from and against any and all liabilities and damages
arising from or occasioned wholly or in part by any act or omission of Landlord,
its agents, contractors, employees or invitees in connection with the Demised
Premises or the Personal Property during the term of this Lease, or any renewal
hereof
19. Compliance with Governmental Programs: Landlord covenants that the
Premises will, during the term hereof, meet all standards required for Federal
Medicare (Title XVIII) or Medicaid (Title XIX) certified nursing programs and
that it will make any alterations necessary to remain in compliance with same.
Any alterations, changes or expansions required to bring the Leased Premises
into compliance with such standards as in effect on the date of execution of
this Lease shall, unless otherwise agreed, be paid for by Landlord. Any
alterations, changes or expansions required by subsequent changes in such
standards will be negotiated at the then-current cost of construction, which
cost, together with interest at the rate of interest at which such construction
is financed, shall be amortized in level monthly additional rent payments over
the agreed upon remaining lease period.
20. Waivers: Failure of Landlord or Tenant to complain of any act or
omission on the part of either other party, no matter how long the same may
continue, shall not be deemed to be a waiver by said party of any of its rights
hereunder. No waiver by Landlord or Tenant at any time, expressed or implied, of
any breach of any provisions of this Lease, shall be deemed a consent to any
subsequent breach of the same or any other provision. No acceptance by Landlord
of any partial payment shall constitute an accord or satisfaction but shall only
be deemed a part payment on account.
21. Force Majeure: In the event that Landlord or Tenant shall be delayed,
hindered in or prevented from the performance of any act required hereunder by
reason of strikes, lockouts, labor troubles, inability to procure materials,
failure of power, restrictive governmental laws or regulations, riots,
insurrection, the act, failure to act or default of the other party, war or
other reason beyond their control, then performance of such act (except the
payment of rent which shall not in any case be excused) shall be excused for the
period of the delay and the period for the performance of any such act shall be
extended for a period equivalent to the period of such delay.
22. Surrender of Premises: Upon the expiration or other termination of
this Lease, Tenant covenants and agrees that it will peaceably leave and
surrender possession of the Premises and the Personal Property to Landlord. Upon
such surrender, the Premises and the Personal Property shall be in good repair,
ordinary wear and tear and alterations, additions and improvements herein
permitted, excepted.
23. Inspection: Landlord reserves the right to inspect the Demised
Premises and all buildings situated thereon at all reasonable times and show the
property through agents or otherwise to bona fide purchasers or prospective
tenants.
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24. Further Assurances: Tenant agrees to execute and deliver to Landlord
any additional or supplemental instruments or documents as may be reasonably
requested by Landlord or its mortgagee in connection with this Lease, including
any memorandum of lease.
25. No Joint Venture: The relationship between Landlord and Tenant shall
always and only be that of Lessor and Lessee. Tenant is not the agent of
Landlord. Landlord shall not be responsible for the acts or omissions of Tenant
or its agents. This Agreement is, and is intended to be, a lease. Tenant does
not acquire hereby any right, title or interest whatsoever, legal or equitable,
in the Premises, except as the Lessee hereunder.
26. Personal Liability: In no event shall any partners, principals or
stockholders of Landlord ever be personally liable for any judgment of Tenant
against Landlord.
27. No Representation: It is understood and agreed by the parties hereto
that this Lease contains all of the covenants, agreements, terms, provisions,
and conditions relating to the leasing of the Premises and the Personal
Property, and that Landlord has not made and is not making, and Tenant in
executing and delivering this Lease is not relying upon any warranties,
representations, promises or statements, except to the extent that the same may
expressly be set forth in this Lease.
28. Validity: In the event that any provisions of this Lease shall be held
invalid, the same shall not affect in any respect whatsoever the validity of the
remainder of this Lease.
29. Applicable Law: This Lease and the rights of the parties hereunder
shall be interpreted in accordance with the laws of the State of North Carolina.
30. Notices: Until notice to the contrary to the other party has been
given, all notices and payments of money if made to Landlord shall be made or
given by (1) personal delivery; or (2) by mail (postage prepaid, certified,
return receipt requested) addressed to Landlord at 1016 Second Street, S.W.,
Roanoke, Virginia 24016, Attn: Mr. Charles E. Trefzger, or if made to Tenant
shall be made by delivery or by mail (postage prepaid, certified, return receipt
requested) addressed to Tenant at the Premises with a copy to: Transitional
Health Services, Inc., 9300 Shelbyville Road, Suite 1300, Louisville, Kentucky
40222, Attention: Randall J. Bufford, or (3) by facsimile to Landlord at
703-345-1371 and to Tenant at 502-425-3662. Notice shall be deemed given when
received, if notice is given by personal delivery, or three (3) days after
mailing, if notice is given by mail or one (1) day after sending, if notice is
given by facsimile.
31. Short-Form Lease: The parties hereto shall forthwith execute a
memorandum or short-form lease agreement, in recordable form, including such
provisions hereof as either party may desire to incorporate therein.
32. Entire Agreement. No oral statement or prior written matter shall have
any or force or effect. Tenant agrees that it is not relying on any
representations or agreements other than those contained in this Lease. This
Lease shall not be modified or canceled except by writing subscribed to by all
parties.
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33. Brokerage: Each of the parties covenants and represents to the other
that neither has incurred brokerage fees with respect to the transactions herein
set forth.
34. Parties: The covenants, conditions, obligations and agreements
contained in this Lease shall bind and inure to the benefit of Landlord and
Tenant and their respective successors and assigns.
35. Assignment: Except as otherwise provided herein, Tenant may not assign
this Lease or sublet the Premises or any part thereof without the Landlord's
written consent (and consent of the U.S. Dept. of Housing and Urban Development
(HUD) and the Landlord's mortgagee of the Premises, it being specifically
understood that mortgagee); provided, that such consent of Landlord (and
mortgagee) shall not be unreasonably withheld if Tenant's proposed assignee
shall furnish Landlord with security for its obligations hereunder equivalent to
Tenant and otherwise demonstrate that its has sufficient assets and ability to
make the Rent payments due hereunder, and otherwise possesses such skill
experience and licenses as may be reasonably required to operate the Premises in
a manner substantially as operated by Tenant, in which case Tenant, upon payment
to Landlord of a $2,500.00 release and processing fee plus all actual fees and
expenses which may be incurred by Landlord in connection with the lease
assignment and release, including, but not limited to costs of Landlord's
efforts to obtain mortgagee obligations hereunder); and provided further, that
Tenant may assign this Lease to an affiliate of Tenant on the condition that
Tenant shall remain liable hereunder or shall otherwise guarantee such
affiliates's performance of any and all terms of this Lease.
36. Right of First Refusal: In the Event Landlord wishes to sell the
Demised Premises, Tenant shall have a right of first refusal to purchase the
Demised Premises upon the same terms and conditions. Such right of first refusal
shall be exercised as follows. Upon Landlord's receipt of a bona fide third
party offer to purchase the Demised Premises, including purchase price and
payment terms, which Landlord desires to accept, Landlord shall give notice of
such offer in writing to Tenant, including a copy of such offer. Tenant shall
have a period of thirty (30) days after notice to exercise its right to first
refusal by written notice to Landlord. If Tenant exercises its right of first
refusal, the closing of the sale shall occur in accordance with the terms of the
third party offer. If Tenant does not exercise its right of first refusal or,
having exercised it, refuses to close, Tenant's right of first refusal shall
forever lapse. Landlord may sell the Demised Premises free and clear of the
right of first refusal.
37. Letter of Credit: Tenant furnished to Landlord a working
capital/fill-up letter of credit in the amount of One Hundred Forty-four
Thousand Two Hundred Thirty-seven and No/100 Dollars ($144,237.00). in
connection with certain HUD financing of the Premises. To the extent that such
letter of credit is outstanding as of the date hereof, this letter of credit
shall remain outstanding until released by HUD.
IN WITNESS WHEREOF, each of the parties hereto has caused this Lease to be
executed under seal in its name and on its behalf, each by its duly authorized
officer or general partner, all as of this day and year first above written.
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LANDLORD:
WILORA LAKE HEALTH CARE CENTER,
INC.
By: /s/ Thompson W. Goodwin
-----------------------------------------
Name: Thompson W. Goodwin
Title: President
ATTEST:
/s/ Elizabeth D. Free
- ---------------------------------
Name: Elizabeth D. Free
Title: (Asst) Secretary
[SEAL]
TENANT:
TRANSITIONAL HEALTH PARTNERS d/b/a
TRANSITIONAL HEALTH SERVICES
a Delaware general partnership
By: THS PARTNERS I, INC. and
THS PARTNERS II, INC.
both Delaware corporations and General
Partners
By: /s/ James J. TerBeest
-----------------------------------------
James J. TerBeest
Executive Vice President, CFO
ATTEST:
/s/ John G. Hundley
- --------------------------------
John G. Hundley, Asst. Secretary
[SEAL]
15
<PAGE>
The undersigned corporate parent of Tenant's corporate general partners, THS
Partners I, Inc. and THS partners II, Inc., hereby guarantees to Landlord the
Tenant's full and faithful performance of all of Tenant's obligations under the
foregoing Lease:
TRANSITIONAL HEALTH SERVICES, INC.
a Delaware corporation
By: /s/ James J. TerBeest
-----------------------------------------
James J. TerBeest
Vice President, CFO
ATTEST:
/s/ John G. Hundley
- --------------------------------
John G. Hundley, Asst. Secretary
[SEAL]
16
<PAGE>
STATE OF VIRGINIA
)ss:
CITY OF ROANOKE )
I, Denise A. Thomas , Notary Public for said City and State, certify that
Elizabeth D. Free personally came before me this day and he/she is Assistant
Secretary of WILORA LAKE HEALTH CARE CENTER, INC., a corporation, and that by
authority duly given and as the act of the corporation, the foregoing instrument
was signed in its name by its Vice President, sealed with its corporate seal,
and attested by him/her as its Assistant Secretary.
WITNESS my hand and official seal, this the 17th day of April, 1996.
/s/ Denise A. Thomas
--------------------------
Notary Public
My Commission Expires:
November 30, 2000
[SEAL]
17
<PAGE>
STATE OF KENTUCKY
)ss:
COUNTY OF JEFFERSON )
I, Carol J. Price , Notary Public for said County and State, certify that
JOHN G. HUNDLEY personally came before me this day and he/she is Assistant
Secretary of THS PARTNERS I, INC. and THS PARTNERS II, INC., both a Delaware
corporation, and that by authority duly given and as the act of the corporations
acting as the sole general partners of TRANSITIONAL HEALTH PARTNERS d/b/a
TRANSITIONAL HEALTH SERVICES, a Delaware general partnership, the foregoing
instrument was signed in its name by its Executive Vice President/CFO, sealed
with its corporate seal, and attested by him/her as its Assistant Secretary.
WITNESS my hand and official seal, this the 1st day of March, 1996.
/s/ Carol J. Price
-----------------------------
Notary Public
My Commission Expires:
10-13-98
[SEAL]
18
<PAGE>
STATE OF KENTUCKY
)ss:
COUNTY OF JEFFERSON )
I, Carol J. Price , Notary Public for said County and State, certify that
JOHN G. HUNDLEY personally came before me this day and he/she is Assistant
Secretary of TRANSITIONAL HEALTH SERVICES, INC, a Delaware corporation, and that
by authority duly given and as the act of the corporation, the foregoing
instrument was signed in its name by its Executive Vice President/CFO, sealed
with its corporate seal, and attested by him/her as its Assistant Secretary.
WITNESS my hand and official seal, this the 1st day of March, 1996.
/s/ Carol J. Price
-----------------------------
Notary Public
My Commission Expires:
10-13-98
[SEAL]
19
<PAGE>
EXHIBIT 10.26
<PAGE>
LEASE AGREEMENT
DATED October 1, 1996
CALHOUN - LIBERTY HOSPITAL ASSOCIATION, INC., LESSOR
AND
WELCARE PROPERTIES CORPORATION, LESSEE
<PAGE>
INDEX TO LEASE AGREEMENT
1. Lease of Real and Chattel Property, Term
2. Title to Demised Premises
3. Rent
4. Mortgages
5. Taxes
6. Repair and Replacement
7. Compliance with Law
8. Alterations
9. Use of Demised Premises
10. Protection Against Claims by Public
11. Independence of Demised Premises
12. Mechanics' Liens
13. Liability Insurance
14. Indemnity
15. Hazard Insurance
16. Fire and Other Casualty
17. Condemnation
18. Restoration after Fire or Condemnation
19. Environmental Matters
20. Assignment an Subletting
21. Bankruptcy
22. Access to Project; Books, Records, Accounts and Annual Reports
23. Default; Termination
24. Waiver of Rights of Redemption
25. Lessors Right to Cure Lessee's Defaults
i
<PAGE>
26. Default by Lessor
27. Injunction
28. No Merger
29. Definition of "Lessor" and "Lessee"
30. Quiet Enjoyment
31. Lessor's Right of Entry
32. Estoppel Certificates
33. Right Cumulative
34. Payments of Money, Interest
35. Surrender, Obligations Upon Expiration or Termination
36. No Waiver
37. Severability
38. Benefit
39. Construction
40. Entire Agreement; Written Modifications
41. Governing Law
42. Captions
43. Notices
44. Counterparts
45. Costs of Enforcement
46. Radon
47. Agreement Regarding Lease
ii
<PAGE>
LEASE AGREEMENT
THIS LEASE, made this 1st day of October, 1996, by and between
CALHOUN-LIBERTY HOSPITAL ASSOCIATION, INC., a not for profit corporation
organized and existing under the laws of the State of Florida, having its
principal office and place of business, and its mailing address at 424 Burns
Avenue, Blountstown, Florida, 32424 (hereinafter referred to as the "CLHA"), and
MARGARET E. BROCK, (hereinafter referred to as "Brock") (CLHA and Brock are
collectively hereinafter referred to as "Lessor") and WELCARE PROPERTIES
CORPORATION, a corporation organized and existing under the laws of the State of
Georgia, having its principal office and place of business and its mailing
address at 400 Perimeter Center Terrace, Suite 650, Atlanta, Georgia 30346
(hereinafter referred to as the "Lessee").
W I T N E S S E T H :
WHEREAS, CLHA owns that certain rural hospital having a licensed bed
capacity of thirty-six (36) beds ("Licensed Bed Capacity) (herein the
"Facility") identified in Item I of Exhibit A attached hereto and made a part
hereof; and
WHEREAS, CLHA also owns a licensed hospital based home health care agency
(the "Parent Agency") with branches located in Chipley, Florida and Quincy,
Florida (the "Branch Agencies") (collectively the Parent Agency and the Branch
Agencies are referred to as the "Home Health Agencies"); and
WHEREAS, CLHA also contracts (through its Parent Agency) for home health
care services provided by the following independent contractors identified as
follows: Beach Bay, Care First, Home Nursing, Emerald Coast, Evergreen, and
Nightingale (collectively, the "Contract Home Health Agencies"); and
WHEREAS, Brock owns a children's clinic located in Blountstown, Calhoun
County, Florida (the "Children's Clinic") and a general medical clinic (which is
closed) also located in Blountstown, Calhoun County, Florida (the "General
Clinic") (collectively the Children's Clinic and the General Clinic are herein
referred to as the "Clinics"), both of which are licensed for operation under
the applicable laws and regulations of the State of Florida; and
WHEREAS, CLHA also contracts with Calhoun County, Florida to provide such
county with emergency ambulance services (the "Ambulance Services Contract");
and
WHEREAS, Lessor desires to lease to Lessee, and Lessee desires to lease
from Lessor, the real and chattel property of the Hospital Facility, the Home
Health Agencies, and the Clinics (collectively, the "Facilities"); and
1
<PAGE>
WHEREAS, Lessors desire to assign (or cause to be assigned) to Lessee the
rights, duties, benefits and burdens of the contracts and contractual
relationships associated with the Contract Home Health Agencies and the
Ambulance Service Contract;
NOW, THEREFORE, in consideration of the premises and of their mutual
undertakings, the parties hereto agree as follows:
1. Lease of Real and Chattel Property, Term. Lessor, in consideration of
the rents hereinafter reserved, and the terms, covenants, conditions and
agreements set forth herein to be kept and performed by Lessee, does hereby
agree to demise and let unto Lessee and Lessee, subject to and in reliance on
the conditions, terms, covenants, warranties and representations of Lessor
contained herein, does hereby agree to hire and take from Lessor, the following
described assets, rights, interests and other properties owned by Lessor and
relating to the Facility (herein the "Demised Premises"):
(a) Land: Those parcels of land more particularly described in Item 2 of
Exhibit A (herein "Parcels");
(b) Improvements: All buildings, structures, fixtures and improvements erected
or located on the Parcel, or affixed thereto (herein the "Improvements");
(c) Appurtenances: All tenements, hereditaments, rights, privileges,
interests, easements and appurtenances belonging or in any wise pertaining
to the Parcel and/or the Improvements (the Parcels, the Improvements and
the aforesaid appurtenances thereto being herein referred to collectively
as the "Real Property"); and
(d) Tangible Personal Property: All machinery and equipment, building
materials, appliances, apparatus, motor vehicles, furniture, furnishings,
fixtures, tools, instruments, parts, and other tangible personal property
of every kind or nature whatsoever, owned, being purchased on contract or
being leased by Lessor as of the date hereof, and located at or relating
to the Facility, other than inventories (collectively herein the "Personal
Property"); such tangible personal property on the effective date hereof
shall include, but not be limited to, any and all items identified in the
attached Exhibit B which is made a part hereof and incorporated herein by
reference.
TO HAVE AND TO HOLD the Demised Premises unto Lessee, its successors and
permitted assigns, upon and subject to all of the terms, covenants, conditions,
conditional limitations and agreements herein contained, for a term commencing
on October 1, 1996 (herein the "Commencement Date") and expiring on September
30, 2006, (herein the "Term") or until said term is sooner terminated pursuant
to any of the conditional limitations or other provisions hereof; provided,
however, that Lessee shall have the right to extend the Term of this Lease for
two (2) successive extension
2
<PAGE>
terms of five (5) years each (the "Extension Terms") by giving Lessor written
notice thereof not less than ninety (90) days prior to the expiration of the
Term (or any prior Extension Term). Such Extension Terms shall be upon the same
rental and other terms and conditions as are set forth in this Lease as
applicable to the Initial Term of this Lease.
For purposes of this Lease, the term "Lease Year" means a period of one
(1) year commencing on the Commencement Date or the annual anniversary date
thereof.
2. Title to Demised Premises. The Demised Premises shall be demised and
let by Lessor unto Lessee free and clear of any and all liens, leases,
mortgages, pledges, security interests, conditional sale agreements, charges,
claims, options, and other encumbrances of any kind or nature whatsoever
(collectively "Encumbrances"), except the following (collectively the "Permitted
Encumbrances"):
(a) Zoning Laws: The provisions of all applicable zoning laws;
(b) Taxes: The liens of current real estate and personal property taxes not
delinquent; and
(c) Other Existing Encumbrances: The other existing Encumbrances set forth in
Item 3 of Exhibit A.
Lessor warrants and will forever defend the right and title to the Demised
Premises unto Lessee against the claims of all persons whomsoever, except for
claims arising under and by virtue of the Permitted Encumbrances.
3. Rent. Lessee shall pay to Lessor rent for the Demised Premises (herein
"Rent") an annual amount of Two Hundred Forty Thousand and no/100 Dollars
($240,000.00), in equal monthly installments of Twenty Thousand and no/100
Dollars ($20,000.00) in advance on the first (1st) day of each calendar month
during the term hereof (provided, however, that if the term hereof commences on
a day other than the first day of a calendar month or is terminated on a day
other than the last day of a calendar month, then the Rent for such partial
month shall be prorated on the basis of the number of days included in the Term
of this Lease without set-off or abatement.
4. Mortgages. Lessor hereby warrants and represents to Lessee that there
are no mortgages or other security interests in, to or affecting the Demised
Premises or any part, parcel or portion thereof. Provided that any mortgagee
shall have executed and delivered to Lessee a nondisturbance agreement in form
and substance satisfactory to Lessee, Lessee agrees to subordinate its leasehold
interest under this Lease to the lien of any future mortgage on Lessor's
interest in the Demised Premises (herein a "Fee Mortgage"). Upon request by the
holder of any Fee Mortgage, and subject to the foregoing stipulation that Lessee
receive a non-disturbance agreement, Lessee agrees to execute and deliver an
3
<PAGE>
appropriate instrument or writing to evidence such subordination, to confirm the
validity and effectiveness of this Lease, and to certify as to the payment
status of rentals due under this Lease and the existence or non-existence, to
the best knowledge of Lessee, of any default or condition which would, with the
passage of time or giving of notice or both, affect or impair the obligations of
Lessee under this Lease to pay rent and perform other obligations of Lessee
under this Lease, including, without limitation, any such default or condition
which would constitute a defense to Lessor's enforcement of this Lease or
entitle Lessee to abate, set off, or withhold rental.
5. Taxes. Lessor shall, at its cost and expense, bear, pay and discharge,
on or before the last day upon which the same may be paid without interest or
penalty for late payment thereof, all taxes, assessments, sewer rents, water
rents and charges, duties, impositions, license and permit fees, charges for
public utilities of any kind, payments and other charges of every kind or nature
whatsoever, ordinary or extraordinary, foreseen or unforeseen, general or
special (collectively herein "Impositions"), which shall, pursuant to present or
future law or otherwise, prior to or during the term hereof, have been or be
levied, charged, assessed or imposed upon, or grow or become due and payable out
of or for, or become or have become a lien on, the Demised Premises or any part
thereof, or the rents and income received by Lessor hereunder or received by
Lessee from any permitted subtenants of the Demised Premises or of any part
thereof, or any use or occupation of the Demised Premises. Lessor shall also
bear, pay and discharge any and all income taxes assessed against Lessor, any
franchise, estate, succession, inheritance or transfer taxes of Lessor, or any
tax or charge in replacement or substitution of the foregoing or of a similar
character. Lessor agrees to pay in advance any such Impositions if the holder of
any Fee Mortgage requires that Lessor escrow or deposit such Impositions.
Lessor shall use its best efforts to cause the Demised Premises to be
assessed and taxed separate and apart from all other premises. If, however, any
Imposition payable by Lessor as aforesaid shall also be levied, charged,
assessed or imposed upon, or grow or become due and payable out of or for, or
become a lien on, or be based upon the value of, any other premises not
constituting a part of the Demised Premises, then Lessor shall pay or cause to
be paid the full amount of said Imposition, notwithstanding that all or a
portion thereof is allocable to such other premises, but Lessor reserves all
rights which Lessor may have, whether pursuant to law or agreement or otherwise,
to recover all or a portion of said Imposition from the owner or owners of such
other premises.
Lessor shall pay all interest and penalties imposed upon the late payment
of any Imposition which Lessor is obligated to pay hereunder.
4
<PAGE>
Upon obtaining the Lessee's prior written consent, Lessor may take the
benefit of the provisions of any law or regulation permitting any Imposition to
be paid in installments.
If Lessor shall fail, for ten (10) days after notice and demand given to
Lessor, to pay any Imposition on or before the last day upon which the same may
be paid without the imposition of interest or penalties for the late payment
thereof, then Lessee may pay the same with all interest and penalties lawfully
imposed upon the late payment thereof, and the amounts so paid by Lessee shall
thereupon be and become immediately due and payable by Lessor to Lessee
hereunder, and may be offset against Rent or other sums payable under this
Lease.
So long as Lessor is not in default hereunder, Lessor, at its own cost and
expense may, if it shall in good faith so desire, contest the validity or amount
of any Imposition, in which event Lessor may defer the payment thereof for such
period as such contest shall be prosecuted actively and shall be pending
undetermined; provided, however, that no provision hereof shall be construed so
as to require Lessee to allow any such item so contested or intended to be
contested to remain unpaid for such length of time as shall permit the Demised
Premises, or the lien thereon created by such item to be contested, to be sold
by federal, state, county or municipal authority for the nonpayment thereof.
An official certificate or statement issued or given by any sovereign or
municipal authority, or any agency thereof, or any public utility, showing the
existence of any Imposition, or interest or penalties thereon, the payment of
which is the obligation of Lessor as herein provided, shall be prima facie
evidence for all purposes hereof of the existence, amount and validity of such
Imposition.
6. Repair and Replacement. Lessee acknowledges that Lessor has made no
representation whatsoever regarding the physical condition of the Demised
Premises except those contained in this Agreement, and that Lessee freely
accepts the Demised Premises in their present "as is" condition, subject,
however, to any "punchlist" repairs or replacement items identified by Lessee's
inspection of the Demised Premises, any latent or concealed conditions and any
respects in which the Demised Premises fails to comply with all laws, rules,
orders, ordinances, regulations, and requirements, including, without
limitation, applicable health, building, fire and life safety codes and
ordinances, now or hereafter enacted or promulgated by any government or
municipality having jurisdiction over the Demised Premises, or Lessee's
operations of the Facilities as licensed health care facilities (the
"Governmental Requirements"). Lessor shall provide Lessee with reasonable access
to the Demised Premises at all times prior to the Commencement Date to
facilitate Lessee's inspection and shall cooperate with and assist Lessee in the
testing and evaluation of the operating condition of building systems,
5
<PAGE>
equipment and similar items. Subject to the foregoing, Lessee shall at all times
during the Term (including any renewals or extensions thereof), at its own cost
and expense, make such ordinary, non-structural repairs to the Demised Premises
as may be required to keep the Demised Premises (other than the Personal
Property) in good and reasonable operating condition and repair. Lessee's
liability and total aggregate expenditures for repairs to the Demised Premises
(excluding repair and replacement of Personal Property) over the initial Term of
the Lease (including renewals or extensions thereof) shall not exceed the sum of
One Hundred Thousand and no/100 Dollars ($100,000.00). Lessor shall make, at its
sole cost and expense, all other or additional repairs or replacements to the
Demised Premises as may be required to place, keep and maintain the Demised
Premises (i) in good and reasonable operating condition and repair and (ii) in
compliance with applicable Governmental Requirements.
Lessee acknowledges that the items of Personal Property listed on Exhibit
"B" attached hereto are the property of Lessor and that Lessee has only the
right to the exclusive possession and use thereof as provided herein.
Notwithstanding any contrary provision set forth herein, Lessee shall keep all
of the aforesaid items of Personal Property in as good working order and
condition as existing on the Commencement Date, and at the expiration of the
Term of this Lease shall return and deliver all of such Personal Property to
Lessor in as good order and condition as when received hereunder, reasonable
wear and tear and damage by Acts of God or insurable peril excepted; provided,
that Lessee agrees, if necessary for the proper operation of the Demised
Premises, or to comply with or maintain all pertinent licensure, certification,
insurance policy or other legal requirements and otherwise in accordance with
customary practice in the industry, that Lessee shall replace all items of
Personal Property which may be damaged or destroyed through no fault or neglect
of Lessor or which may become worn out or obsolete during the Term of this Lease
(i.e., the "New Personal Property"), and such New Personal Property and
replacements thereof shall be the property of and owned by Lessor, subject to
the terms and provisions of this Lease. Upon expiration or termination of this
Lease, all Personal Property and New Personal Property shall become the property
of Lessor, if not already owned by Lessor, and Lessee shall execute all
documents and take any actions reasonably necessary to evidence such ownership.
All maintenance and repair work undertaken by Lessee shall be done in a
workmanlike manner, leaving the Demised Premises free of liens for labor and
materials. It is the intent of the parties hereto that the Demised Premises be
maintained at all times and returned upon the termination or expiration of this
Agreement in a condition equal to that at the time of execution of this
Agreement, reasonable wear and tear excepted. Lessee hereby grants to Lessor the
right to inspect and access to the Demised Premises at all reasonable times;
provided, however, that Lessor shall have no duty to conduct any inspections
unless requested to do so by Lessee.
6
<PAGE>
7. Compliance with Law. Lessor and Lessee mutually covenant and agree,
Lessee as to its manner of use of the Demised Premises and its repair
obligations as set forth in this Lease, and Lessor as to the condition of the
Demised Premises, its repair obligations and all other matters not related to
the Lessee's operation of the Facilities, to substantially perform and comply
with all laws, rules, orders, ordinances, regulations and requirements, now or
hereafter enacted or promulgated, of every government or municipality having
jurisdiction over the Demised Premises, Lessee's operation of the Facilities as
licensed health care facilities, and the franchises and privileges connected
therewith, whether or not such laws, rules, orders, ordinances, regulations and
requirements so involved shall necessitate structural changes, improvements,
interference with use and enjoyment of the Demised Premises, replacements or
repairs, extraordinary or ordinary, and Lessor or Lessee, as the particular
circumstances may warrant, shall so perform and comply whether or not such laws,
rules, orders, ordinances, regulations and requirements shall now exist or shall
hereafter be enacted or promulgated, and whether or not such laws, rules,
orders, ordinances, regulations and requirements are within the present
contemplation of the parties hereto.
Each party shall have the right, provided it does so with due diligence
and dispatch, to contest by appropriate legal proceedings, without cost or
expense to the other party, the validity of any law, rule, order, ordinance,
regulation or requirement of the nature referred to above. The party contesting
such Governmental Requirement may postpone compliance with such law, rule,
order, ordinance, regulation or requirement until the final determination of
such proceedings so long as such postponement of compliance will not subject the
Demised Premises to an encumbrance or the other party to any criminal
prosecution. No provision hereof shall be construed so as to permit a party to
postpone compliance with any such law, rule, order, ordinance, regulation or
requirement if any sovereign, municipal or other governmental authority shall
threaten to carry out or comply with the same or to foreclose or sell any lien
affecting all or any part of the Demised Premises that shall have arisen by
reason of such postponement or failure of compliance. If requested by the other
party, the party contesting such Governmental Requirement shall post a bond or
other adequate security for the costs of compliance and any monetary fines,
penalties, damages or other liabilities which might be imposed, in Lessor's sole
judgment, in connection with such contest.
Notwithstanding any other provision of this Agreement to the contrary,
each party shall inform the other party immediately by telephone, telecopy or
telegraph of any action taken, commenced or instituted by any state or federal
authority having jurisdiction over the Demised Premises as a health care
facility to terminate or revoke any license certification of such party. Such
notice shall be given to Lessor at the address or telephone number set forth in
Paragraph 43 herein.
7
<PAGE>
8. Alterations. Except as may be required of Lessee by Paragraphs 6 and 7
above, Lessee shall not make any alterations or additions to the Demised
Premises without Lessor's written prior approval, which approval may not be
unreasonably withheld. Lessor shall not withhold written consent to minor
alterations or additions or alterations or additions necessary in the reasonable
opinion of Lessee to maintain services to residents as provided in their
admission agreements, to maintain licensure, or to maintain certification under
the Medicaid or Medicare or any other public or private program now or hereafter
applicable to the Demised Premises. Nothing herein shall be deemed to obligate
Lessee to make alterations or additions constituting repairs or replacements
required to be made by Lessor pursuant to Paragraphs 6 and 7, provided, however,
that if Lessor fails to perform its repairs and replacement obligation, Lessee
shall have the right to do so at Lessor's expense and to offset the reasonable
cost thereof against Rental or other sums due under this Lease.
9. Use of Demised Premises. Lessee may use the Demised Premises for
healthcare and related purposes and for any other lawful use. Lessee shall not
commit, or allow to be committed, any waste upon the Demised Premises, or any
public or private nuisance. Lessee shall not use or keep or allow the Demised
Premises or any portion thereof to be used or occupied for any unlawful purpose
and shall not suffer any act to be done or any condition to exist within the
Demised Premises or any portion thereof, or knowingly permit any article to be
brought therein, which may be dangerous, unless safeguarded as required by law,
or which may make void or voidable any insurance in force with respect thereto.
10. Protection Against Claims by Public. During such period or periods of
the term hereof as any portion of the Parcels shall be unenclosed by any walled
structure, fence or gate, such portion shall be subject to such reasonable
directions as Lessor may from time to time make or give to Lessee with respect
to the maintenance and use thereof, for the purpose of Lessor's protection
against possible claims of the public, as such. Lessee hereby acknowledges that
Lessor does not hereby consent, expressly or by implication, to the unrestricted
use or possession of the whole or any portion of the Demised Premises by the
public, as such, and Lessee covenants and agrees that all such reasonable
directions so given shall be deemed to be and become incorporated herein by
reference and shall be fully and promptly performed and enforced by Lessee at
its cost and expense. Lessor hereby warrants and represents to Lessee that the
Demised Premises independently of any premises not demised under this Lease
complies with all zoning and land use requirements, including, without
limitation, offsite parking, drainage, and utility requirements.
11. Independence of Demised Premises. Lessee shall not by act or omission
permit any building or other improvement on premises not demised hereunder to
rely on the Real Property or any part thereof or any interest therein to fulfill
any municipal or governmental requirement, including without limitation,
8
<PAGE>
requirements for offsite parking, drainage and utilities, and Lessee shall not
take any action which shall cause an Improvement to rely on any premises not
demised hereunder or any interest therein to fulfill any governmental or
municipal requirement. Lessee shall not by act or omission impair the integrity
of the Demised Premises as units separate and apart from all other premises. Any
act or omission by Lessee which would result in a violation of any of the
provisions of this Paragraph shall be void.
12. Mechanics' Liens. Notice is hereby given that Lessor shall not be
liable for any work performed or to be performed on the Demised Premises for
Lessee or any subtenant, or for any materials furnished or to be furnished at
the Demised Premises for Lessee or any subtenant, and that no mechanic's or
other lien for such work or materials shall attach to the reversionary or other
interest of Lessor. If, in connection with any work being performed by Lessee or
any subtenant, or in connection with any materials being furnished to Lessee or
any subtenant, any mechanics or other lien or charge shall be filed or made
against the Demised Premises or any part thereof, or if any such lien or charge
shall be filed or made against Lessor as owner, then Lessee, at its cost and
expense, within thirty (30) days after such lien or charge shall have been filed
or made, shall cause the same to be canceled and discharged of record by payment
thereof or filing a bond or otherwise, and shall also defend any action, suit or
proceeding which may be brought for the enforcement of such lien or charge, and
shall pay any damages, costs and expenses, including reasonable attorneys' fees,
suffered or incurred thereby by Lessor, and shall satisfy and discharge any
judgment entered therein within thirty (30) days from the entering of such
judgment by payment thereof, or by filing of a bond, or by furnishing to Lessor
an unconditional letter of credit issued by a bank and in an amount reasonably
acceptable to Lessor, or otherwise. In the event of the failure of Lessee to
discharge within such thirty (30) day period any hen, charge or judgment herein
required to be paid or discharged by Lessee, Lessor may pay such item or
discharge such liability by payment or bond or both, and Lessee shall repay to
Lessor, upon demand, any and all amounts paid by Lessor therefor, or by reason
of any liability on any such bond, and also any and all incidental expenses,
including reasonable attorneys' fees, incurred by Lessor in connection
therewith.
13. Liability Insurance. At all times during the term hereof, Lessee
shall, at its own cost and expense, provide and keep in force policies as
follows:
(a) Comprehensive general public liability insurance including, without
limitation upon the generality of the provisions of this Paragraph,
elevator and boiler risks, protecting Lessor and Lessee against accident
or disaster in or about the Demised Premises with limits not less than
Three Million Dollars ($3,000,000.00) combined single limit for bodily
injury (including death) and One Million Dollars ($1,000,000.00) for
property damage;
9
<PAGE>
(b) Comprehensive automobile liability insurance, with limits not less than
One Million Dollars ($1,000,000.00);
(c) Professional liability insurance, with limits not less than Three Million
Dollars ($3,000,000.00); and
(d) Workers' compensation insurance, with limits not less than those required
by law.
Certificates evidencing all such policies of insurance shall be delivered to
Lessor. Such policies of insurance, as well as any policies of insurance to be
obtained by Lessee pursuant to Paragraphs 14 and 15 hereof, shall be issued by
companies having a Best's rating of "A-1" or better. Such insurance coverage, as
well as any insurance to be obtained by Lessee pursuant to Paragraphs 14 and 15
hereof, may be effected pursuant to a combination of primary and excess coverage
insurance policies. Such insurance coverages may also be effected pursuant to
blanket coverage insurance policies which cover losses in addition to those
required to be insured against hereunder.
If at any time Lessee shall neglect or fail, for fifteen (15) days after
notice and demand given to Lessee, so to provide and keep in force insurance
policies as aforesaid, or indemnity insurance policies pursuant to Paragraph 14
hereof or fire or other casualty insurance policies pursuant to Paragraph 15
hereof, or so to deliver to Lessor certificates evidencing any of such policies
of insurance, as required by the provisions hereof, Lessor may effect such
insurance as the agent of Lessee, by taking out a policy or policies in a
company or companies satisfactory to Lessor, running for a period not exceeding
one (1) year under any one (1) policy; and the amount of premium paid for such
insurance by Lessor shall be paid by Lessee to Lessor upon demand; and Lessor
shall not be limited in the proof of any damages which Lessor may claim against
Lessee arising out of or by reason of Lessee's failure to provide and keep in
force general liability insurance policies as aforesaid to the amount of the
insurance premium not paid or incurred by Lessee which would have been payable
upon such insurance, but shall also be entitled to recover as damages for such
breach the uninsured amount of any loss, liability, damage, claim, costs and
expenses of suit, judgment and interest suffered or incurred by Lessor.
Lessee agrees that any insurance coverage required of it pursuant to this
Lease shall also be subject to the following terms and conditions:
(a) Insurance coverage shall be occurrence based. The Lessor, at its sole
discretion, may approve liability policies issued on a "claims made" basis
provided that, in Lessor's sole opinion, there is sufficient "tail"
coverage;
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(b) The Lessee shall furnish to Lessor copies of all policies of insurance
required by this Lease which shall be delivered to the Lessor no later
than each such policy's renewal date;
(c) The Lessor, or its successors and assigns, as their interest may appear
shall be listed as an additional insured on the liability and indemnity
policies required by Paragraph 13 and 14 of this Lease.
14. Indemnity. Lessor and Lessee mutually agree to the following
indemnification provisions. Lessor or Lessee, as the case may be (herein the
"Indemnitor"), hereby agrees to indemnify and save harmless the other party
(herein the "Indemnitee") from and against any and all liability, loss, damages,
expenses, costs of action, suits, interest, fines, penalties, claims and
judgments (to the extent that the same are not paid out of the proceeds of any
policy of insurance furnished by the Indemnitor to the Indemnitee pursuant to
this Lease) arising from injury, or claim of injury, during the term hereof to
person or property of any and every nature, and from any matter or thing,
arising from the occupation, possession, use, management, alteration, repair,
maintenance or control of the Demised Premises, or the franchises and privileges
connected therewith, or arising out of Indemnitor's failure to perform, fully
and promptly, or Indemnitor's postponement of compliance with, each and every
term, covenant, condition and agreement herein provided to be performed by
Indemnitor, excepting liability of Indemnitee for Indemnitee's negligence and
willful misconduct. Except as hereinbefore provided, Indemnitor, at its own cost
and expense, will defend by counsel reasonably acceptable to Indemnitee, any and
all suits that may be brought, and claims which may be made, against Indemnitee,
or in which Indemnitee may be impleaded with others, whether Indemnitee shall be
liable or not, in respect of any such injury or claim of injury during the Term
hereof growing out of the occupation, possession, use, management, alteration,
repair, maintenance or control of the Demised Premises, and Indemnitor shall
satisfy, pay and discharge any and all judgments that may be recovered against
Indemnitee in any such action in which Indemnitee may be a party defendant, or
that may be filed against the Demised Premises or any interest therein, and in
the event of the failure of Indemnitor, for ten (10) days after notice and
demand given to Indemnitor, to pay any such sum for which Indemnitor shall
become liable as aforesaid, then Indemnitee may pay such sum, with all interest
and charges which may have accrued thereon, and the amount so paid by Indemnitee
shall be payable by Indemnitor to Indemnitee upon demand.
At all times during the term hereof, Indemnitor shall, at its own cost and
expense, provide and keep in force a policy or policies of insurance (which may
be effected by blanket coverage insurance as provided in Paragraph 13 hereof)
insuring Indemnitor against all liability of Indemnitor under this Paragraph 14.
Certificates evidencing all such policies of insurance shall be delivered to
Indemnitee. If at any time or times Indemnitor shall
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neglect or fail, for five (5) days after notice and demand given to Indemnitor,
so to provide and keep in force insurance policies as aforesaid, or so to
deliver to Indemnitee certificates evidencing any of such policies of insurance,
as required by the provisions hereof, Indemnitee shall have all rights set forth
in Paragraph 13 hereof.
15. Hazard Insurance. At all times during the term hereof, Lessee shall,
at its own cost and expense, keep:
(a) The Demised Premises (including, without limitation, the Personal
Property) insured against loss or damage by fire, lightning, windstorm,
hail, explosion, riot, damage from aircraft, smoke damage, sprinkler
leakage damage, war damage (when available) and such other insurance
risks, casualties and hazards as are insured against by owners of
comparable premises in an amount equal to one hundred percent (100%) of
the replacement cost thereof, said replacement cost to be determined, on
Lessor's request not more frequently than at annual intervals, by one or
more of the insurers, or by an architect, contractor, appraiser or
appraisal company selected by Lessor. Any of the Demised Premises located
in special flood hazard areas shall be insured against loss or damage by
flood, in an amount equal to the maximum amount of insurance obtainable
under the federal flood insurance program; and
(b) The net rental value of the Demised Premises insured against loss or
damage by fire, lightning, windstorm, hail, explosion, riot, damage from
aircraft, smoke damage, war damage (when available) and such other
insurance risks, casualties and hazards as are insured against by owners
of comparable premises, in an amount equal to twice the sum of the
following amounts: (i) all Rent payable by Lessee under Paragraph 3 hereof
for the ensuing twelve (12) month period, plus (ii) all Impositions
payable by Lessor under Paragraph 5 hereof for the ensuing twelve (12)
month period (if the amount of any such Imposition shall not have been
fixed, then the same may be estimated based upon the tax rate for the
preceding period and/or upon such other factors as are relevant, plus
(iii) the cost of obtaining, for a one (1) year period, all insurance then
required to be maintained by Lessee hereunder.
All insurance to be furnished by Lessee under this Paragraph 15 shall be
by policies which shall name as insureds Lessor, Lessee, and any fee or
leasehold mortgagee, as their interests may appear, shall provide a minimum
cancellation provision of sixty (60) days after notice to all parties, shall not
contain a deductible in excess of $2,500, and shall provide that the loss, if
any, shall be payable to Lessor and Lessee, as their interests may appear,
subject to the rights of any Fee Mortgage. Such policies may be blanket coverage
insurance policies as provided in Paragraph 13 hereof. Certificates evidencing
all such policies of insurance shall be delivered to Lessor.
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If at any time Lessee shall, for fifteen (15) days after notice and demand
given to Lessee, neglect to insure the Demised Premises and rental value as
aforesaid, or to deliver such certificates of insurance as aforesaid, Lessor
shall have all of the rights conferred upon Lessor set forth in Paragraph 13
hereof, relating to Lessor's right to obtain liability insurance upon a failure
by Lessee to maintain such coverage.
Lessee shall comply with the terms of each insurance policy required by
the terms hereof to be furnished by Lessee.
Lessor and Lessee expressly waive any and all rights and claims as against
each other for losses and damages to the extent that such losses and damages are
covered by insurance, provided that such waiver is not prohibited by the terms
of the applicable insurance policies.
16. Fire and Other Casualty. If any Improvement or any Personal Property
shall be damaged or destroyed by fire or other casualty, then, irrespective of
the cause and whether or not such damage or destruction shall have been insured,
Lessee shall give prompt written notice thereof to Lessor, and Lessor shall
proceed with reasonable diligence to carry out any necessary demolition and to
restore, repair, replace and rebuild such Improvements or Personal Property at
Lessor's own cost and expense. If, as a result of the actions of any Fee
Mortgagee or otherwise, insurance proceeds are not made available to the Lessor,
and if the Lessor is unable after reasonable diligent efforts to secure and
provide replacement funds, the Lessee shall have the right to terminate this
Lease without further liability on the part of Lessee or Lessor unless the
unavailability of such insurance proceeds is the result of Lessor's acts or
omissions. If at any time Lessor shall fail or neglect to supply sufficient
workmen or sufficient materials of proper quality, or fail in any other respect
to prosecute such work of demolition, restoration, repair, replacement or
rebuilding with diligence and promptness, then Lessee may give Lessor notice of
such failure or neglect, and, if such failure or neglect continues for twenty
(20) days after such notice, then Lessee, in addition to all other rights which
Lessee may have, including, without limitation, the right to cancel and
terminate this Lease, may enter upon the Demised Premises, provide labor and/or
materials, cause the performance of any contract, and/or do such other acts and
things as Lessee may deem advisable to prosecute such work. All costs and
expenses incurred by Lessee in carrying out such work shall be borne by Lessor
and shall be payable by Lessor to Lessee upon demand, which demand may be made
by Lessee from time to time as such costs and expenses are incurred, in addition
to any and all damages to which Lessee shall be entitled hereunder.
Rent shall abate hereunder as of the date of damage or destruction in
proportion to the percentage of the Demised Premises thereby rendered unusable
(in Lessee's sole opinion). Lessor shall in such event look solely to proceeds
of its insurance (including
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its loss of rents coverage. Any proceeds of loss of rents insurance received by
Lessor by reason of such damage or destruction shall be applied by Lessor to the
payment of Rent which would otherwise be due from Lessee under Paragraph 3
hereof, Impositions payable by Lessee under Paragraph 5 hereof and premiums for
any insurance required to be maintained by Lessee hereunder. In the event rent
insurance proceeds received by Lessor are insufficient to pay the same or for
any reason such rent insurance proceeds are not actually applied by Lessor to
the payment of such amounts, Lessor shall nevertheless have no claim against
Lessee for Rental abated hereunder.
17. Condemnation.
(a) Entire Condemnation. If at any time during the Term (including renewals or
extensions of this Lease) all or substantially all of the Demised Premises
shall be taken in the exercise of the power of eminent domain by any
sovereign, municipality or other public or private authority, then this
Lease shall terminate on the date of taking of possession by such
authority. Substantially all of the Demised Premises shall be deemed to
have been taken if the remaining Improvements cannot feasibly be repaired
and restored so that they shall constitute a complete structural unit or
units which can be operated as a health care facility on an economically
feasible basis under the provisions hereof. The award or awards for any
such taking of all or substantially all of the Parcel and the Improvements
shall be paid to the Lessor and Lessee, as their interests may appear.
(b) Partial Condemnation. If less than all or substantially all of the Demised
Premises shall be taken in the exercise of the power of eminent domain by
any sovereign, municipality or other public or private authority, then
this Lease shall continue in force and effect and Lessor shall proceed
with reasonable diligence to carry out any necessary repair and
restoration so that the remaining Improvements shall constitute a complete
structural unit or units which can be operated as a health care facility
on an economically feasible basis under the provisions hereof. If Lessor
shall fail or neglect to supply sufficient workmen or sufficient materials
of proper quality, or shall fail in any other respect to prosecute such
work of repair or restoration with diligence and promptness, then Lessee
may give Lessor written notice of such failure or neglect, and, if such
failure or neglect continues for twenty (20) days after such notice, then
Lessee, in addition to all rights which Lessee may have, including,
without limitation, the right to cancel and terminate this Lease, may
enter upon the Demised Premises, provide labor and/or materials, cause the
performance of any contract, and/or do such other acts and things as
Lessee may deem advisable to prosecute such work. All costs and expenses
incurred by Lessee in carrying out such work shall be borne by Lessor and
shall be payable by Lessor to Lessee upon demand,
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which demand may be made by Lessee from time to time as such costs and
expenses are incurred, in addition to any and all damages to which Lessee
may be entitled hereunder.
The award(s) for any such partial taking shall be paid to Lessor or
Lessee, as their interests may appear; provided, however, that Lessor
shall be excused from obligation to repair and restore the Improvements if
Lessee shall fail to make any such award available to Lessor to pay the
cost of the repair and restoration work required of Lessor hereunder.
The Rent shall, as of the date of taking of possession by such authority,
be decreased by an amount equal to that proportion of such Rent which the
value of that portion so taken has to the value of the Demised Premises
immediately prior to such taking.
In the event that, by reason of subordination of this Lease to any Fee
Mortgage, any such award for any such taking is not paid or made available
for restoration of the Improvements as hereinbefore provided, then Lessee,
at Lessee's option, may elect to terminate this Lease by giving ten (10)
days notice in writing to Lessor, electing to terminate this Lease, and
the Term hereof shall expire by limitation at the expiration of said ten
(10) days notice as fully and completely as if said date were the date
herein originally fixed for the expiration of the term hereof.
(c) Temporary Taking. If the temporary use of the whole or any part of the
Demised Premises shall be taken at any time during the Term hereof in the
exercise of the power of eminent domain by any sovereign, municipality or
other authority, the Term hereof shall not be reduced or affected in any
way and Lessee shall continue to pay in full the Rent and other sums of
money and charges herein reserved and provided to be paid by Lessee, and
the award for such taking shall be divided and paid out in the following
order of priority: First, there shall be paid to Lessee that portion of
said award paid for use and occupancy of the Demised Premises during the
Term hereof, and second, the remainder, if any, of said award shall be
paid to Lessor.
(d) Interest. Interest upon any award paid for a taking of the type referred
to in Sections (a), (b) or (c) of this Paragraph 17 shall be divided and
paid out to those persons entitled to the award upon which such interest
shall have been paid, in proportion to the respective amounts received by
such persons.
(e) Personal Property and Moving Expenses. Any award or part of an award paid
as compensation for the taking of personal property owned by Lessee or for
moving expenses of Lessee, shall be payable to Lessee.
18. Restoration after Fire or Condemnation. Whenever Lessee shall be
required or shall elect to carry out any work of
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demolition, restoration, repair, replacement or rebuilding pursuant to Paragraph
16 hereof or Section (b) of Paragraph 17 hereof, Lessee, prior to the
commencement of such work (unless such work is of a minor nature, as that term
is hereinafter defined) shall:
(a) Furnish Lessor complete plans and specifications for such work bearing the
signed approval thereof by a licensed architect.
(b) Furnish Lessor certified or photostatic copies of all permits and
approvals required by law in connection with the commencement and conduct
of such work.
Lessee shall not commence any of said demolition, restoration, repair,
replacement or rebuilding work until Lessee shall have complied with the above
requirements, and thereafter Lessee shall carry out such work diligently and in
good faith in accordance with the plans and specifications referred to above.
If the above-mentioned work shall be of a minor nature, as that term is
hereinafter defined, then the requirements set forth above in this Paragraph 18
shall not be applicable, except that Lessee shall obtain and furnish to Lessor
all permits and approvals required by law in connection with the commencement
and carrying out of such work. Such work shall be deemed to be of a minor nature
only if in one continuous project the aggregate cost of such work is less than
Ten Thousand Dollars ($10,000.00).
19. Environmental Matters.
(a) Lessor hereby warrants and represents to Lessee that: the Demised Premises
are in compliance with all Federal, state and local laws and ordinances relating
to clean air, water, waste disposal, toxic substances and other environmental
regulations. The Demised Premises are in compliance with all laws and ordinances
relating to occupational health and safety. During the period of Lessor's
ownership of the Demised Premises, Lessor has not caused or permitted the
Demised Premises to be used, to generate, manufacture, refine, transport, treat,
store, handle, dispose, transfer, produce or process Hazardous Material (as
hereinafter defined), or other dangerous or toxic substances, or solid waste,
except in compliance with all applicable federal, state, and local laws or
regulations. During the period of Lessors' ownership of the Demised Premises,
there has been no release of Hazardous Material (as hereafter defined) on or
off-site of the Demised Premises, nor have any "Hazardous Materials Claims" been
made against Lessor to Lessor's knowledge in respect of the Demised Premises.
There has not been incorporated into the Demised Premises and the Demised
Premises do not contain, any asbestos products, urea-formaldehyde, and other
known building products which may be harmful or injurious to human health or
constitute Hazardous Materials.
(b) Lessee hereby indemnifies and agrees to defend, protect and hold the
Lessor, any successor or successors to Lessor's
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interest in and to the Demised Premises, and any mortgagee on the Lessor's
interest in and to the Demised Premises harmless from and against any and
all losses, liabilities, fines, charges, damages, injuries, penalties,
response cost, expenses and claims of any and every kind whatsoever paid,
incurred or suffered by, or asserted against, the Lessor including,
without limitation, (i) all consequential damages; (ii) the costs of any
required or necessary repair, cleanup or detoxification of the Demised
Premises, and the preparation and implementation of any closure, remedial
or other required plans; and (iii) all reasonable costs and expenses
incurred by Lessor in connection with clauses (i) and (ii), including, but
not limited to, reasonable attorneys' fees for, with respect to, or as a
direct or indirect result of the presence on or under, or the escape,
seepage, leakage, spillage, discharge, emission, or actual threatened
release of any Hazardous Material (as hereinafter defined) from the
Demised Premises by the Lessee (including, without limitation, any losses,
liabilities, damages, injuries, costs, expenses or claims asserted or
arising under any federal or state or local statute, law, ordinance, code,
rule, regulation, order or decree regulating, relating to, or imposing
liability or standard of conduct concerning any Hazardous Material), to
the extent caused by, or within the control of, Lessee, or any employees,
agents, contractors or subcontractors of Lessee, or any third persons,
occupying or present on the Demised Premises, during the period of
ownership, operation or control of the Demised Premises by Lessee, unless
such activities were or will be undertaken in accordance with applicable
laws, regulations, codes or means. The warranties, representations and
indemnities made by Lessee in this section are expressly agreed by Lessor
and Lessee to survive the termination of this Lease Agreement. Hazardous
material(s) shall be defined as flammable, explosives, radioactive
materials, or hazardous, toxic or dangerous waste, substances of related
material including, but not limited to, substances defined as such in (or
for purposes of) the Comprehensive Environmental Response, Compensation,
and Liability Act, as amended 42 U.S.C Sections 9601, et seq.; the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801 et seq.;
the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et
seq.; those substances defined as hazardous or toxic under any other
federal, state or local statute, relating to, or imposing liability or
standards of conduct concerning, any hazardous, toxic and dangerous waste,
substance or material, as now or at any time hereafter in effect.
Notwithstanding anything to the contrary herein, Lessee shall have no
liability or responsibility to remediate, except as may be expressly
provided herein, with respect to any Hazardous Material which Lessor fails
to prove has its origin on the Demised Premises after the Commencement
Date of this Lease and during Lessee's possession and control of the
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Demised Premises (whether directly or through a subtenant's occupancy
thereof).
(c) Lessee shall keep and maintain the Demised Premises in compliance with,
and shall not cause or permit the Demised Premises to be in violation of,
any federal, state or local laws, ordinances, statutes or regulations
relating to industrial hygiene or to the environmental conditions on,
under or about the Demised Premises including, but not limited to, soil
and groundwater conditions. Lessee shall not use, generate, manufacture,
store or dispose of on, under or about the Demised Premises or transport
to or from the Demised Premises any Hazardous Material, except in
compliance with applicable "Hazardous Materials Laws" (as defined below).
Lessee hereby agrees at all times to comply fully and in a timely manner
with, and to cause all of its employees, agents, suppliers, contractors
and subcontractors and any other persons occupying or present on the
Demised Premises to so comply with, all applicable federal, state and
local laws, regulations, guidelines, codes, statutes, and ordinances
applicable to the use, generation, handling, storage, treatments,
transport and disposal of any Hazardous Material now or hereafter located
or present on or under the Demised Premises. Lessee shall not install, or
allow to be installed, any underground storage tanks on the Demised
Premises without the prior written consent of Lessor. Lessee shall keep
all such underground storage tanks properly registered with appropriate
federal, state, and local authorities and shall pay in a timely manner all
fees required by such authorities in connection with any clean-up fund or
other program relating to underground storage tanks. Lessee shall furnish
evidence satisfactory to Lessor reflecting any and all such payments.
Should Lessee fail to pay any such fees, Lessor may pay the same on
Lessee's behalf and any amount, together with interest at the rate of
twelve (12%) percent per annum from the date paid by Lessor until paid by
Lessee, shall become additional rent due from Lessee.
(d) Lessee shall immediately advise Lessor in writing of (i) any and all
enforcement, cleanup, removal or other governmental or regulatory actions
instituted, completed or threatened pursuant to any applicable federal
state or local laws, ordinances, or regulations relating to any Hazardous
Material affecting the Demised Premises ("Hazardous Material Laws"); (ii)
all claims made or threatened by any third party against Lessee relating
to damage, contribution, cost recovery compensation, loss or injury
resulting from any Hazardous Material affecting the Demised Premises (the
matters set forth in clauses (i) and (ii) above are hereinafter referred
to as "Hazardous Materials Claims"); and (iii) Lessee's discovery of any
occurrence or condition on the Demised Premises or any real property
adjoining or in the vicinity of the Demised Premises or to be otherwise
subject to any restrictions on the ownership, occupancy, transferability
or use of the property
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under any Hazardous Materials Laws. Lessor shall have the right, but not
the obligation, to join and participate in, as a party if it so elects,
any legal proceedings or actions initiated in connection with any
Hazardous Materials Claims.
(e) Without Lessor's prior written consent, Lessee shall not take any remedial
action in response to the presence of any Hazardous Materials on, under,
or about the Demised Premises, not enter into any settlement agreement,
consent decree, or other compromise in respect to any Hazardous Materials
Claims, which remedial action, settlement, consent or compromise might, in
Lessor's reasonable judgment, impair the value of Lessor's security
hereunder or of Lessor's interest in the reversion; provided, however,
that Lessor's prior consent shall not be necessary in the event that the
presence of any Hazardous Material on, under, or about the Demised
Premises either poses an immediate threat to the health, safety or welfare
of any individual or is of such a nature that an immediate remedial
response is necessary and it is not reasonably possible to obtain Lessor's
consent before taking such action, provided that in such event Lessee
shall notify Lessor as soon as practicable thereafter of any action so
taken. Lessor agrees not to withhold its consent, where such consent is
required hereunder, if either (i) a particular remedial action is ordered
by a court of competent jurisdiction, or (ii) Lessee establishes to the
reasonable satisfaction of Lessor that there is no reasonable alternative
to such remedial action which would result in less impairment of Lessor's
security hereunder or of Lessor's interest in the reversion.
20. Assignment and Subletting. Lessee may not assign this Lease or any
interest herein, or make any sublease of all or any part of the Demised
Premises, without Lessor's prior written consent, which consent may not be
unreasonably withheld, and any such attempted assignment or subletting without
such prior written consent shall be void; provided, however, that such prior
written consent shall not be required for (i) any assignment or sublease by
Lessee to an affiliate of Lessee, (ii) any residency agreement or admission
agreement with respect to the Facility made by Lessee in the ordinary course of
its business, and/or (iii) any sublease of the portions of space in the Facility
for any accessory use made by Lessee in the ordinary course of business,
including, without limitation, for physician offices, laboratories or similar
related uses. No consent by Lessor to any assignment or subletting shall be
deemed or construed to relieve Lessee from obtaining the express written consent
of Lessor to any further assignment or subletting. Lessor shall have the right,
in its sole discretion, to withhold consent to a proposed assignment of Lessee's
entire interest in the Lease or to a proposed sublease of the entirety of the
Demised Premises.
For purposes hereof, the term "affiliate of Lessee" means a person
controlling, controlled by or under common control with
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Lessee, and shall be deemed and construed to include, but not be limited to, a
corporation, limited liability company, or general, limited or limited liability
partnership, of which Lessee or an affiliate of Lessee is, respectively, a
majority or controlling shareholder, a managing or majority member, or a general
or managing partner, regardless of the percentage of Lessee or its affiliate's
beneficial interest in such person.
No consent by Lessor to a proposed assignment or subletting and no
acceptance by Lessor of any performance or rent herein provided to be done or
paid by Lessee from any person other than Lessee shall discharge Lessee or any
other person liable for performance of Lessee's obligations hereunder (except to
the extent of the performance and payments so accepted by Lessor) from liability
to pay all of the rent herein provided to be paid by Lessee or from liability to
perform any of the terms, covenants, conditions and agreements set forth herein.
All references herein to a sublease shall be deemed to include all
arrangements for occupancy or other use by any person of all or any part of the
Demised Premises, and all references herein to a subtenant shall include any
occupant or other user of all or any part of the Demised Premises.
In the event of a termination hereof, each subtenant of space within the
Demised Premises shall attorn to the Lessor unless the Lessor shall, at the
Lessor's option, elect to dispossess such subtenant or otherwise terminate the
sublease held by such subtenant. Each subtenant who hereafter subleases space
within the Demised Premises shall be deemed to have agreed to the provisions of
this Paragraph.
Lessee hereby assigns to Lessor the right, following any default by Lessee
hereunder which is not cured by Lessee within any applicable cure period, to
collect from any and all subtenants all rents and other sums payable by them,
and to apply the same to the payment of Rent and all other amounts payable by
Lessee hereunder, and any balance shall be paid over to Lessee; but no exercise
by Lessor of rights under this Paragraph shall be deemed a waiver by Lessor of
any other rights hereunder or be deemed an acceptance by Lessor of such
subtenant or an acquiescence by Lessor to the occupancy of any part of the
Demised Premises by such subtenant or a release of Lessee from the performance
of any of the obligations of Lessee hereunder.
21. Bankruptcy. If at any time during the term hereof there shall be filed
by or against Lessee in any court or other tribunal pursuant to any statute or
other rule of law, either of the United States or of any state or of any other
authority now or hereafter exercising jurisdiction, a petition in bankruptcy or
insolvency proceedings or for reorganization or for the appointment of a
receiver or trustee of all or substantially all of Lessee's property or if
Lessee makes a general assignment for the benefit of creditors then, subject to
the provisions of this Paragraph 21,
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this Lease may, at the option of Lessor to be exercised by thirty (30) days
written notice to Lessee, be canceled and terminated, and in that event neither
Lessee nor any person claiming through or under Lessee by virtue of any statute
or other rule or of an order of any court or other tribunal shall be entitled to
possession or to remain in possession of the Demised Premises or any part
thereof but shall forthwith quit and surrender the Demised Premises; provided
however, that if any such petition shall be filed against Lessee and if in good
faith Lessee shall promptly thereafter commence and diligently prosecute any and
all proceedings appropriate to secure the dismissal of such petition, Lessor's
right to cancel and terminate this Lease by reason of the filing of such
petition shall be suspended during such period as said proceedings for the
dismissal of such petition shall continue. Any provision of this Paragraph 21
providing for the suspension of Lessor's right to cancel and terminate this
Lease is intended only to suspend Lessor's right to cancel and terminate
pursuant to this Paragraph 21, and shall not be deemed to suspend or otherwise
restrict Lessor's right to cancel and terminate this Lease, in the event of a
default by Lessee under any other paragraph hereof pursuant to Paragraph 23
hereof or otherwise.
In the event of the termination hereof pursuant to this Paragraph 23,
Lessor shall forthwith at Lessor's option, notwithstanding any other provision
hereof to the contrary, be entitled to recover from Lessee, in addition to any
other proper claims for rent and other sums of money payable hereunder, as and
for liquidated damages, a sum equal to the amount by which the Rent reserved
under Paragraphs 3 and 4 hereof for the unexpired portion of the term hereof
exceeds the net rental value of the Demised Premises at the time of such
termination for the said unexpired portion of the term hereof, both discounted
at the rate of eight percent (8%) per annum to their present worth. Nothing
herein contained shall limit or prejudice the right of Lessor to prove or obtain
as liquidated damages by reason of a termination hereof pursuant to this
Paragraph 23 an amount equal to the maximum allowed by any statute or other rule
of law in effect at the time when, and governing the proceedings in which, such
damages are to be proved, whether or not such amount be greater than, equal to
or less than the amount of the damages referred to above.
22. Access to Project; Books, Records, Accounts and Annual Reports. Lessee
shall keep and maintain or shall cause to be kept and maintained at the Demised
Premises, at Lessee's cost and expense and in accordance with sound accounting
practice, proper and accurate books, records and accounts reflecting all items
of income and expense in connection with the operation of the Facilities or in
connection with any services, equipment or furnishings provided in connection
with the operation thereof. Lessor shall have the right, from time to time, to
examine by Lessor's agents, accountants and attorneys employed at Lessor's
expense, such books, records and accounts at the office either of Lessee or such
other person or entity maintaining said books, records and accounts and to make
copies or extracts thereof as
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Lessor shall desire and to discuss Lessee's affairs, finances and accounts with
Lessee and with the officers and principals of Lessee at such reasonable times
as may be requested by Lessor. Lessee will furnish to Lessor on or before April
30th of each year, for the preceding calendar year, a balance sheet, profit and
loss statement, and all supporting schedules covering operation of the
Facilities and the Lessee, all in reasonable detail, prepared in accordance with
sound accounting practices and certified by the principal financial or
accounting officer of Lessee; and Lessee will furnish to Lessor, at any time
within thirty (30) days after demand by Lessor, statements certified by Lessee's
principal financial or accounting officer covering such additional financial
matters respecting the Facilities and the Lessee as Lessor may reasonably
request including, without limitation, quarterly operating statements with
respect to the Facilities and the Lessee.
23. Default; Termination. If at any time during the term hereof (i) Lessee
shall default in the payment of any Rent or of any other sum of money whatsoever
which Lessee shall be obligated to pay under the provisions hereof for ten (10)
days after written notice and demand, or (ii) Lessee shall default in the
performance or observance of any of the other terms, covenants, conditions or
agreements hereof for thirty (30) days after written notice and demand for cure,
or if such default shall be of such a nature that the same cannot practicably be
cured within said thirty (30) day period, Lessee shall not within said thirty
(30) day period commence with due diligence and dispatch to cure and perform
such defaulted term, covenant, condition or agreement, or Lessee shall within
said thirty (30) day period commence with due diligence and dispatch to cure and
perform such defaulted term, covenant, condition or agreement but shall
thereafter fail or neglect to prosecute and complete with due diligence and
dispatch the curing and performance of such defaulted term, covenant, condition
or agreement, or (iii) the taking, commencement or institution of any action or
proceeding, including fast track proceedings, by any state or federal authority
having jurisdiction over the Demised Premises as a health care facility to
terminate or revoke any license certification of Lessee of which Lessor is not
immediately notified or which is not resolved within fifteen (15) days for fast
track proceedings or thirty (30) days for any other action or proceeding, or
(iv) the receipt by Lessee of a Level A deficiency on any licensure inspection
or survey of the Demised Premises which is not resolved within a period of
twenty (20) days; THEN AND IN ANY SUCH CASE, if such default shall be
continuing, Lessor, at Lessor's option, may elect (1) to terminate this Lease at
any time by giving ten (10) days notice in writing to Lessee, electing to
terminate this Lease, and the term hereof shall expire by limitation at the
expiration of said ten (10) days notice as fully and completely as if said date
were the date herein originally fixed for the expiration of the term hereof, and
Lessee shall thereupon quit and peacefully surrender the Demised Premises to
Lessor, without any payment therefor by Lessor, and Lessor, upon the expiration
of said ten (10) days notice, or at any time thereafter may re-enter and remove
all persons and property
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therefrom, either by summary proceedings or by any suitable action or proceeding
at law, or by force or otherwise, without being liable to indictment,
prosecution or damages therefor, and may have, hold and enjoy the Demised
Premises.
If Lessor shall obtain possession of the Demised Premises by reason of or
following any default of Lessee, then Lessee shall pay to Lessor on demand all
reasonable expenses incurred by Lessor in obtaining possession and in altering,
repairing and putting the Demised Premises in good order and condition, and in
reletting the same, including reasonable fees of architects, attorneys and
agents, and any other reasonable expenses and commissions and Lessee further
agrees to pay to Lessor upon the rent days specified herein in each month
following any termination hereof by reason of a default of Lessee hereunder,
until the end of the period which would have constituted the Term hereof
(whether or not Lessor shall have terminated this Lease), the Rent and all other
sums of money whatsoever which would have been payable by Lessee during such
period, deducting only the net amount of rent, if any, which Lessor shall
actually receive (after deducting therefrom all reasonable expenses and costs of
operation and maintenance of the Demised Premises) from and by any reletting of
the Demised Premises, and Lessee hereby agrees to be and remain liable for all
sums aforesaid as well as for any deficiency therein. Lessor shall have the
right from time to time to bring and maintain successive actions or other legal
proceedings against Lessee for the recovery of such amounts, which liability it
is expressly covenanted shall survive the issuance of any warrant of dispossess
or other court process. Nothing herein contained shall be deemed to require
Lessor to wait to bring any such action or other legal proceedings until the
date when this Lease would have expired had there been no such default by
Lessee. In reletting the Demised Premises as aforesaid, Lessor may make leases
and lettings of the whole or less than the whole of the same, for a term or
terms greater or less than the term hereof, and for a rental or rentals and upon
such terms, covenants, conditions, agreements and provisions as Lessor may elect
in its sole discretion.
In addition to the right of Lessor to cancel the Agreement as provided in
this Section, and without waiver of such right, Lessor may sue Lessee for
damages for noncompliance with any covenant, agreement or warranty contained in
this Agreement or for nonpayment of any sum required to be paid by Lessee to
Lessor or for specific performance of any covenant of this Agreement. The waiver
of any one Event of Default shall not be construed as the waiver of any other
Event of Default.
Upon the occurrence of a default by Lessee under this Agreement, Lessor
shall have the absolute right, at any time without notice to have a receiver
appointed to take possession of the Demised Premises, collect the rents, issues,
profits, patient contract accounts, Medicare and Medicaid payments, accounts
receivable and all other payments or obligations owing to Lessee with respect to
the Demised Premises, and apply the same against
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Lessee's obligations hereunder. Neither the filing of a petition for the
appointment of a receiver nor the appointment itself shall constitute an
election by Lessor to terminate this Agreement.
No receipt of moneys by Lessor from Lessee after a termination hereof by
Lessor shall reinstate, continue or extend the Term hereof or affect any notice
theretofore given to Lessee, or operate as a waiver of the right of Lessor to
enforce the payment of rent when due or thereafter falling due, it being agreed
that after the commencement of suit for possession of the Demised Premises, or
after final order or judgment for possession of the Demised Premises, Lessor may
demand, receive and collect any moneys due or thereafter falling due without in
any manner affecting such suit, order or judgment; all such monies collected
being deemed payments on account of the use and occupation of the Demised
Premises or, at the election of Lessor, on account of Lessee's liability
hereunder. Lessor shall have, receive and enjoy, as Lessor's sole and absolute
property, any and all sums collected by Lessor as rent or otherwise upon
reletting the Demised Premises after Lessor shall resume possession thereof as
hereinbefore provided, including, without limitation upon the generality of the
foregoing, any amounts by which the sum or sums collected exceed the continuing
liability of Lessee hereunder.
24. Waiver of Rights of Redemption. If at any time hereafter Lessor shall
obtain possession of the Demised Premises under legal proceedings or pursuant to
the terms and conditions hereof or pursuant to present or future law, because of
default by Lessee in observing or performing any term, covenant, condition or
agreement hereof, all rights of redemption provided by any law, statute or
ordinance now in force or hereafter enacted shall be and are hereby waived by
Lessee to the extent permitted by law.
25. Lessors Right to Cure Lessee's Defaults. Whenever and as often as
Lessee shall fail or neglect to comply with and perform any term, covenant,
condition or agreement to be complied with or performed by Lessee hereunder,
then, upon thirty (30) days prior written notice to Lessee (except where a
shorter notice period is provided herein, in which event such shorter period
shall apply), if such default shall be continuing, Lessor, at Lessor's option,
in addition to all other remedies available to Lessor, may perform, or cause to
be performed, such work, labor, services, acts or things, and take such other
steps, including entry onto the Demised Premises as Lessor may reasonably deem
advisable, to comply with and perform any such term, covenant, condition or
agreement which is in default, in which event Lessee shall reimburse Lessor upon
demand, and from time to time, for all reasonable costs and expenses suffered or
incurred by Lessor in so complying with or performing such term, covenants,
condition or agreement. The commencement of any work or the taking of any other
steps or performance of any other act by Lessor pursuant to this paragraph shall
not be deemed to obligate Lessor to complete the curing of any term, covenant,
condition or agreement which is in default. Lessee hereby waives any claim and
releases Lessor and Lessor's
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agents, contractors and employees from all liability for damage occasioned by
any action taken by Lessor pursuant to this paragraph, excepting liability of
Lessor for negligence and willful misconduct of Lessor and Lessor's agents,
contractors and employees.
26. Lessor Default. In the event Lessor shall default in the performance
of any of the terms and provisions of this Lease and shall fail to cure such
default within thirty (30) days after written notice and demand from Lessee,
Lessee shall have the right, at its option, to exercise one or more of the
following remedies: (a) to terminate this Lease and recover against Lessor for
all damages, general, special and consequential, incurred as a proximate result
of Lessor's breach and termination; (b) to do and perform the act or action
required of Lessor under this Lease and to offset against Rental and other sums
payable by Lessee any and all costs of Lessee's performance; (c) to proceed with
an action, proceeding or suit at law or in equity, seeking damages or equitable
relief (including, in an appropriate case, an injunction, a decree of specific
performance, or a declaratory judgment). Such remedies are cumulative of any and
all other rights and remedies available to Lessee under this Lease or otherwise.
27. Injunction. Each party, at its option, in addition to any other rights
reserved to it, and notwithstanding the concurrent pendency of other proceeds
between Lessor and Lessee, shall have the right at all times during the Term
hereof to restrain by injunction any violation or attempted violation by the
other party of any of the terms, covenants, conditions or agreements hereof, and
to enforce by injunction any of the terms, covenants, conditions and agreements
thereof.
28. No Merger. In no event shall the leasehold in the Demised Premises
created hereby, or the rights of Lessee hereunder, merge with any interest,
estate or rights of Lessor in or to the Demised Premises, except by Lessor's
written declaration of such merger, it being understood that such leasehold and
the rights of Lessee hereunder shall be deemed to be separate and distinct from
Lessor's interest, estate and rights in and to the Demised Premises,
notwithstanding that any such interests, estates or rights shall at any time or
times be held by or vested in the same person.
29. Definition of "Lessor" and "Lessee". The terms "Lessor" and "Lessee"
as used herein shall at any given time mean the persons who are the owners of
the reversionary interest estate of Lessor in and to the Demised Premises, and
the leasehold of Lessee in and to the Demised Premises created herein,
respectively. Subject to and conditioned upon Lessee's obtaining Lessor's prior
written consent to any transfer or assignment of Lessee's leasehold interest
under this Lease, in the event of any conveyance or other divestiture of either
Lessor or Lessee's interest in and to the Demised Premises, the grantor or the
person who is divested of such interest (the "Grantor") shall be entirely freed
and relieved of
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all covenants and obligations thereafter accruing hereunder, and the grantee or
the person who otherwise succeeds to such interest shall be deemed automatically
and by operation of this Lease to have assumed the covenants and obligations of
the Grantor thereafter accruing hereunder, and until the next conveyance or
divestiture of such interest the other party shall look solely to said grantee
or successor for the observance and performance of the covenants and obligations
of the Grantor hereunder so assumed by said grantee or successor. Lessee shall
attorn to any such grantee or successor of Lessor. Any provision hereof to the
contrary notwithstanding, no assignment by Lessee of this Lease or any interest
herein shall relieve or release Lessee of or from any of its liabilities or
obligations hereunder.
30. Quiet Enjoyment. Lessor covenants that at all times during the term
hereof, so long as Lessee is not in default hereunder, Lessee's quiet enjoyment
of the Demised Premises or any part thereof shall not be disturbed by the act of
any person whomsoever.
31. Lessor's Right of Entry. Lessor and its authorized agents and
employees shall have the right from time to time, at Lessor's option, and upon
reasonable prior notice to Lessee (except in an emergency), to enter and pass
through the Demised Premises to examine the same and to show them to prospective
purchasers, fee mortgagees and others.
32. Estoppel Certificates. Each party shall at any time and from time to
time during the term hereof, within ten (10) days after request by the other
party, execute, acknowledge and deliver to the other party or to any prospective
purchaser, assignee or mortgagee designated by the other party, a certificate
stating (i) that this Lease is unmodified and in force and effect (or, if there
have been any modifications that this Lease is in force and effect as modified
and identifying the modification agreements); (ii) the date to which Rent has
been paid; (iii) whether or not there is any existing default by Lessee in the
payment of Rent or any other sum of money hereunder, and whether or not there is
any other existing default by either party with respect to which a notice of
default has been served, and, if there is any such default, specifying the
nature and extent thereof; and (iv) whether or not there are any set offs,
defenses or counterclaims against enforcement of the obligations to be performed
hereunder existing in favor of the party executing such certificate.
33. Rights Cumulative. All the rights and remedies of each party hereunder
or pursuant to present or future law shall be deemed to be separate, distinct
and cumulative, and no one or more of them, whether exercised or not, nor any
mention of or reference to any one or more of them herein, shall be deemed to be
an exclusion or a waiver of any of the others, or of any of the rights or
remedies which such party may have, whether by present or future law or pursuant
hereto, and each party shall have, to the fullest extent permitted by law, the
right to enforce any rights or
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remedies separately and to take any lawful action or proceedings to exercise or
enforce any right or remedy without thereby waiving or being barred or estopped
from exercising and enforcing any other rights and remedies by appropriate
action or proceedings.
34. Payments of Money, Interest. All amounts whatsoever which Lessee shall
be obligated to pay pursuant hereto shall be deemed rent, and in the event of
the nonpayment by Lessee of any such of money whatsoever which Lessee from time
to time shall be obligated to pay to Lessor under any provision hereof, Lessor
shall have the same rights and remedies by reason of such nonpayment as if
Lessee had failed to pay an installment of Rent under Paragraph 3 hereof. Except
as herein specifically stated otherwise, in each instance when Lessee shall be
obligated to make any payment of any sum of money whatsoever hereunder, interest
shall accrue thereon and be payable hereunder at the rate of twelve percent
(12%) per annum computed from the date such payment first became due hereunder.
35. Surrender, Obligations Upon Expiration or Termination.
(a) Lessee shall, on the last day of the term hereof or upon any termination
hereof well and truly surrender and deliver up the Demised Premises into
the possession and use of Lessor, with the Licensed Bed Capacity, without
fraud or delay and in good order, condition and repair, ordinary wear and
tear excepted, free and clear of all lettings and occupancies and free and
clear of all encumbrances other than those existing on the date hereof and
those, if any, created by Lessor.
(b) Lessee represents and warrants to Lessor that (except for changes in the
ordinary course of business, and for all other changes unforeseen and/or
uncontrollable by Lessee, occurring after the date hereof), to the extent
feasible and consistent with ordinary business practices, Lessee will
expend reasonable efforts to assure or cause upon the expiration or
termination of the Term hereof, the following statements to be true
statements of law and fact:
(1) All of the Inventories shall be at levels which are consistent with
operations in the ordinary course of business and, to the best of
Lessee's knowledge after diligent investigation, at levels
consistent with all applicable regulatory requirements and usable in
the ordinary course of business.
(2) There is no outstanding written notice of default, cancellation or
termination in connection with any instrument or document material
to the operation of the Demised Premises which could be construed,
directly or indirectly, to bind or in any way affect Lessor or
Lessor's assigns after the termination hereof.
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(3) Lessee is not a party to any written employment or consulting
agreement, or written pension, profit-sharing, bonus, deferred
compensation, retirement, stock option, medical health, disability,
insurance, welfare or other employee benefit plan, arrangement,
contract agreement, program or policy relating to the Facilities
(collectively, the "Benefit Plans") which would be binding upon or
affect Lessor or any successor lessee after the date of expiration
or termination hereof.
(4) Lessee has paid all accounts payable and other liabilities on a
current basis.
(5) There is no disciplinary proceeding pending or, to the best of
Lessee's knowledge after diligent investigation, threatened against
any then current member of the medical staff.
(6) AU costs, reimbursement and similar reports relating to the Facility
have been filed when due as required for Medicaid and any
third-party payor reimbursement.
(c) Lessee shall use reasonable efforts to persuade such personnel of the
Facilities as Lessor may designate to become employees of Lessor or
Lessor's assigns after the expiration or termination of the term hereof.
(d) Following the expiration or termination of the term hereof, Lessee shall
pay all personnel of the Facility all benefits [specifically including,
but not limited to, compensation for accrued and vested (in accordance
with Lessee's personnel policies), but unpaid, vacation pay] normally
payable upon termination of employment. If Lessee fails to make any such
payment, Lessor shall have the right to cure such default and demand
immediate reimbursement from Lessee.
36. No Waiver. No failure on the part of either party at any time to
require the performance by the other party of any term hereof shall be taken or
held to be a waiver of such term or in any way affect such party's right to
enforce such term, and no waiver on the part of either party of any term hereof
shall be taken or held to be a waiver of any other term hereof or the breach
thereof
37. Severability. The invalidity or unenforceability of any particular
provision hereof shall not affect the other provisions, and this Lease shall be
construed in all respects as if such invalid or unenforceable provision had not
been contained herein.
38. Benefit. This Lease shall inure to the benefit of and be binding upon
the parties and their respective legal representatives, successors and assigns.
The provisions hereof are solely for the benefit of the parties and their
respective legal representatives, successors and assigns, and shall not be
deemed or construed to create any rights for the benefit of any other person.
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39. Construction. Whenever a singular word is used herein, it shall also
include the plural wherever required by the context, and vice versa. The terms
and conditions hereof represent the results of bargaining and negotiations
between the parties, each of which has been represented by counsel of its
selection, and neither of which has acted under duress or compulsion, whether
legal, economic or otherwise, and represent the results of a combined
draftsmanship effort. Consequently, the terms and conditions hereof shall be
interpreted and construed in accordance with their usual and customary meanings,
and the parties hereby expressly waive and disclaim, in connection with the
interpretation and construction hereof, any rule of law or procedure requiring
otherwise, specifically including but not limited to, any rule of law to the
effect that ambiguous or conflicting terms or conditions contained herein shall
be interpreted or construed against the party whose counsel prepared this Lease
or any earlier draft hereof.
40. Entire Agreement; Written Modifications. This Lease contains the
entire understanding between the parties with respect to the subject matter
hereof; all representations, promises, and prior or contemporaneous
understanding, between the parties with respect to the subject matter hereof are
merged into and expressed in this Lease; and any other understandings between
the parties with respect to the subject matter hereof are hereby canceled. This
Lease shall not be amended, modified or supplemented without the written
agreement of the parties at the time of such amendment, modification or
supplement.
41. Governing Law. This Lease shall be governed by and subject to the laws
of the State of Florida.
42. Captions. The captions herein are for convenience and identification
purposes only, are not an integral part hereof, and are not to be considered in
the interpretation of any part hereof.
43. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if sent by certified or
registered mail, return receipt request, postage prepaid, addressed as follows:
To Lessor: Calhoun - Liberty Hospital Association, Inc.
424 Burns Avenue
Blountstown, FL 32424
Attention: Ms. Margaret Z. Brock, CEO
With a copy to: Bill A. Corbin, Esq.
305 Fannin Avenue
Blountstown, FL 32424
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To Lessee: Welcare Properties Corporation
400 Perimeter Center Terrace
Suite 650
Atlanta, Georgia 30346
With a copy to: Paul A. Quiros, Esq.
NELSON MULLINS RILEY & SCARBOROUGH, L.L.P.
400 Colony Square, Suite 2200
1201 Peachtree Street, N.E.
Atlanta, GA 30361
or to such other address as shall be furnished in writing by either party to the
other party.
44. Counterparts. This Lease may be executed in separate counterparts,
each of which when so executed shall be an original, but all of such
counterparts shall together constitute but one and the same instrument.
45. Costs of Enforcement. If any action is instituted in connection with
any controversy arising out of this Lease, the prevailing party shall be
entitled to recover, in addition to costs, such sum as the court may adjudge
reasonable as attorneys fees in such action and on any appeal from any judgment
or decree entered therein.
46. Radon Gas. Florida law, F.S. 404.056(b) requires that the following
language be included in all contracts for sale and purchase of any building and
all rental agreements for any building:
RADON GAS: Radon is a naturally occurring radioactive gas that, when
it has accumulated in a building in sufficient quantities, may
present health risks to persons who are exposed to it over time.
Levels of radon that exceed federal and state guidelines have been
found in buildings in Florida. Additional information regarding
radon and radon testing may be obtained from your county public
health unit.
47. Agreement Regarding Lease. This Lease Agreement is executed and
delivered pursuant to that certain Agreement Regarding Lease (the "General
Agreement") containing terms, covenants, conditions, warranties and
representations on which Lessee has and is hereby relying in entering into this
Lease and the related transactions described in the General Agreement. The
General Agreement is hereby incorporated into and made a part of this Lease as
if fully set forth herein.
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IN WITNESS WHEREOF, the parties have executed this Lease as of the day and
year first above written.
LESSOR:
CALHOUN-LIBERTY HOSPITAL ASSOCIATION,
INC.
BY: /s/ Margaret Z. Brock
----------------------------------------
Margaret Z. Brock
Its: Chief Operating Officer
ATTEST:
By: /s/ signature illegible
-----------------------------
Secretary
(Corporate Seal)
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LESSEE:
WELCARE PROPERTIES CORPORATION
By /s/ Alan C. Dahl
----------------------------------------
Its:Vice President
ATTEST:
By /s/ Paul A. Quiros
-----------------------------
Secretary
(Corporate Seal)
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EXHIBIT A-1
1. Identification of Facility
(a) Name:
(b) Address:
2. Legal Description of Parcel:
See Exhibit A-2
3. Other Existing Encumbrances:
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<PAGE>
EXHIBIT A-2
Legal Description
34
<PAGE>
EXHIBIT 10.27
<PAGE>
AMENDED AND RESTATED LONG TERM CARE FACILITY
MANAGEMENT AGREEMENT
(Clearwater Health & Rehabilitation)
THIS AMENDED AND RESTATED MANAGEMENT AGREEMENT (the "Agreement") made as
of the 6th day of July, 1994, effective as of October 1, 1993, by and between
WelCare International Properties Corporation, a Georgia corporation ("Lessee"),
and WelCare International Management Corporation, a Georgia corporation
("Manager").
W I T N E S S E T H :
WHEREAS, the Lessee presently leases certain real and personal property
comprising a certain 60 bed nursing center located in Orofino, Idaho (the
"Facility") pursuant to that certain Amended and Restated Lease Agreement dated
as of July 6, 1994 (the "Lease"), by and between Lessee and EBT Healthcare
Properties, L.P. (the "Lessor"); and
WHEREAS, the Lessee and Manager desire for Manager to provide its
experience, skill and supervision to manage the Facility on behalf of Lessee
under and subject to the terms of this Agreement, which completely amends and
restates that certain Management Agreement dated as of October 1, 1993.
NOW, THEREFORE, in consideration of the premises and mutual promises and
covenants of the parties contained herein and for such other good and valuable
consideration, the receipt, adequacy and sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:
ARTICLE I
MANAGEMENT DUTIES AND OBLIGATIONS
1.01 Control Retained by Lessee. Lessee shall at all times exercise
overall control over the assets and operations of the Facility, and Manager
shall perform the duties herein required to be performed by it as the agent of
Lessee and in accordance with the policies and directives from time to time
adopted by Lessee.
1.02 Changes in Method of Operation. Manager shall make substantial
changes in the method of operating the Facility only after timely notification
to and approval from Lessee.
1.03 Management of Facility. During the term of this Agreement, Manager
shall on behalf of Lessee manage all aspects of the operation of the Facility,
including, but not limited to staffing, accounting, billing, collections,
setting of rates and charges and general administration. In connection
therewith, Manager (either directly or through supervision of employees of the
Facility) shall:
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(a) Hire or lease on behalf of Lessee and retain (to the extent such
personnel are reasonably available in the community in which the Facility is
located) an adequate staff of nurses, technicians, nurse aides, office and other
employees, including a qualified administrator (the "Administrator") and shall
promote, direct, assign and discharge all such employees on behalf of Lessee at
Manager's sole discretion; provided, however, that leased employees shall be
subject to the direction and control of the Lessor of such leased employees. All
employees shall be employees of or leased by the Lessee and carried on the
payroll of the Facility and shall not be deemed employees or agents of Manager.
(b) Institute and amend, from time to time general salary scales,
personnel policies and appropriate employee benefits for all employees on behalf
of Lessee; provided, however, that leased employees shall be subject to the
general salary scales, personal policies and employee benefit programs of the
Lessor of such leased employees. Employee benefits may include pension and
profit sharing plans, insurance benefits, incentive plans for key employees and
holiday, vacation, personal leave and sick leave policies.
(c) Issue appropriate bills for services and materials furnished by
the Facility and use its reasonable best efforts to collect accounts receivable
and monies owed to the Facility, design and maintain accounting, billing,
patient and collection records; and prepare and file insurance, Medicare,
Medicaid and any and all other necessary or desirable reports and claims related
to revenue production. Lessee hereby grants Manager the right to enforce
Lessee's rights as creditor under any contract or in connection with rendering
any services for purposes of collecting accounts receivable and monies owed the
Facility.
(d) Order, supervise and conduct a program of regular maintenance
and repair, except that physical improvements costing more than $5,000 shall be
subject to approval of Lessee.
(e) Purchase food, beverage, medical, cleaning and other supplies,
equipment, furniture and furnishings for the account of Lessee, except that the
purchase of any single item which costs more than $5,000 shall be subject to
approval to Lessee.
(f) Administer, supervise and schedule all patient and other
services of the Facility, including the operation of food, barber/beautician and
other ancillary services.
(g) Provide for the orderly payment (to the extent funds of Lessee
are available therefor) of accounts payable, employee payroll, amounts due on
short and long-term indebtedness, taxes, insurance premiums, and all other
obligations of the Facility.
(h) Institute standards and procedures for admitting patients, for
charging patients for services, and for collecting the charges from the patients
or third parties.
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(i) Obtain and maintain insurance coverage for the Facility naming
Lessee, Manager and such other persons requested by Lessee as insureds as
provided in Section 4.01 hereof.
(j) Negotiate and enter into, in the name of and on behalf of
Lessee, such agreements, contracts and orders as Manager may deem necessary or
advisable, for the furnishing of services, concessions and supplies for the
operation and maintenance of the Facility.
(k) Negotiate on behalf of Lessee (and in conjunction with Lessee's
counsel) with any labor union lawfully entitled to represent employees of Lessee
who work at the Facility, but any collective bargaining agreement or labor
contract must be submitted to Lessee for its approval and execution.
(1) Assist in maintaining all licenses and permits required for the
operation of the Facility, its contracts with third party payors and other
similar governmental and non-governmental agencies and intermediaries.
(m) Make periodic evaluations of the performances of all departments
of the Facility.
(n) Design, establish and maintain a suitable accounting system
using accounts and classifications consistent with those used in similar
facilities.
(o) Advise and assist Lessee in designing an adequate and
appropriate public relations program.
1.04 Reports to Lessee.
(a) Manager shall prepare and deliver to Lessee, within thirty (30)
days after the close of each calendar month, unaudited financial statements
covering the prior month and containing a balance sheet and statement of income
and expenses in reasonable detail. Manager shall also provide any required
assistance to the independent accountants for the Facility, who shall be
selected by Manager and approved by Lessee, in the preparation of unaudited (or
audited if so requested by Lessee) financial statements for the operation of the
Facility. Such financial statements shall be prepared at Lessee's expense in
accordance with generally accepted accounting principles in the health care
field consistently applied and delivered to Manager and Lessee promptly after
the end of each fiscal year of the Facility. Manager shall prepare reports or
provide information to Lessee required by the Lease and any loan documents of
Lessor.
(b) Manager shall submit to Lessee each twelve (12) months a
proposed budget for the operation of the Facility setting out anticipated
income, expenses and capital expenditures during the succeeding twelve (12)
month period, and shall use its best efforts to operate the Facility in
accordance with the provisions
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of the budget for the Facility submitted to and approved by Lessee. Such
proposed budget for the Facility shall be delivered to Lessee no later than
thirty (30) days prior to the commencement of the operational fiscal year of the
Facility.
(c) Manager shall schedule periodic management meetings to be
attended by representatives of both Manager and Lessee no less frequently than
semi-annually and shall furnish to Lessee quarterly written progress reports
concerning the operation of the Facility.
1.05 Bank Accounts and Working Capital. Manager, in the Facility's name
and on behalf of Lessee, shall deposit in a bank account or accounts of the
Facility (the "Operating Accounts") established in Lessee's name all funds
received from the operations of the Facility. Lessee shall provide sufficient
working capital for the operation of the Facility and shall make deposits in the
Operating Account of such working capital from time to time upon the request of
Manager. All costs and expenses incurred in the operation of the Facility shall
be paid out of the Operating Accounts. Manager shall specify with the approval
of the Lessee the signatory or signatories required on all checks or other
documents of withdrawal for the Operating Accounts.
1.06 Access to Books, Records and Documents. If it is ultimately
determined that Section 952 of the Omnibus Reconciliation Act of 1980 and final
regulations promulgated thereunder apply to this Agreement:
(a) Until the expiration of four years after the furnishing of
services pursuant to this Agreement, Manager shall, as provided in Section 952,
make available, upon written request, to the Secretary of Health and Human
Services, or upon request, to the Comptroller General of the United States, or
any of their duly authorized representatives, this Agreement, and all books,
documents and records of Manager that are necessary to verify the nature of this
Agreement for which payment may be made under the Medicare program; and
(b) If Manager carries out any of the duties of this Agreement
pursuant to a subcontract or subcontracts with an aggregate value or cost of
$10,000 or more over a twelve (12) month period with a related organization,
such subcontract or subcontracts shall contain a clause to the effect that,
until the expiration of four years after the furnishing of such services
pursuant to such subcontract or subcontracts, the related organization shall, as
provided in Section 952, make available, upon written request, to the Secretary
of Health and Human Services, or upon request, to the Comptroller General of the
Untied States, or any of their duly authorized representatives, the subcontract
or subcontracts, and all books, documents and records of such subcontractors for
which payment may be made under the Medicare program.
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1.07 Licenses.
(a) Manager shall, on behalf of Lessee, use its reasonable best
efforts to apply for, obtain and maintain all necessary licenses, permits,
consents, and approvals from all governmental agencies which have jurisdiction
over the operation of the Facility.
(b) Neither Lessee not Manager shall knowingly take any action or
fail to take any action which may (1) cause any governmental authority having
jurisdiction over the operation of the Facility to institute any proceeding for
the rescission or revocation of any necessary license, permit, consent or
approval, or (2) adversely affect Lessee's right to accept and obtain payments
under Medicare, Medicaid, or any other public or private third party medical
payment program.
(c) Manager shall, with the written approval of Lessee, have the
right to contest by appropriate legal proceedings, diligently conducted in good
faith in the name of Lessee, the validity or application of any law, ordinance,
rule, ruling, regulation, order or requirement of any governmental agency having
jurisdiction over the operation of the Facility. Lessee, after having given its
written approval, shall pay attorneys' fees incurred with regard to the contest.
Counsel for any such contest shall be selected by Manager and approved by
Lessee. Manager shall have the right, without the written consent of the Lessee,
to process all third-party claims for the services of the Facility, including,
without limitation, the full right to contest to the exhaustion of all
applicable administrative proceedings or procedures, adjustment and denials by
governmental agencies or their fiscal intermediaries as third-party payors.
1.08 Administrator. Manager shall employ or lease for the Facility an
Administrator reasonably acceptable to Lessee, to serve as the chief executive
officer of such Facility. The Administrator shall be an employee of and shall be
compensated by Lessee and Lessee shall pay, in advance, on or before the fifth
(5th) day of each month all compensation, including salary, fringe benefits,
bonuses and business expense reimbursements approved by Manager, payable to the
Administrator. The term "fringe benefits" shall include, without limitation,
employer's F.I.C.A. payments, unemployment compensation and other employment
taxes, bonuses, vacation, personal and sick leave benefits, workers'
compensation, group life, health and accident insurance premiums and disability
and other benefits.
1.09 Taxes. Any federal, state or local taxes, assessments or other
governmental charges properly imposed on the Facility are the obligations of the
Lessee, not of Manager, and shall be paid out of the Operating Accounts of the
Facility. With the Lessee's prior written consent, Manager may contest the
validity or amount of any such tax or imposition on the Facility in the same
manner as described in Section 1.07(c) hereof.
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1.10 Use of Manager's Personnel. An authorized representative of Manager
shall visit the Facility as often as Manager deems necessary. The time spent by
such authorized representative of Manager during such visits and all
out-of-pocket expenses arising from travel and lodging connected with such
visitations shall not be charged separately to Lessee.
1.11 Government Regulations. Manager agrees to operate and maintain the
Facility in substantial compliance with the requirements of any material
statute, ordinance, law, rule, regulation or order of any governmental or
regulatory body having jurisdiction over the Facility and to comply with all
orders and requirements of the local board of fire underwriters or any other
body which may exercise similar functions; provided, however, that Manager shall
not be required to expend any funds in order to comply with any such statutes,
ordinances, laws, rules, regulations or orders, and to the extent any funds are
so required, it shall fulfill its obligations hereunder by notifying Lessee of
the actions necessary in order to be in compliance therewith.
1.12 Quality Controls. Manager shall activate and maintain on a continuing
basis a "Quality Assurance Program" in order to provide objective measurements
of the quality of health care provided at the Facility and, in connection
therewith, shall utilize such techniques as patient questionnaires and
interviews, physician questionnaires and interviews, and inspections.
1.13 Staff Specialists. In addition to the other managerial services
provided for herein, Manager shall make available to the Facility, for
consultation and advice, when necessary, specialists in such fields as
accounting, auditing, budgeting, dietary services, environmental control,
management, maintenance, nursing, personnel, pharmacy operations, public
relations, purchasing, quality assurance, systems and procedures, and
third-party reimbursement.
1.14 Performance of Services by Manager. In the performance of its
services hereunder, Manager shall exercise the same standards and degree of care
used by reasonable and prudent managers of nursing homes of similar size, nature
and character as the Facility. Notwithstanding anything herein to the contrary,
Manager shall not be deemed in violation of this Agreement if Manager is
prevented from performing any of its obligations hereunder for any reason beyond
its reasonable control including, without limitation, strikes, walkouts or other
employee disturbances, acts of God, or the action or promulgation of any
statute, rule, regulation or order by any federal, state, or local governmental
or judicial agency or official, nor shall it be deemed in default hereunder or
otherwise liable for any error of judgment or act or omission in the performance
of its services hereunder, which is made in reasonable good faith, except for
its wilful default or gross negligence.
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1.15 Extraordinary Services. Lessee agrees that any extraordinary or
specialized service recommended by Manager and approved by Lessee, even if
provided by Manager, may be performed for a separate fee as agreed upon by
Manager and Lessee in advance of the performance of such service.
ARTICLE II
TERM AND TERMINATION
2.01 Term. The term of this Agreement shall commence on the date of this
Agreement and, unless sooner terminated as provided herein, shall end on
September 30, 2006.
2.02 Option to Extend Term. If Lessee exercises its option to extend under
the Lease, Manager shall have the option to extend the term of this Agreement
for two (2) additional periods of five (5) years each, by giving written notice
to Lessee of Manager's exercise of such right and option not later than three
(3) months prior to the end of the original term hereof or the term hereof as
previously extended. Each and all of the provisions of this Agreement shall
apply during the extended term(s) of this Agreement.
2.03 Termination for Cause.
(a) If either party shall apply for or consent to the appointment of
a receiver, trustee or liquidator of such party of all or a substantial part of
its assets, file a voluntary petition in bankruptcy, make a general assignment
for the benefit of creditors, file a petition or an answer seeking
reorganization or arrangement with creditors or take advantage of any insolvency
law, or if an order, judgment or decree shall be entered by any court of
competent jurisdiction, on the application of a creditor, adjudicating such
party bankrupt or insolvent or approving a petition seeking reorganization of
such party or appointing a receiver, trustee or liquidator for such party or all
or a substantial part of its assets, and such order judgment or decree shall
continue unstayed and in effect for any period of one hundred and twenty (120)
consecutive days, then, in case of any such event, the term of this Agreement
shall expire, at the other party's option, upon five (5) days written notice.
(b) If Lessee or Manager shall fail to keep, observe or perform any
material covenant, agreement, term or provision of this Agreement to be kept,
observed, or performed by such party, and such default shall continue for a
period of thirty (30) days, (or ten (10) days in the case of a failure to pay
any amounts due Manager under this Agreement) after notice thereof by one party
to the other, then, in case of any such event and upon the expiration of any
period of grace applicable thereto, the term of this Agreement shall expire, at
the option of the nondefaulting party, upon five (5) days written notice to the
other party. Such termination shall be without prejudice to Manager's right to
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receive management fees under Article III hereof through the end of the month in
which such termination becomes effective.
2.04 Optional Termination.
(a) Either party has the option to terminate this Agreement, without
damage or penalty, upon ten (10) days prior written notice to the other, upon
the occurrence of either of the following events:
(i) The Facility or any material portion thereof is damaged or
destroyed to the extent that in the written opinion of an independent
architect or engineer reasonably acceptable to both parties (x) it is not
practicable or desirable to rebuild, repair or restore the Facility within
a period of six (6) months to its condition immediately preceding such
damage, or (y) the conducting of normal operations of the Facility would
be prevented for a period of six (6) months or more; or
(ii) Title to or the temporary use of all or substantially all
the Facility is taken under the exercise of the power of eminent domain by
any governmental authority or person, firm or corporation acting under
governmental authority which in the opinion of an independent architect or
engineer reasonably acceptable to both parties prevents or is likely to
prevent the conducting of normal operations at the Facility for a period
of at least six (6) months.
Provided, however, that in either of such events, if Lessee or any
affiliate thereof rebuilds, restores or otherwise rearranges the Facility and
recommences operations thereof, Lessee shall give Manager the first option to
manage the Facility under the same terms, conditions, and fees as provided
herein.
(b) Manager shall have the option to terminate this Agreement
without damage or penalty upon ten (10) days prior written notice to the Lessee
following the sale, transfer, assignment, or other disposition, in whole or in
part, by the Lessee of its interest in the Facility. In the event Lessee is a
corporation, any dissolution, merger, consolidation or other transfer of a
substantial portion of the stock of Lessee shall constitute an assignment of the
Facility for all purposes of this Section 2.05(b). The term "substantial
portion" means the ownership of stock possessing, and of the right of exercise,
at least fifty percent (50%) of the total combined voting power of all classes
of stock of such corporation, issued, outstanding and entitled to vote for the
election of directors whether such ownership is direct ownership, or indirect
ownership through ownership of stock possessing, and of the right to exercise,
at least fifty percent (50%) of the total combined voting power of all classes
of stock of another corporation or corporations; provided, however, that this
prohibition on stock transfer shall not apply to
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a "publicly traded corporation," which term is hereby defined for all purposes
under this Agreement as a corporation whose shares of stock have been registered
pursuant to the Securities Act of 1933, as amended, the Securities Exchange Act
of 1934, as amended, or the state securities laws pursuant to an exemption from
the aforementioned statutes.
ARTICLE III
MANAGEMENT FEE
3.01 Management Fee. Effective as of the date of this Agreement and for
the remainder of the term, Manager shall receive from Lessee, and Lessee shall
pay to Manager, each month during the term hereof, as the amount due for
services, a management fee equal to six percent (6%) of the Gross Revenues of
the Facility. "Gross Revenues" shall mean, for the Facility, total revenues of
such Facility, including, without limitation, all ancillary fees, charges,
rentals and other revenue derived in any way from the operation of such
Facility, on an accrual basis, after deduction of allowances for contractual
adjustments as they relate to third-party payors and before deduction of any and
all expenses.
3.02 Payment of Management Fees. On or before the tenth (10th) day of each
month during the term hereof, Lessee shall be obligated to pay Manager an
estimated management fee, calculated in accordance with Section 3.01 hereof,
based on the estimated Gross Revenues of the Facility during the current month.
All management fees due hereunder shall be withdrawn from the Operating Accounts
and paid to Manager. Any late payments of management fees not made after three
(3) days written notice to Lessee shall bear interest equal to the Advance Rate
(as defined in Section 5.11 hereof) from their original due date until fully
paid.
3.03 Adjustment. Within fifteen (15) days after the delivery of the annual
financial statements of the Facility, Lessee shall pay to Manager or Manager
shall pay to Lessee such amount as is necessary to make the amount of the
management fees paid with respect to the year to which the financial statements
relate equal to the amount of management fees shown to be due by the annual
audit.
ARTICLE IV
COVENANTS OF Lessee
4.01 Insurance. Manager shall provide and maintain, on behalf of Lessee
and at Lessee's expense, throughout the term of this Agreement, insurance with
responsible companies naming Lessee and Manager (as their respective interests
may appear) as insureds as required in the Lease.
4.02 Licensing; Changes and Services. Subject to the terms of
the Lease, Lessee agrees to take or cause to be taken any and all
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actions necessary to be taken by it as the overall supervisor of the assets and
operations of the Facility in order to maintain all required licenses, permits
for the operation of the Facility and the Facility's eligibility to participate
in all public or private third-party medical payment programs, including
providing sufficient funds to bring the Facility in compliance with all
applicable fire safety codes and other laws, regulations and orders, and to
correct all structural, maintenance, procedural and staffing deficiencies as
shown on the surveys and reports of governmental agencies having jurisdiction
over the Facility. Lessee agrees that it will not, through the exercise of its
overall supervisory powers, substantially change the services rendered by the
Facility during the term hereof without the prior written approval of Manager.
Nothing contained in this Section 4.02 shall affect the duties and
obligations of Manager with regard to the applying for, obtaining and
maintaining all necessary governmental licenses, permits, consents and approvals
set forth in Section 1.07 hereof.
4.03 Transfer of Ownership. Subject to the requirements of the Lease,
Lessee further acknowledges and agrees that upon the transfer, lease,
assignment, sale or other disposition or conveyance of all or any part of its
ownership of the Facility, this Agreement shall remain in full force and effect
unless otherwise terminated as provided in Section 2.04(b). Subject to the
requirements of the Lease, Lessee covenants and agrees that in the event that it
sells, assigns or otherwise transfers its ownership of the Facility at any time
while this Agreement is in effect, it will require the transferee to assume the
obligations of the Lessee hereunder.
4.04 Damage or Destruction. If the Facility or any portions thereof shall
be damaged or destroyed by fire or other casualty, Lessee shall commence to
repair, restore, rebuild or replace any such damage or destruction within sixty
(60) days after such fire or other casualty and shall proceed with due diligence
to complete such work within a reasonable period of time.
ARTICLE V
MISCELLANEOUS COVENANTS
5.01 Assignment. Lessee shall not assign its rights and/or obligations
under this Agreement without the prior written consent of Manager or pursuant to
the provisions of the Lease. Manager shall not assign its rights and/or
obligations under this Agreement, except to an affiliate of Manager, without
prior written consent of Lessee.
5.02 Binding Agreement. The terms, covenants, conditions, provisions and
agreements herein contained shall be binding upon and inure to the benefit of
the parties hereto, their successors and assigns.
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5.03 Relationship of Parties. Nothing contained in this Agreement shall
constitute or be construed to be or to create a partnership, joint venture or
lease between Lessee and Manager with respect to the Facility.
5.04 Notices. All notices, demands and requests contemplated hereunder by
either party to the other shall be in writing, and shall be delivered by hand,
transmitted by cable, telegram or telecopy (receipt confirmed), or mailed,
postage prepaid, registered, or certified mail return receipt requested:
(a) to Lessee, by addressing the same to:
WelCare International Properties Corporation
7000 Central Parkway
Suite 970
Atlanta, Georgia 30328
Attn: Mr. Alan C. Dahl
(b) to Manager, by addressing the same to:
WelCare International Management Corporation
7000 Central Parkway
Suite 970
Atlanta, Georgia 30328
Attn: Mr. J. Stephen Eaton, President
or to such other address or to such other person as may be designated by notice
given from time to time during the term of this Agreement by one party to the
other. Any notice hereunder shall be deemed given five (5) days after mailing,
if given by mailing in the manner provided above, or on the date delivered or
transmitted if given by hand, cable, telegraph or telecopy (receipt confirmed).
5.05 Entire Agreement; Amendments. The Agreement contains the entire
agreement between the parties hereto, and no prior oral or written, and no
contemporaneous oral representations or agreements between the parties with
respect to the subject matter of this Agreement shall be of any force and
effect. Any additions, amendments or modifications to this Agreement shall be of
no force and effect unless in writing and signed by both Lessee and Manager.
5.06 Governing Law. This Agreement has been executed and delivered in the
State of Georgia, and all the terms and provisions hereof and the rights and
obligations of the parties hereto shall be governed by, and construed and
enforced in accordance with, the laws of the State of Georgia (without regard to
its rules of conflicts of laws).
5.07 Captions and Headings. The captions and headings throughout this
Agreement are for convenience and reference only and do not constitute a part
hereof.
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5.08 Disclaimer of Employment of Facility Employees. No person employed in
the operation of the Facility will be an employee of Manager, and Manager will
have no liability for payment of their wages, fringe benefits, payroll taxes and
other expenses of employment.
5.09 Costs and Expenses; Indemnity. All fees, costs and expenses arising
out of, relating to or incurred in the operation of the Facility, including,
without limitation, the fees, costs, and expenses of outside consultants and
professionals, shall be the sole responsibility of Lessee. Manager, by reason of
the execution of this Agreement or the performance of its services hereunder,
shall not be liable for or deemed to have assumed any liability for such fees,
costs and expenses, or any other liability or debt of Lessee whatsoever, arising
out of or relating to the Facility or incurred at its operation, except the
salary of Manager's employees and the expenses and costs incurred at its central
administrative offices in performance of its obligations hereunder. Lessee
agrees to indemnify and hold Manager and its officers, directors, agents and
employees harmless from and against all losses, claims, damages or other
liabilities, including the costs and expenses incurred in connection therewith,
arising out of or relating to the ownership of the Facility (except those
resulting from the wilful misconduct or gross negligence of Manager), including,
without limitation, any liability asserted against Manager or any of its
officers, directors, employees or agents by reason of any action taken by any of
the foregoing while performing the duties of Manager hereunder on behalf of
Lessee.
5.10 Responsibility for Misconduct of Employees and Other Persons. Manager
will have no liability whatsoever for damages suffered on account of the
dishonesty, misconduct or negligence of any employee of or employee leased by
the Facility or any officer, director, partner, stockholder, employee or agent
of Lessee. Manager shall be liable to the Facility in connection with damage or
loss directly sustained by Lessee by reason of the dishonesty, wilful misconduct
and gross negligence of Manager's employees in the operation of the Facility
during the term of the Agreement.
5.11 Advances by Manager. Manager shall have the right, but not the
obligation, to advance to Lessee any and all sums required to maintain all
necessary licenses and permits and to otherwise keep the Facility operating as a
fully insured nursing home in good condition and repair. All such sums advanced
by Manager to Lessee shall be repaid by Lessee, with interest commencing on the
date such sums were advanced at a rate equal to the announced prime rate of
interest of NationsBank of Georgia, N.A., Atlanta, Georgia, plus two percent
(2%) per annum ("Advance Rate"), immediately upon written notice thereof to
Lessee, and Manager shall have the right at any time and from time to time to
instruct the signatories of the Operating Accounts to withdraw and pay to
Manager amounts necessary in order to repay such advances.
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5.12 Definition of Affiliate. For purposes of this Agreement, the term
"affiliate" shall mean any person or entity which Manager or Lessee or their
respective stockholders or individual partners, directly or indirectly, through
one or more intermediaries, controls, is in common control with, or is
controlled by.
5.13 Authorization of Agreement. Manager and Lessee represent and warrant,
each to the other with respect to itself, that the execution and delivery of
this Agreement has been duly authorized by all respective action, will not
presently or with the passage of time, the giving of notice, or both result in a
default under or violate or conflict with (i) the provisions of the articles of
incorporation and bylaws of Manager or Lessee, or (ii) any other material
agreement, mortgage, loan agreement or other contract or instrument by which
either party is bound or to which any of its property or assets are subject, or
(iii) any existing law, regulation, court order or consent decree by which
either party is bound or to which any of its property or assets are subject.
IN WITNESS WHEREOF, the parties hereto have executed, sealed and delivered
this Agreement through their duly authorized representatives, as of the day and
year first above written.
WELCARE INTERNATIONAL PROPERTIES
CORPORATION
By: /s/ Alan C. Dahl
-----------------------------------
Alan C. Dahl, Vice President
WELCARE INTERNATIONAL MANAGEMENT
CORPORATION
By: /s/ Alan C. Dahl
-----------------------------------
Alan C. Dahl, Vice President
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SCHEDULE 10.27
CHPC has entered into agreements with CHMC substantially identical to
Exhibit 10.27 as follows:
1. Amended and Restated Long Term Care Facility Management Agreement dated
July 6, 1994 for Fort Worth, Texas facility.
2. Amended and Restated Long Term Care Facility Management Agreement dated
July 6, 1994 for Libby, Montana facility.
3. Amended and Restated Long Term Care Facility Management Agreement dated
July 6, 1994 for Coeur d'Alene, Idaho facility.
4. Amended and Restated Long Term Care Facility Management Agreement dated
July 6, 1994 for Union, Mississippi facility.
5. Amended and Restated Long Term Care Facility Management Agreement dated
July 6, 1994 for Natchez, Mississippi facility.
6. Amended and Restated Long Term Care Facility Management Agreement dated
July 6, 1994 for Winona, Mississippi facility.
7. Amended and Restated Long Term Care Facility Management Agreement dated
July 6, 1994 for Hiawatha, Kansas facility.
8. Amended and Restated Long Term Care Facility Management Agreement dated
July 6, 1994 for Bossier, Louisiana facility. A material detail in which this
agreement differs from Exhibit 10.27 is this agreement terminates on September
30, 2004.
9. Amended and Restated Long Term Care Facility Management Agreement dated
July 6, 1994 for Ferriday, Louisiana facility. A material detail in which this
agreement differs from Exhibit 10.27 is this agreement terminates on September
30, 2004.
10. Amended and Restated Long Term Care Facility Management Agreement
dated July 6, 1994 for Franklinton, Louisiana facility. A material detail in
which this agreement differs from Exhibit 10.27 is this agreement terminates on
September 30, 2004.
11. Amended and Restated Long Term Care Facility Management Agreement
dated July 6, 1994 for McComb, Mississippi facility. A material detail in which
this agreement differs from Exhibit 10.27 is this agreement terminates on March
31, 2004.
12. Amended and Restated Long Term Care Facility Management Agreement
dated July 6, 1994 for Starkville, Mississippi facility. A material detail in
which this agreement differs from Exhibit 10.27 is this agreement terminates on
September 30, 2004.
13. Long Term Care Facility Management Agreement dated August 1, 1994 for
Olathe, Kansas facility. A material detail in
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which this agreement differs from Exhibit 10.27 is this agreement terminates on
July 31, 2008.
CAPC has entered into agreements with CHMC substantially identical to
Exhibit 10.27 as follows:
14. Long Term Care Facility Management Agreement dated December 20, 1994
for Atlanta, Georgia facility. A material detail in which this agreement differs
from Exhibit 10.27 is this agreement terminates on December 31, 2008.
CHIC has entered into agreements with CHMC substantially identical to
Exhibit 10.27 as follows:
15. Nursing Home Facility Management Agreement dated October 31, 1995 for
Bossier City, Louisiana facility. A material detail in which this agreement
differs from Exhibit 10.27 is this agreement terminates on October 31, 2015.
16. Long Term Care Facility Management Agreement dated November 26, 1996
for Houghton County, Michigan facility. Material details in which this agreement
differs from Exhibit 10.27 are that this agreement terminates on January 31,
2006, and CHIC, as owner of the facility, grants CHMC a right of first refusal
to purchase or lease the facility.
17. Long Term Care Facility Management Agreement dated November 26, 1996
for Marquette County, Michigan facility. Material details in which this
agreement differs from Exhibit 10.27 are that this agreement terminates on
January 31, 2006, and CHIC, as owner of the facility grants CHMC a right of
first refusal to purchase or lease the facility.
CHMC entered into agreements substantially identical to Exhibit 10.27 as
follows:
18. Long Term Care Facility Management Agreement dated January 1, 1993
with CAC for Washington, D.C. facility. A material detail in which this
agreement differs from Exhibit 10.27 is that this agreement terminates on
January 1, 2003.
19. Long Term Care Facility Management Agreement dated June 1, 1991
with WelCare Management Services, Inc. for St. Petersburg, Florida facility.
Material details in which this agreement differs from Exhibit 10.27 are that
this agreement terminates on June 1, 2001 and either party may terminate this
agreement without penalty upon 90 days prior notice.
20. Long Term Care Facility Management Agreement dated June 1, 1991 with
International Health Care Properties VII & VIII, L.P. ("IHCP") for Red Boiling
Springs, Tennessee facility. Material details in which this agreement differs
from Exhibit 10.27 are that this agreement terminates on May 1, 2011, and for a
period of two years following the term of this agreement IHCP may not hire any
employees of CHMC or its affiliates.
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EXHIBIT 10.28
<PAGE>
AMENDED AND RESTATED MANAGEMENT AGREEMENT
THIS AMENDED AND RESTATED MANAGEMENT AGREEMENT (the "Agreement"), dated of
this 1st day of January, 1995, by and between WELCARE INTERNATIONAL MANAGEMENT
CORPORATION, a Georgia corporation ("Manager"), and MONTCLAIR MEDICAL INVESTORS,
LTD., d/b/a MONTCLAIR NURSING CENTER ("Owner").
W I T N E S S E T H:
WHEREAS, Manager is engaged in providing nursing home management and
technical services to nursing homes throughout the United States and desires to
provide such services to Owner by this Agreement; and
WHEREAS, Owner owns a 176-bed nursing home in Omaha, Nebraska (the
"Facility");
WHEREAS, Owner has investigated various alternative arrangements
respecting the management of the Facility and previously had a management
agreement (the "Original Management Agreement") with Life Care Centers of
America, Inc. ("Life Care"); and
WHEREAS, Manager has acquired the Original Management Agreement from Life
Care and Owner has concluded that the alternative of employing Manager is most
desirable considering both cost and quality of service; and
WHEREAS, Owner desires to employ Manager by this Agreement, to manage the
Facility; and
WHEREAS, it is the joint goal of Manager and Owner to:
(a) operate the Facility on a sound financial basis;
<PAGE>
(b) provide high quality of services to residents of the Facility;
(c) establish an excellent public image for the Facility;
(d) establish high quality staffing of the Facility;
(e) institute sound financial accounting systems;
(f) institute internal controls through budgeting procedures;
(g) prevent loss of revenues through sound billing procedures;
(h) control the cash position of the Facility through sound collection
methods; and
(i) take such other steps as are necessary to provide high quality
health care to the residents of the Facility;
NOW THEREFORE, in consideration of their mutual covenants herein
contained, Owner does hereby employ Manager to perform the duties and to provide
the services hereinafter described and Manager does hereby accept such
employment on the terms and conditions hereinafter set out.
SECTION ONE: RETENTION OF AUTHORITY BY OWNER
1.1 Control Retained in Owner. Owner, acting through the duly
elected officers of its general partner, shall at all times exercise control
over the assets and operation of the Facility and Manager shall perform the
duties herein required to be performed by it as the agent of Owner and in
accordance with the reasonable policies and directives of Owner.
1.2 Methods of Operation. Manager shall make substantial changes in
the method of operating the Facility only after timely notification to, and with
the consent of Owner. Changes made to conform to governmental laws, regulations
and
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ordinances shall not be deemed "substantial" for the purposes of this agreement.
1.3 Reports. Manager shall cause to be presented to Owner monthly
reports on the financial condition of the Facility and steps being taken to
implement this Agreement, periodic written progress reports summarizing
Manager's management decisions and the results thereof, and such other reports
as Manager shall deem appropriate to keep Owner informed as to the status and
condition of the Facility.
1.4 General Management. Subject to the foregoing, Owner hereby
delegates to Manager the general authority to supervise and manage the
day-to-day operations of the Facility and to perform the specific duties
hereinafter set out.
SECTION TWO: MANAGEMENT OF THE Facility
2.1 Executive Operating Committee. To assure adequate liaison
between Owner and Manager, Owner and Manager shall meet as provided in this
Agreement.
2.2 Maintenance of Standards
2.21 Standard of Health Care. Manager shall endeavor to perform all
of the duties herein required of it in such manner as to assure that the
Facility meets as high a standard of health care as is consistent with the
policies adopted by Owner and the resources available to the Facility.
2.22 Quality Controls. Manager shall activate and maintain, on a
continuing basis, its Quality Assurance Program to provide objective
measurements of the quality of health care provided by the Facility and in
connection therewith shall
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utilize such techniques as patient questionnaires and interviews, physician
questionnaires and interviews, and survey inspections.
2.23 Staff Specialists. In addition to the other managerial services
provided for herein, Manager shall make available to the Facility for
consultation and advice, its staff specialists in such fields as accounting,
auditing, budgeting, dietary services, environmental control, food management,
maintenance, nursing, personnel, pharmacy operations, public relations,
purchasing, quality assurance, systems and procedures and third party
reimbursement.
2.24 Government Regulations. Manager shall, at the Facility's
expense, cause all things to be done in and about the Facility necessary to
comply with the requirements of any statute, ordinance, law, rule, regulations
or order of any governmental or regulatory body having jurisdiction in the
premises, respecting the use of the Facility, maintenance, or operation thereof,
and with all orders and requirements of the local Board of Fire Underwriters or
any other body which may hereafter exercise similar functions.
2.26 Licenses and Permits. Manager shall apply for, obtain and
maintain, in the name of and at the expense of Owner, all licenses and permits
required in connection with the management and operation of the Facility.
2.27 Rights of Residents. Manager shall exercise reasonable care not
to release medical records of residents to unauthorized persons, and if the
Facility receives a subpoena the
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production of the medical records of a resident, Manager shall see that the
resident is promptly informed of that fact.
2.28 Resident Services. Prior to instituting any change in the scope
or level of services offered by the Facility, Manager shall inform and obtain
the approval of Owner.
2.3 Fiscal Matters
2.31 Preparation and Acceptance of Annual Budget. Manager shall
supervise preparation of an annual budget conforming to Medicare/Medicaid
regulations which sets out anticipated income, expenses and capital expenditures
and shall cause the budget to be presented to Owner 30 days prior to the
commencement of each fiscal year for its acceptance, rejection, or modification.
Upon acceptance of such budget, or any modification thereof, by Owner, duly
recorded in minutes of the executive operating committee such budget shall serve
as a guide for the financial operation of the Facility during the ensuing year.
2.32 Accounting Records. Manager shall establish, supervise, direct
and maintain the operation of a suitable Facility accounting system and shall
cause to be prepared and delivered to Owner financial statements as follows:
(a) On or before thirty (30) days after the close of each month, a
statement of income and expenses showing the results of the
operation of the Facility for the preceding month and of the
fiscal year to date.
(b) On or before one hundred twenty (120) days after the close of
each fiscal year, a balance sheet, related statement of income
showing the results of the operation of the Facility during
said fiscal year, and statement of changes in financial
position, and having annexed thereto a computation
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of the Management Fee and Management Incentive Fee for such
twelve month period.
2.33 Deposit and Disbursement of Funds. Manager in the Facility's
name and as agent for Owner, shall deposit in a Facility bank account all
receipts and monies arising from the operation of the Facility and shall
disburse and pay all costs and expenses of the Facility, inclusive of Management
Fees and other charges payable to Manager under this Agreement, from said
accounts on behalf and in the name of the Facility and Owner, in such amounts
and at such times as shall be appropriate or necessary. Manager shall specify
the identity of signatories to Facility bank accounts and the number of
signatures required for checks of various amounts.
2.34 Collection of Accounts. Manager shall supervise and direct the
collection of all accounts due the Facility and shall take all reasonable steps
necessary to minimize the amount of bad debts.
2.35 Legal Actions. Manager shall, with approval of Owner, institute
in the name and at the expenses of Owner, any and all legal actions or
proceedings necessary to collect charges, rent or other income due the Facility
or to oust or dispossess tenants or other persons unlawfully in possession under
any lease, license or concession agreement, and to collect damages for the
breach thereof or default thereunder by the tenant or licensee or
concessionaire.
2.36 Rates. Manager and Owner recognize the importance of
maintaining room and other rates which enable the Facility to pay its
obligations but minimize the cost of health care. From
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time to time, Manager will recommend to Owner, for approval, rate structures
which take into account the financial obligations of the Facility and the level
of rates at other comparable Facilitys nearby and the importance of providing
quality health care at minimal cost.
2.37 Insurance. The establishment and maintenance of insurance
coverage of the Facility and its operations, against all hazards, shall be the
responsibility of Owner, but Manager shall, at Owner's request, arrange for the
design and installation of an appropriate insurance program for the Facility.
Manager shall incur no liability for the omission or inadequacy of any insurance
coverage. Upon the request of Owner, Manager shall furnish evidence of a
fidelity bond in the amount of $50,000 insuring Owner against defalcation by any
Manager employees in the handling of Owner funds hereunder. Manager shall also
furnish evidence of professional liability insurance coverage in an amount not
less than $1,000,000.
2.38 Working Capital. Owner shall provide working capital for the
Facility in an amount of not less than $100,000. Manager shall render such
counsel to the Owner as Manager in its discretion shall deem appropriate to
assist Owner in securing working capital loans for the Facility.
2.4 Contracts and Purchases
2.41 Food and Supplies. Manager shall purchase such food, beverages,
equipment, operating supplies and other materials and supplies in the name of
Owner and for the account
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of the Facility as may be needed from time to time for the maintenance of the
Facility.
2.42 Prices. In order to minimize the cost of supplies and services
to the Facility, Manager shall offer to Owner participation in such of Manager
national purchasing contracts as may be appropriate.
2.43 Certain Agreements. Manager shall, in the name of and for the
account of Owner, negotiate and enter into such term agreements as it may deem
necessary or advisable, for the furnishing of services, concessions and supplies
for the maintenance and operation of the Facility. Manager will obtain the
approval of Owner prior to entering into any such agreement involving an initial
expenditure of more than $5,000 by the Facility.
2.44 Repairs and Renewals. Manager shall, with approval of Owner, in
the name of and for the account of Owner, negotiate, contract for and supervise
such repair and renewal of the physical property and equipment of the Facility
as shall be necessary to keep and maintain the same in good working order and
condition. Manager will obtain the approval of Owner prior to commencing any
repair or renewal involving more than $5,000.00.
2.45 Capital Improvements. Manager shall, in the name of and for the
account of Owner, negotiate and contract for and supervise the installation of
all capital improvements related to the operation of the Facility at its present
site, including the leasing of equipment, for which provision is made in the
budget. In the event Owner desires to undertake a major expansion of the
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Facility in the future, Manager will make a presentation to Owner concerning an
appropriate development agreement relating thereto.
2.5 Employees.
2.51 General. Except as hereinafter specifically provided, Manager
shall assist Owner in the hiring or leasing of employees for the Facility or
making recommendations for recruiting, hiring, training, promoting, assigning
and discharging all operating and service personnel necessary for the proper
operation and maintenance of the Facility. All such employees shall be employees
of the Facility and Owner or employees leased to the Facility and Owner and
shall not be employees of Manager.
2.52 Employee Benefits. Manager shall assist Owner in establishing
appropriate employee benefits for the employees at the cost of the Facility and
Owner.
2.53 Special Employees. Manager or the lessor of the leased
employees shall provide the Facility with a qualified, licensed administrator
acceptable to Owner (the "Administrator"). At the option of Manager, the
Administrator may be an employee of and compensated by Manager or its affiliate,
but Manager or its affiliate shall be reimbursed monthly by Owner, for all
compensation inclusive of salary, fringe benefits, bonus and approved
reimbursable business expenses paid to the Administrator, such amount, except
for expenses which shall be charged in arrears, being due and payable in advance
on the 5th day of each month. Fringe benefits shall include the employer's
contribution to F.I.C.A., unemployment compensation, and other
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employment taxes, bonuses, workman's compensation, group life and accident and
health insurance premiums, disability coverage, and other benefits.
2.6 Management Plans and Reports
2.61 Public Relations Plan. Manager shall have direct responsibility
for maintaining satisfactory public relations between the facility and the
community. And all costs incurred for items relating to the public relations
plan shall be expenses of the Facility.
2.62 Management Reports and Meetings. Manager shall render periodic
management reports to and hold periodic meetings with Owner. These services
shall include:
A. Reports
1) Weekly
a) Census and statistical report
b) Cash position report
2) Monthly
a) Administrator's report to management
b) Regional Manager's report on facility
c) Financial statements
3) Quarterly
a) Management evaluation
4) Annually
a) Audited financial statements
b) Certified Medicaid cost report
B. Meetings
1) Weekly
Manager's staff and Administrator
2) Monthly
Administrator and Facility staff
Administrator and Owner
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3) Quarterly
a) Manager's staff and Owner
b) Manager's staff and administrative group
SECTION THREE: MANAGEMENT FEE AND ADDITIONAL PAYMENTS
3.1 Amount. During each year of this Agreement, Owner shall pay to
Manager in the manner provided below, Management Fees equal to 6.5% of the "Net
Revenue" derived from the operation of the Facility during the year concerned.
The term "Net Revenue" shall mean the gross revenue from operations, less
contractual adjustments determined on an accrual basis, in accordance with
generally accepted accounting principles as applied to the Facility industry.
In addition, Owner shall pay to Manager as Management Incentive Fees, an
amount equal to 20% of the cash flow from the Facility's operations in excess of
$153,092 ($350,000 as provided in the offering memorandum relating to Owner's
partnership interests less increased debt service due to refinancing).
3.2 Monthly Payments. The Management Fee shall be due in advance on the
first day, and be paid no later than the tenth day, of each month, and shall be
calculated by multiplying the number of patient days in the preceding month,
times the Net Revenue of the Facility per patient day for the fiscal year to
date as shown on the most recent previous monthly statement of income and
expense provided under Section 2.32 (a) hereof, times 6.5%.
The Management Incentive Fee shall be due in advance on the first day, and
be paid no later than the tenth day of each month, and shall be estimated based
on the prior year's cash flow, or
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the annualized, actual current cash flow if such annualized, actual current cash
flow differs substantially from such prior year's cash flow.
3.3 Annual Adjustment. Within fifteen (15) days after delivery of the
audited annual financial statements of the Facility, Owner shall pay to Manager
or Manager shall pay to Owner such amount as is necessary to make the amount of
said fees paid with respect to the year equal to the amount of Management Fees
and Management Incentive Fees shown to be due by the annual audit provided in
Section 2.32(b) hereof.
SECTION FOUR: MISCELLANEOUS
4.1 Term. The term of this Agreement shall commence on January 1, 1995,
and, unless sooner terminated in accordance with the provisions of paragraph 4.2
below, shall extend for 6 years thereafter, and shall be renewable for 2
successive additional 5 year terms, at the option of Manager. Unless Manager
shall give to Owner, at least ninety (90) days prior to the expiration of the
preceding term, notice of its election not to renew this Agreement for an
additional term, this Agreement shall be deemed to be automatically renewed.
4.2 Termination for Cause. Either party may terminate this Agreement at
any time for "cause" as hereinafter defined upon delivery of written notice to
the other party.
(i) Owner shall have "cause" for termination:
(1) If Manager shall apply for or consent to the
appointment of a receiver, trustee or liquidator of
Manager or of all or a substantial part of its assets,
file a voluntary petition in bankruptcy, or admit in
writing its inability to pay its debts as
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they become due, make a general assignment for the
benefit of creditors, file a petition or an answer
seeking reorganization or arrangement with creditors or
to take advantage of any insolvency laws, or if an
order, judgment or decree shall be entered by a court of
competent jurisdiction, on the application of a
creditor, adjudicating Manager a bankrupt or insolvent
or approving a petition seeking reorganization of
Manager or appointing a receiver, trustee or liquidator
of Manager of all or a substantial part of its assets;
or
(2) If Manager shall default in the performance of any
material covenant, agreement, term or provision of this
Agreement to be kept, observed or performed by Manager
and such default shall continue for a period of 60 days
after written notice to Manager from Owner stating the
specific default;
(ii) Manager shall have "cause" for termination:
(1) If the license of the Facility is at any time suspended,
terminated or revoked.
(2) If Owner shall fail to make any payment to Manager or to
any affiliate of Manager pursuant to any agreement
between Owner and such affiliate and does not make such
payment within 10 days after receiving written notice
from Manager of such failure.
(3) If Owner shall default in the performance of any
material covenant, agreement, term or provision of this
Agreement to be kept, observed or performed by Owner and
such default shall continue for a period of 60 days
after written notice to Owner from Manager stating the
specific default; or
(4) If the Facility or any portion thereof shall be damaged
or destroyed by fire or other casualty and if Owner
fails to commence to repair, restore, rebuild or replace
any such damage or destruction within 60 days after such
fire or other casualty, or shall fail to complete such
work within a reasonable period of time;
(5) If Owner shall apply for or consent to the appointment
of a receiver, trustee or liquidator of Owner or the
Facility or of all
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or a substantial part of its assets, file a voluntary
petition in bankruptcy or admit in writing its inability
to pay its debts as they come due, make a general
assignment for the benefit of creditors, file a petition
or an answer seeking reorganization or arrangement with
creditors or to take advantage of any insolvency laws,
or if an order, judgment or decree shall be entered by
any court of competent jurisdiction, on the application
of a creditor, adjudicating Owner or the Facility a
bankrupt or insolvent or approving a petition seeking
reorganization of Owner or the Facility or appointing a
receiver, trustee or liquidator of Owner or the Facility
or of all or a substantial part of the assets of Owner
or the Facility.
4.4 Status of Employees After Termination. For the one year period
commencing with the date of the termination or expiration of the term hereof
pursuant to Section 4.2, Owner shall not employ or engage, directly or
indirectly, any employee of Facility or its affiliates, including, but not
limited to the Facility Administrator, without the approval of Manager, provided
Owner may re-employ persons who were employed by Owner on the date hereof.
4.5 Notices. Any notice or other communication by either
party to the other shall be in writing and shall be delivered
personally or mailed, postage prepaid, via registered or
certified mail, to the addresses shown below:
TO: Owner TO: Manager
Montclair Medical Investors, Ltd. WelCare International
Management Corporation
7000 Central Parkway, Suite 970 7000 Central Parkway,
Suite 970
Atlanta, Georgia 30328 Atlanta, Georgia 30328
or to such other address, as either party may designate in
writing hereunder.
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4.6 Modification and Changes. This Agreement cannot be changed or modified
except by instrument in writing executed by both parties.
4.7 Assignment by Manager. Manager shall have the right to assign this
Agreement to an affiliate or a wholly or majority owned subsidiary.
4.8 Headings. The headings contained herein are for convenience of
reference only and are not intended to define, limit or describe the scope or
intent of any provision of this Agreement.
4.9 Governing Law. This Agreement shall be deemed to have been made and
shall be construed and interpreted in accordance with the laws of the State of
Georgia.
4.95 Access to Books and Records. This provision shall only apply if:
(1) this Agreement and the services furnished pursuant to it are
within the terms of Section 952 of the Omnibus Reconciliation Act of 1980,
as defined in implementing regulations issued by the Department of Health
and Human Services (HHS), and (2) the value or cost of this Agreement
equals $10,000 or more over a twelve month period.
If the above conditions are met, Manager, agrees that, until the
expiration of four years after the furnishing of services pursuant to this
Agreement, it shall, upon written request, make available to the Secretary
of HHS or the Secretary's duly authorized representatives, or upon request
to the Comptroller General or the Comptroller General's duly authorized
representatives, this Agreement and such books, documents and records that
are necessary to certify the nature and extent of costs under this
Agreement. The availability of Manager's books, documents and records
shall be subject at all times to such criteria and procedures for seeking
or obtaining access as may be promulgated by the Secretary of HHS in
regulations, and other applicable laws. Manager's disclosure under this
paragraph shall not be construed as a waiver of any other legal rights to
which Manager may be entitled under law or regulations.
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement, as of January 1, 1995.
OWNER: MONTCLAIR MEDICAL INVESTORS, LTD.
By: WelCare Consolidated Resources
Corporation of America, Its
General Partner
By: /s/ Alan C. Dahl
---------------------------------
MANAGER: WELCARE INTERNATIONAL MANAGEMENT
CORPORATION
By: /s/ Kent C. Fosha, Sr.
---------------------------------
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EXHIBIT 10.29
<PAGE>
LONG TERM CARE FACILITY
MANAGEMENT AGREEMENT
(River Oaks)
THIS MANAGEMENT AGREEMENT (the "Agreement") made as of the 1st day of
April, 1993, by and between International Health Care Properties XX, L.P., a
Georgia limited partnership ("Owner"), and WelCare International Management
Corporation, a Georgia corporation
("WelCare").
W I T N E S S E T H :
WHEREAS, the Owner presently owns certain real and personal property
comprising a certain 120 bed nursing center located in Tarrant County, Texas
(the "Facility"); and
WHEREAS, the Owner desires to retain WelCare under the terms of this
Agreement to provide its experience, skill and supervision to operate the
Facility on behalf of Owner; and
WHEREAS, WelCare desires to perform the management services on behalf of
Owner under and subject to the terms of this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual promises and
covenants of the parties contained herein and for such other good and valuable
consideration, the receipt, adequacy and sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:
ARTICLE I
MANAGEMENT DUTIES AND OBLIGATIONS
1.01 Control Retained by Owner. Owner shall at all times exercise overall
control over the assets and operations of the Facility, and WelCare shall
perform the duties herein required to be performed by it as the agent of Owner
and in accordance with the policies and directives from time to time adopted by
Owner.
1.02 Changes in Method of Operation. WelCare shall make substantial
changes in the method of operating the Facility only after timely notification
to and approval from Owner.
1.03 Management of Facility. During the term of this Agreement, WelCare
shall on behalf of Owner manage all aspects of the operation of the Facility,
including, but not limited to staffing, accounting, billing, collections,
setting of rates and charges and general administration. In connection
therewith, WelCare (either directly or through supervision of employees of the
Facility) shall:
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(a) Hire on behalf of Owner and retain (to the extent such personnel
are reasonably available in the community in which the Facility is located) an
adequate staff of nurses, technicians, nurse aides, office and other employees,
including a qualified administrator (the "Administrator") and shall promote,
direct, assign and discharge all such employees on behalf of Owner at WelCare's
sole discretion. All employees shall be employees of the Owner and carried on
the payroll of the Facility and shall not be deemed employees or agents of
WelCare.
(b) Institute and amend, from time to time general salary scales,
personnel policies and appropriate employee benefits for all employees on behalf
of Owner. Employee benefits may include pension and profit sharing plans,
insurance benefits, incentive plans for key employees and holiday, vacation,
personal leave and sick leave policies.
(c) Issue appropriate bills for services and materials furnished by
the Facility and use its best efforts to collect accounts receivable and monies
owed to the Facility, design and maintain accounting, billing, patient and
collection records; and prepare and file insurance, Medicare, Medicaid and any
and all other necessary or desirable reports and claims related to revenue
production. Owner hereby grants WelCare the right to enforce Owner's rights as
creditor under any contract or in connection with rendering any services for
purposes of collecting accounts receivable and monies owed the Facility.
(d) Order, supervise and conduct a program of regular maintenance
and repair, except that physical improvements costing more than $3,000 shall be
subject to approval of Owner.
(e) Purchase food, beverage, medical, cleaning and other supplies,
equipment, furniture and furnishings for the account of Owner, except that the
purchase of any single item which costs more than $3,000 shall be subject to
approval to Owner.
(f) Administer, supervise and schedule all patient and other
services of the Facility, including the operation of food, barber/beautician and
other ancillary services.
(g) Provide for the orderly payment (to the extent funds of Owner
are available therefor) of accounts payable, employee payroll, amounts due on
short and long-term indebtedness, taxes, insurance premiums, and all other
obligations of the Facility.
(h) Institute standards and procedures for admitting patients, for
charging patients for services, and for collecting the charges from the patients
or third parties.
(i) Obtain and maintain insurance coverage for the Facility naming
Owner, WelCare and such other persons requested by Owner as insureds as provided
in Section 4.01 hereof.
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(j) Negotiate and enter into, in the name of and on behalf of Owner,
such agreements, contracts and orders as WelCare may deem necessary or
advisable, for the furnishing of services, concessions and supplies for the
operation and maintenance of the Facility.
(k) Negotiate on behalf of Owner (and in conjunction with Owner's
counsel) with any labor union lawfully entitled to represent employees of Owner
who work at the Facility, but any collective bargaining agreement or labor
contract must be submitted to Owner for its approval and execution.
(1) Assist in maintaining all licenses and permits required for the
operation of the Facility, its contracts with third party payors and other
similar governmental and non-governmental agencies and intermediaries.
(m) Make periodic evaluations of the performances of all departments
of the Facility.
(n) Design, establish and maintain a suitable accounting system
using accounts and classifications consistent with those used in similar
facilities.
(o) Advise and assist Owner in designing an adequate and appropriate
public relations program.
1.04 Reports to Owner.
(a) WelCare shall prepare and deliver to Owner, within thirty (30)
days after the close of each calendar month, unaudited financial statements
covering the prior month and containing a balance sheet and statement of income
in reasonable detail. WelCare shall also provide any required assistance to the
independent accountants for the Facility, who shall be selected by WelCare and
approved by Owner, in the preparation of unaudited (or audited if so requested
by Owner) financial statements for the operation of the Facility. Such financial
statements shall be prepared at Owner's expense in accordance with generally
accepted accounting principles in the health care field consistently applied and
delivered to WelCare and Owner promptly after the end of each fiscal year of the
Facility.
(b) WelCare shall submit to Owner each twelve (12) months a proposed
budget for the operation of the Facility setting out anticipated income,
expenses and capital expenditures during the succeeding twelve (12) month
period, and shall use its best efforts to operate the Facility in accordance
with the provisions of the budget for the Facility submitted to and approved by
Owner. Such proposed budget for the Facility shall be delivered to Owner no
later than thirty (30) days prior to the commencement of the operational fiscal
year of the Facility.
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(c) WelCare shall schedule periodic management meetings to be
attended by representatives of both WelCare and Owner no less frequently than
semi-annually and shall furnish to Owner quarterly written progress reports
concerning the operation of the Facility.
1.05 Bank Accounts and Working Capital. WelCare, in the Facility's name
and on behalf of Owner, shall deposit in a bank account or accounts of the
Facility (the "Operating Accounts") established in Owner's name all funds
received from the operations of the Facility. Owner shall provide sufficient
working capital for the operation of the Facility and shall make deposits in the
Operating Account of such working capital from time to time upon the request of
WelCare. All costs and expenses incurred in the operation of the Facility shall
be paid out of the Operating Accounts. WelCare shall specify with the approval
of the Owner the signatory or signatories required on all checks or other
documents of withdrawal for the Operating Accounts.
1.06 Access to Books, Records and Documents. If it is ultimately
determined that Section 952 of the Omnibus Reconciliation Act of 1980 and final
regulations promulgated thereunder apply to this Agreement:
(a) Until the expiration of four years after the furnishing of
services pursuant to this Agreement, WelCare shall, as provided in Section 952,
make available, upon written request, to the Secretary of Health and Human
Services, or upon request, to the Comptroller General of the United States, or
any of their duly authorized representatives, this Agreement, and all books,
documents and records of WelCare that are necessary to verify the nature of this
Agreement for which payment may be made under the Medicare program; and
(b) If WelCare carries out any of the duties of this Agreement
pursuant to a subcontract or subcontracts with an aggregate value or cost of
$10,000 or more over a twelve (12) month period with a related organization,
such subcontract or subcontracts shall contain a clause to the effect that,
until the expiration of four years after the furnishing of such services
pursuant to such subcontract or subcontracts, the related organization shall, as
provided in Section 952, make available, upon written request, to the Secretary
of Health and Human Services, or upon request, to the Comptroller General of the
Untied States, or any of their duly authorized representatives, the subcontract
or subcontracts, and all books, documents and records of such subcontractors for
which payment may be made under the Medicare program.
1.07 Licenses.
(a) WelCare shall, on behalf of Owner, use its reasonable best
efforts to apply for, obtain and maintain all necessary licenses, permits,
consents, and approvals from all
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governmental agencies which have jurisdiction over the operation of
the Facility.
(b) Neither Owner not WelCare shall knowingly take any action or
fail to take any action which may (1) cause any governmental authority having
jurisdiction over the operation of the Facility to institute any proceeding for
the rescission or revocation of any necessary license, permit, consent or
approval, or (2) adversely affect Owner's right to accept and obtain payments
under Medicare, Medicaid, or any other public or private third party medical
payment program.
(c) WelCare shall, with the written approval of Owner, have the
right to contest by appropriate legal proceedings, diligently conducted in good
faith in the name of Owner, the validity or application of any law, ordinance,
rule, ruling, regulation, order or requirement of any governmental agency having
jurisdiction over the operation of the Facility. Owner, after having given its
written approval, shall pay attorneys' fees incurred with regard to the contest.
Counsel for any such contest shall be selected by WelCare and approved by Owner.
WelCare shall have the right, without the written consent of the Owner, to
process all third-party claims for the services of the Facility, including,
without limitation, the full right to contest to the exhaustion of all
applicable administrative proceedings or procedures, adjustment and denials by
governmental agencies or their fiscal intermediaries as third-party payors.
1.08 Administrator. WelCare shall employ for the Facility an Administrator
reasonably acceptable to Owner, to serve as the chief executive officer of such
Facility. The Administrator shall be an employee of and shall be compensated by
Owner and Owner shall pay, in advance, on or before the fifth (5th) day of each
month all compensation, including salary, fringe benefits, bonuses and business
expense reimbursements approved by WelCare, payable to the Administrator. The
term "fringe benefits" shall include, without limitation, employer's F.I.C.A.
payments, unemployment compensation and other employment taxes, bonuses,
vacation, personal and sick leave benefits, workers' compensation, group life,
health and accident insurance premiums and disability and other benefits.
1.09 Taxes. Any federal, state or local taxes, assessments or other
governmental charges properly imposed on the Facility are the obligations of the
Owner, not of WelCare, and shall be paid out of the Operating Accounts of the
Facility. With the Owner's prior written consent, WelCare may contest the
validity or amount of any such tax or imposition on the Facility in the same
manner as described in Section 1.07(c) hereof.
1.10 Use of WelCare's Personnel. An authorized representative of WelCare
shall visit the Facility as often as WelCare deems necessary. The time spent by
such authorized representative of WelCare during such visits and all
out-of-pocket expenses arising
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from travel and lodging connected with such visitations shall not be charged
separately to Owner.
1.11 Government Regulations. WelCare agrees to operate and maintain the
Facility in substantial compliance with the requirements of any statute,
ordinance, law, rule, regulation or order of any governmental or regulatory body
having jurisdiction over the Facility and to comply with all orders and
requirements of the local board of fire underwriters or any other body which may
exercise similar functions; provided, however, that WelCare shall not be
required to expend any funds in order to comply with any such statutes,
ordinances, laws, rules, regulations or orders and to the extent any funds are
so required; it shall fulfill its obligations hereunder by notifying Owner of
the actions necessary in order to be in compliance therewith.
1.12 Quality Controls. WelCare shall activate and maintain on a continuing
basis a "Quality Assurance Program" in order to provide objective measurements
of the quality of health care provided at the Facility and, in connection
therewith, shall utilize such techniques as patient questionnaires and
interviews, physician questionnaires and interviews, and inspections.
1.13 Staff Specialists. In addition to the other managerial services
provided for herein, WelCare shall make available to the Facility, for
consultation and advice, when necessary, specialists in such fields as
accounting, auditing, budgeting, dietary services, environmental control,
management, maintenance, nursing, personnel, pharmacy operations, public
relations, purchasing, quality assurance, systems and procedures, and
third-party reimbursement.
1.14 Performance of Services by WelCare. In the performance of its
services hereunder, WelCare shall exercise the same standards and degree of care
used by reasonable and prudent managers of nursing homes of similar size, nature
and character as the Facility. Notwithstanding anything herein to the contrary,
WelCare shall not be deemed in violation of this Agreement if WelCare is
prevented from performing any of its obligations hereunder for any reason beyond
its reasonable control including, without limitation, strikes, walkouts or other
employee disturbances, acts of God, or the action or promulgation of any
statute, rule, regulation or order by any federal, state, or local governmental
or judicial agency or official, nor shall it be deemed in default hereunder or
otherwise liable for any error of judgment or act or omission in the performance
of its services hereunder, which is made in good faith, except for its wilful
default or gross negligence.
1.15 Extraordinary Services. Owner agrees that any extraordinary or
specialized service recommended by WelCare and approved by Owner, even if
provided by WelCare, may be performed
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for a separate fee as agreed upon by WelCare and Owner in advance
of the performance of such service.
ARTICLE II
TERM AND TERMINATION
2.01 Term. The term of this Agreement shall commence on the date of this
Agreement and, unless sooner terminated as provided herein, shall extend for
twenty (20) years.
2.02 Option to Extend Term. WelCare shall have the option to extend the
term of this Agreement for two (2) additional periods of ten (10) years each, by
giving written notice to Owner of WelCare's exercise of such right and option
not later than three (3) months prior to the end of the original term hereof or
the term hereof as previously extended. Each and all of the provisions of this
Agreement shall apply during the extended term(s) of this Agreement.
2.03 Termination for Cause.
(a) If either party shall apply for or consent to the appointment of
a receiver, trustee or liquidator of such party or all or a substantial part of
its assets, file a voluntary petition in bankruptcy, make a general assignment
for the benefit of creditors, file a petition or an answer seeking
reorganization or arrangement with creditors or take advantage of any insolvency
law, or if an order, judgment or decree shall be entered by any court of
competent jurisdiction, on the application of a creditor, adjudicating such
party bankrupt or insolvent or approving a petition seeking reorganization of
such party or appointing a receiver, trustee or liquidator for such party or all
or a substantial part of its assets, and such order judgment or decree shall
continue unstayed and in effect for any period of ninety (90) consecutive days,
then, in case of any such event, the term of this Agreement shall expire, at the
other party's option, upon five (5) days written notice.
(b) If Owner or WelCare shall fail to keep, observe or perform any
material covenant, agreement, term or provision of this Agreement to be kept,
observed, or performed by such party, and such default shall continue for a
period of thirty (30) days, (or ten (10) days in the case of a failure to pay
any amounts due WelCare under this Agreement) after notice thereof by one party
to the other, then, in case of any such event and upon the expiration of any
period of grace applicable thereto, the term of this Agreement shall expire, at
the option of the nondefaulting party, upon five (5) days written notice to the
other party. Such termination shall be without prejudice to WelCare's right to
receive management fees under Article III hereof through the end of the month in
which such termination becomes effective.
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2.04 Optional Termination.
(a) Either party has the option to terminate this Agreement, without
damage or penalty, upon ten (10) days prior written notice to the other, upon
the occurrence of either of the following events:
(i) The Facility or any material portion thereof is damaged
or destroyed to the extent that in the written opinion of an independent
architect or engineer reasonably acceptable to both parties (x) it is not
practicable or desirable to rebuild, repair or restore the Facility within
a period of six (6) months to its condition immediately preceding such
damage, or (y) the conducting of normal operations of the Facility would
be prevented for a period of six (6) months or more; or
(ii) Title to or the temporary use of all or substantially all
the Facility is taken under the exercise of the power of eminent domain by
any governmental authority or person, firm or corporation acting under
governmental authority which in the opinion of an independent architect or
engineer reasonably acceptable to both parties prevents or is likely to
prevent the conducting of normal operations at the Facility for a period
of at least six (6) months.
Provided, however, that in either of such events, if Owner or any
affiliate thereof rebuilds, restores or otherwise rearranges the Facility and
recommences operations thereof, Owner shall give WelCare the first option to
manage the Facility under the same terms, conditions, and fees as provided
herein.
(b) WelCare shall have the option to terminate this Agreement
without damage or penalty upon ten (10) days prior written notice to the Owner
following the sale, transfer, assignment, or other disposition, in whole or in
part, by the Owner of its interest in the Facility. In the event Owner is a
corporation, any dissolution, merger, consolidation or other transfer of a
substantial portion of the stock of Owner shall constitute an assignment of the
Facility for all purposes of this Section 2.05(b). The term "substantial
portion" means the ownership of stock possessing, and of the right of exercise,
at least fifty percent (50%) of the total combined voting power of all classes
of stock of such corporation, issued, outstanding and entitled to vote for the
election of directors whether such ownership is direct ownership, or indirect
ownership through ownership of stock possessing, and of the right to exercise,
at least fifty percent (50%) of the total combined voting power of all classes
of stock of another corporation or corporations; provided, however, that this
prohibition on stock transfer shall not apply to a "publicly traded
corporation," which term is hereby defined for all purposes under this Agreement
as a corporation whose shares of
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stock have been registered pursuant to the Securities Exchange Act of 1933, as
amended, the Securities Act of 1934, as amended, or the state securities laws
pursuant to an exemption from the aforementioned statutes.
2.05 Status of Employees After Termination. During the two (2) year period
commencing on the date of termination or expiration of the term of this
Agreement, neither Owner nor any of its affiliates shall hire or attempt to hire
any employees of WelCare or any of its affiliates, without the prior written
approval of WelCare; provided, however, that Owner shall not be prevented from
re-employing persons working at the Facility who were employed by the Owner on
the date of such termination or expiration.
ARTICLE III
MANAGEMENT FEE
3.01 Management Fee. Effective as of the date of this Agreement and for
the remainder of the term, WelCare shall receive from Owner, and Owner shall pay
to WelCare, each month during the term hereof, as the amount due for services, a
management fee equal to six percent (6%) of the Gross Revenues of the Facility.
"Gross Revenues" shall mean, for the Facility, total revenues of such Facility,
including, without limitation, all ancillary fees, charges, rentals and other
revenue derived in any way from the operation of such Facility, on an accrual
basis, after deduction of allowances for contractual adjustments as they relate
to third-party payors and before deduction of any and all expenses.
3.02 Payment of Management Fees. On or before the tenth (10th) day of each
month during the term hereof, Owner shall be obligated to pay WelCare an
estimated management fee, calculated in accordance with Section 3.01 hereof,
based on the estimated Gross Revenues of the Facility during the current month.
All management fees due hereunder shall be withdrawn from the Operating Accounts
and paid to WelCare. Any late payments of management fees not made after three
(3) days written notice to Owner shall bear interest equal to the Advance Rate
(as defined in Section 5.11 hereof) from their original due date until fully
paid.
3.03 Adjustment. Within fifteen (15) days after the delivery of the annual
financial statements of the Facility, Owner shall pay to Manager or Manager
shall pay to Owner such amount as is necessary to make the amount of the
management fees paid with respect to the year to which the financial statements
relate equal to the amount of management fees shown to be due by the annual
audit.
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ARTICLE IV
COVENANTS OF OWNER
4.01 Insurance. WelCare shall provide and maintain, on behalf of Owner and
at Owner's expense, throughout the term of this Agreement, insurance with
responsible companies naming Owner and WelCare (as their respective interests
may appear) as insureds in the minimum amounts and covering the risks described
below:
(a) Comprehensive public liability insurance, including personal
injury or death and property damage in the combined single limit of not less
than $500,000.00;
(b) Workmen's compensation, employers' liability or similar
insurance as may be required by law;
(c) Insurance against loss or damage to the Facility from fire,
lightning and such other risks and casualties now or thereafter covered by the
uniform standard form of extended coverage insurance endorsement then in use in
the State of Texas and against loss or damage with respect to all boilers and
pressure vessels and pressure pipes, if any, installed in the Facility and, if
the Facility is located within a 100 year flood plain designated by the Untied
States Army Corps of Engineers, against loss or damage due to floods to be
maintained under the National Flood Insurance Program or under comparable
commercial insurance programs; all such policies being in an amount not less
than ninety percent (90%) of the actual replacement cost of the Facility as
determined every two (2) years by the Owner;
(d) Professional liability insurance against claims for bodily
injury or death or otherwise arising out of the operations of the Facility, such
insurance to afford minimum protection of not less than $500,000.00 with respect
to bodily injury or death to any one person;
(e) Automobile liability insurance covering owned, hired and
non-owned vehicles, such insurance to afford minimum protection of not less than
$500,000.00 for bodily injury or death to any one person in any one accident
(subject to a maximum recovery by all persons in any one accident of
$500,000.00) and $50,000.00 for damage to property (including loss of the use
thereof) in any one accident;
(f) Business interruption insurance in an amount sufficient to cover
the estimated management fees payable hereunder and all other fixed expenses of
the Facility for a period of not less than six (6) months;
(g) Employee fidelity bond or insurance, including comprehensive
coverage for dishonesty, disappearance and discrepancy for all employees of
Owner; and
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(h) Such other insurance or additional insurance as both WelCare and
Owner shall reasonably deem necessary for protection against claims, liabilities
and losses arising from the operation or Ownership of the Facility.
The insurance specified above for the Facility may be provided by any
combination of underlying and umbrella policies, which policies may also cover
other facilities owned, leased or managed by WelCare or its affiliates. No
policy shall have deductible provisions in excess of $10,000.00, plus, if an
umbrella policy, the amount of the underlying policy.
4.02 Licensing; Changes and Services. Owner agrees to take or cause to be
taken any and all actions necessary to be taken by it as the overall supervisor
of the assets and operations of the Facility in order to maintain all required
licenses, permits for the operation of the Facility and the Facility's
eligibility to participate in all public or private third-party medical payment
programs, including providing sufficient funds to bring the Facility in
compliance with all applicable fire safety codes and other laws, regulations and
orders, and to correct all structural, maintenance, procedural and staffing
deficiencies as shown on the surveys and reports of governmental agencies having
jurisdiction over the Facility. Owner agrees that it will not, through the
exercise of its overall supervisory powers, substantially change the services
rendered by the Facility during the term hereof without the prior written
approval of WelCare.
Nothing contained in this Section 4.02 shall affect the duties and
obligations of WelCare with regard to the applying for, obtaining and
maintaining all necessary governmental licenses, permits, consents and approvals
set forth in Section 1.07 hereof.
4.03 Transfer of Ownership. Owner further acknowledges and agrees that
upon the transfer, lease, assignment, sale or other disposition or conveyance of
all or any part of its ownership of the Facility, this Agreement shall remain in
full force and effect unless otherwise terminated as provided in Section
2.04(b). Owner covenants and agrees that in the event that it sells, assigns or
otherwise transfers its ownership of the Facility at any time while this
Agreement is in effect, it will require the transferee to assume the obligations
of the Owner hereunder.
4.04 Damage or Destruction. If the Facility or any portions thereof shall
be damaged or destroyed by fire or other casualty, Owner shall commence to
repair, restore, rebuild or replace any such damage or destruction within sixty
(60) days after such fire or other casualty and shall proceed with due diligence
to complete such work within a reasonable period of time.
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ARTICLE V
MISCELLANEOUS COVENANTS
5.01 Assignment. Owner shall not assign its rights and/or obligations
under this Agreement without the prior written consent of WelCare, except to
Owner's construction or permanent lender, in the event of foreclosure of such
lender's mortgage against the Facility; provided, however, that such lender or
lenders shall first agree in writing to assume and be bound by Owner's
obligations hereunder. WelCare shall not assign its rights and/or obligations
under this Agreement, except to an affiliate of WelCare, without prior written
consent of Owner.
5.02 Binding Agreement. The terms, covenants, conditions, provisions and
agreements herein contained shall be binding upon and inure to the benefit of
the parties hereto, their successors and assigns.
5.03 Relationship of Parties. Nothing contained in this Agreement shall
constitute or be construed to be or to create a partnership, joint venture or
lease between Owner and WelCare with respect to the Facility.
5.04 Notices. All notices, demands and requests contemplated hereunder by
either party to the other shall be in writing, and shall be delivered by hand,
transmitted by cable, telegram or telecopy (receipt confirmed), or mailed,
postage prepaid, registered, or certified mail return receipt requested:
(a) to Owner, by addressing the same to:
International Health Care Properties XX, L.P.
7000 Central Parkway
Suite 970
Atlanta, Georgia 30328
Attn: Mr. Jere M. Ervin
(b) to WelCare, by addressing the same to:
WelCare International Management Corporation
7000 Central Parkway
Suite 970
Atlanta, Georgia 30328
Attn: Mr. J. Stephen Eaton, President
or to such other address or to such other person as may be designated by notice
given from time to time during the term of this Agreement by one party to the
other. Any notice hereunder shall be deemed given five (5) days after mailing,
if given by mailing in the manner provided above, or on the date delivered or
transmitted if given by hand, cable, telegraph or telecopy (receipt confirmed).
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5.05 Entire Agreement; Amendments. The Agreement contains the entire
agreement between the parties hereto, and no prior oral or written, and no
contemporaneous oral representations or agreements between the parties with
respect to the subject matter of this Agreement shall be of any force and
effect. Any additions, amendments or modifications to this Agreement shall be of
no force and effect unless in writing and signed by both Owner and WelCare.
5.06 Governing Law. This Agreement has been executed and delivered in the
State of Texas, and all the terms and provisions hereof and the rights and
obligations of the parties hereto shall be governed by, and construed and
enforced in accordance with, the laws of the State of Georgia (without regard to
its rules of conflicts of laws).
5.07 Captions and Headings. The captions and headings throughout this
Agreement are for convenience and reference only and do not constitute a part
hereof.
5.08 Disclaimer of Employment of Facility Employees. No person employed in
the operation of the Facility will be an employee of WelCare, and WelCare will
have no liability for payment of their wages, fringe benefits, payroll taxes and
other expenses of employment.
5.09 Costs and Expenses; Indemnity. All fees, costs and expenses arising
out of, relating to or incurred in the operation of the Facility, including,
without limitation, the fees, costs, and expenses of outside consultants and
professionals, shall be the sole responsibility of Owner. WelCare, by reason of
the execution of this Agreement or the performance of its services hereunder,
shall not be liable for or deemed to have assumed any liability for such fees,
costs and expenses, or any other liability or debt of Owner whatsoever, arising
out of or relating to the Facility or incurred at its operation, except the
salary of WelCare's employees and the expenses and costs incurred at its central
administrative offices in performance of its obligations hereunder. Owner agrees
to indemnify and hold WelCare and its officers, directors, agents and employees
harmless from and against all losses, claims, damages or other liabilities,
including the costs and expenses incurred in connection therewith, arising out
of or relating to the ownership of the Facility (except those resulting from the
wilful misconduct or gross negligence of WelCare), including, without
limitation, any liability asserted against WelCare or any of its officers,
directors, employees or agents by reason of any action taken by any of the
foregoing while performing the duties of WelCare hereunder on behalf of Owner.
5.10 Responsibility for Misconduct of Employees and Other Persons. WelCare
will have no liability whatsoever for damages suffered on account of the
dishonesty, misconduct or negligence of any employee of the Facility or any
officer, director, partner, stockholder, employee or agent of Owner. WelCare
shall be liable
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to the Facility in connection with damage or loss directly sustained by Owner by
reason of the dishonesty, wilful misconduct and gross negligence of WelCare's
employees in the operation of the Facility during the term of the Agreement.
5.11 Advances by WelCare. WelCare shall have the right, but not the
obligation, to advance to Owner any and all sums required to maintain all
necessary licenses and permits and to otherwise keep the Facility operating as a
fully insured nursing home in good condition and repair. All such sums advanced
by WelCare to Owner shall be repaid by Owner, with interest commencing on the
date such sums were advanced at a rate equal to the announced prime rate of
interest of Chase Manhattan Bank, N.A., New York, New York, plus two percent
(2%) per annum ("Advance Rate"), immediately upon written notice thereof to
Owner, and WelCare shall have the right at any time and from time to time to
instruct the signatories of the Operating Accounts to withdraw and pay to
WelCare amounts necessary in order to repay such advances.
5.12 Definition of Affiliate. For purposes of this Agreement, the term
"affiliate" shall mean any person or entity which WelCare or Owner or its
general partners, or its partners and their respective stockholders or
individual partners, directly or indirectly, through one or more intermediaries,
controls, is in common control with, or is controlled by.
5.13 Authorization of Agreement. WelCare and Owner represent and warrant,
each to the other with respect to itself, that the execution and delivery of
this Agreement has been duly authorized by all respective action, will not
presently or with the passage of time, the giving of notice, or both result in a
default under or violate or conflict with (i) the provisions of the partnership
agreement or articles of incorporation and bylaws, as the case may be, of
WelCare or Owner, or (ii) any other agreement, mortgage, loan agreement or other
contract or instrument by which either party is bound or to which any of their
property or assets is subject, or (iii) any existing law, regulation, court
order or consent decree by which either party is bound or to which any of their
property or assets are subject.
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IN WITNESS WHEREOF, the parties hereto have executed, sealed and delivered
this Agreement through their duly authorized representatives, as of the day and
year first above written.
WELCARE INTERNATIONAL MANAGEMENT
CORPORATION
By: /s/ Alan C. Dahl
----------------------------------
Alan C. Dahl, Vice President
INTERNATIONAL HEALTH CARE
PROPERTIES XX, L.P.
By: International Health Care
----------------------------------
Associates XX, Inc.
By: /s/ Jere M. Ervin
----------------------------------
Jere M. Ervin,
Executive Vice President
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SCHEDULE 10.29
CHMC has entered into an agreement substantially identical to Exhibit
10.29 as follows:
1. Long Term Care Facility Management Agreement dated May 31, 1991 with
International Health Care Properties IX, L.P. for Roscommon County, Michigan
facility. A material detail in which this agreement differs from Exhibit 10.29
is that this agreement terminates on May 31, 2011.
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EXHIBIT 10.30
<PAGE>
MANAGEMENT AGREEMENT
(Tri-State)
This MANAGEMENT AGREEMENT ("Agreement") is made and entered into effective
as of the 1st day of January, 1992, by and between INTERNATIONAL HEALTH CARE
PROPERTIES VII & VIII, L.P., a Georgia limited partnership ("Owner") and WELCARE
INTERNATIONAL MANAGEMENT CORPORATION, a Georgia corporation ("Manager").
W I T N E S S E T H :
WHEREAS, the Owner owns the Tri-State Convalescent Center in Clarkston,
Washington (the "Facility"); and;
WHEREAS, Owner desires to engage Manager as Owner's agent to manage and
operate the Facility, subject to the terms and provisions of this Agreement, and
Manager agrees to perform the services provided for herein.
NOW, THEREFORE, for and in consideration of the mutual covenants herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
When used in this Agreement, the following words or terms shall have the
following definitions:
1.1 "Expiration Date" means the date this Agreement terminates pursuant to
its terms.
1.2 "Fiscal Year" means a year, commencing January 1, and ending December
31, except that the first Fiscal Year shall be that period commencing on the
Commencement Date and ending on the next succeeding December 31 and the last
Fiscal Year shall be that period commencing on January 1 and ending on the
Expiration Date.
1.3 "Improvements" means the Facility and all other structural
improvements situated on the Land.
1.4 "Interest Rate" means the rate of interest equal to the lesser of (i)
the maximum rate of interest not prohibited by applicable law; or (ii) from time
to time that per annum rate of interest equal to two percent (2%) per annum more
than the rate of interest announced as the prime rate from time to time for the
same period by Trust Company Bank, Atlanta, Georgia (or any successor thereto by
purchase, merger, or other reorganization).
<PAGE>
1.5 "Land" means the tract of land upon which the Facility is located.
1.6 "Facility" means the Tri-State Convalescent Center, which is located
on the Land.
1.7 "Budget" means a forecast of Project Income and Project Expenses,
including a budget for capital expenditures to be made relative to the Project
pursuant to this Agreement for the Fiscal Year to which such Budget relates.
1.8 "Operating Plan" means an operating plan setting forth in reasonable
detail the services presumed necessary or desirable during a given Fiscal Year
for the operation and maintenance of the Project as a Nursing Home including the
Basic Services (as defined in Section 4.1 hereof), schedules setting forth job
descriptions and standards, Salaries and Benefits which constitute Project
Operating Expenses, a marketing plan for the Project, and an insurance program
for the Project.
1.9 "Patients" means the patients of the Facility.
1.10 "Payments to Manager" means the Management Fees provided in Section
7.1 hereof.
1.11 "Project" means the Land and the Improvements.
1.12 "Project Expenses" means all expenses, costs, and charges of every
kind and nature incurred pursuant to an Approved Budget or any other provision
of this Agreement expressly permitting the incurrence of such expense, cost, or
charge as a Project Expense, or pursuant to any specific written instructions or
directives given by Owner to Manager pursuant to the provisions of this
Agreement, in connection with the operation and maintenance of the Project, for
or with respect to a Fiscal Year (including, without limitation, Project
Operating Expenses and those expenses, costs, and charges incurred in the
performance of Extraordinary Services (as defined in Section 4.2 hereof) and any
Emergency Services (as defined in Section 4.3 hereof).
1.13 "Project Income" means, with respect to a specific period of time,
the revenues actually received from all sources in connection with the operation
of the Project during such period of time. Project Income shall not include or
mean (i) interest or investment income of Owner, (ii) capital contributions of
Owner, (iii) insurance proceeds (however, business interruption insurance
proceeds shall be included in "Project Income"), (iv) tax refunds, (v)
condemnation proceeds or awards, or (vi) amounts collected from the Patients as
security deposits, if any, except to the extent those security deposits are
actually applied against the payments owed to the Facility.
1.14 "Project Operating Expenses" means all expenses, costs, and charges
(including capital outlays) incurred in connection with
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the operation and maintenance of the Project, for or with respect to a given
Fiscal Year, including, without limitation, the cost of operating the Management
Office (as hereinafter defined) of the administrator and all overhead directly
related to the operation of the Management Office.
1.15 "Salaries and Benefits" means salary, wages, bonuses, and other
direct compensation, group life, accident, disability, medical and health
insurance, pension plans, social security payments, payroll and other employee
taxes, worker's compensation payments, employer's contribution to F.I.C.A.,
unemployment compensation, and similar so-called fringe benefits.
When used in this Agreement, the words and terms for which definitions are
specified in the introductory paragraph of this Agreement and in the further
Articles of this Agreement shall have the definitions ascribed to such words and
terms.
ARTICLE II
RELATIONSHIP OF PARTIES
2.1 Grant of Authority. Owner shall at all times exercise overall control
over the assets and operations of the Project, but Owner hereby grants Manager,
as agent of Owner, the general authority to manage, direct, and supervise the
Project on behalf of Owner and to provide the services set forth in this
Agreement. Manager hereby accepts such appointment and, subject to the terms of
this Agreement, shall have the right and authority to perform the services and
take the actions described in this Agreement.
2.2 Relationship. All actions by Manager in performing its duties and
providing services pursuant to this Agreement shall be as Owner's agent and on
behalf of Owner. Owner agrees to indemnify, defend, and hold harmless Manager
from and against any loss, cost, expense, liability, or claim of any kind or
nature whatsoever arising from or in connection with Manager's performance of
its duties under this Agreement, except in instances in which such loss, cost,
expense, liability, or claims arise from or in connection with Manager's own
gross negligence or willful misconduct, or from or in connection with a material
breach by Manager of its obligations under this Agreement.
2.3 Other Activities. Manager may engage in or possess an interest in
other business ventures of every nature and description and in any vicinity
whatsoever, including, without limitation, the ownership, operation, management,
and development of nursing homes or other real property, and Owner shall have no
rights in or to such independent ventures or to any profits therefrom. Any such
activities may be undertaken with or without notice to or participation therein
by Owner, and Owner hereby waives any rights or claims that it may have against
Manager with respect to the income or profit therefrom or the effect of such
activity on the
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<PAGE>
Project. Nothing contained herein shall obligate any agent, officer, director,
shareholder, or partner of Manager to devote all or any particular portion of
such party's time or efforts to the Project.
2.4 Management Office. Owner shall provide, at Owner's expense, office
space for the management staff (the "Management Office") within the Facility in
a location designated for office space and not in an area located in the
basement or designated for mechanical rooms or storage. This space shall be of a
size, shall be configured, and shall be improved to a standard and quality
reasonably acceptable to Manager. In addition, there shall be within the
Facility a reasonable amount of additional space providing sufficient room for
storage of plans, additional files, and records. Owner may relocate the
Management Office and such additional space from time to time, subject to the
requirements of this Section 2.4
2.5 Manager's Liability. Owner acknowledges that Manager will enter into
subcontracts ("Subcontracts") with others ("Subcontractors") providing for the
performance of certain services to be provided under this Agreement, and that
Manager's remedies, in the event a Subcontractor fails to perform such services,
is negligent, engages in misconduct or defaults under the Subcontract (in any
such case "Subcontractor Default"), will be governed by the Subcontract and by
applicable law. Owner agrees, for the purposes of this Agreement, that if
Manager, as soon as reasonably practicable after the occurrence of a
Subcontractor Default, commences and thereafter pursues with all due diligence
Manager's remedies against such Subcontractor and, pending efforts by Manager to
enforce Manager's remedies against such Subcontractor, either performs itself
the services covered by the Subcontract or engages another Subcontractor for
such purpose, then Manager shall not be in default under the terms of this
Agreement by reason of such Subcontractor Default.
Notwithstanding any other provision of this Agreement, and unless such act
or omission constitutes gross negligence or willful misconduct by Manager, its
officers, employees, or agents (and for the purposes of this Section 2.5 the
term "employees or agents" of Manager shall not include Subcontractors), under
the terms of this Agreement, neither Manager nor its officers, directors,
shareholders, constituent partners, employees, or agents shall ever be liable
for any act or omission, negligent, tortious or otherwise, of a Subcontractor or
any agent or employee of a Subcontractor, or its subsidiaries or affiliates, for
any amount of damage, or any other monetary obligation whatsoever, which is in
excess of the amount of cash proceeds actually recovered under the policies of
liability insurance required to be maintained pursuant to the terms of Section
5.2 of this Agreement, and under no circumstances whatsoever shall Manager,
under any theory of action or recovery, ever be liable for or obliged to pay or
to satisfy any judgment for any damages or other monetary obligation whatsoever,
that is in excess of the amount of such cash proceeds.
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Notwithstanding any of the provisions of this Agreement, in no event shall Owner
make any claim against Manager, or its affiliates or subsidiaries, on account of
any alleged errors in judgment made in good faith in connection with the
operation of the Facility by Manager or the performance of any advisory or
technical services provided or arranged by Manager.
In the event of an act of gross negligence or willful misconduct by
Manager, its officers, employees, or agents under the terms of this Agreement,
then Owner shall have all recourses and remedies as may be available under the
terms of this Agreement and at law or in equity.
2.6 Exculpation of Owner for Subcontractor Defaults. Notwithstanding any
other provision of this Agreement, and unless such act or omission constitutes
gross negligence, willful misconduct, or a default by Owner, its officers,
employees, or agents (and for the purposes of this Section 2.6, the terms
"employees or agents" of Owner shall not include Subcontractors) under the terms
of this Agreement, neither Owner nor its officers, directors, shareholders,
constituent partners, employees, or agents shall ever be liable for any act or
omission, negligent, tortious or otherwise, of a Subcontractor or any agent or
employee of a Subcontractor or its subsidiaries or affiliates for any amount of
damages or any other monetary obligation whatsoever which is in excess of the
amount of cash proceeds actually recovered under the policies of liability
insurance required to be maintained by Owner pursuant to the terms of Section
5.1 of this Agreement, and under no circumstances whatsoever shall Owner, under
any theory of action or recovery, ever be liable for or obligated to pay or to
satisfy any judgment for any damages or other monetary obligation whatsoever,
that is in excess of the amount of such cash proceeds.
ARTICLE III
BUDGET
3.1 Approval of Budget. As soon as reasonable and practicable for Manager
prior to the end of each Fiscal Year, Manager shall prepare and deliver to
Owner, in a form reasonably satisfactory to owner, a proposed Budget for the
next Fiscal Year. When approved pursuant to this Article III, such Budget shall
be an "Approved Budget."
Owner shall give its approval or its disapproval of the proposed Budget
not later than thirty (30) days after receipt with respect to each Fiscal Year.
If Owner does not approve or disapprove the proposed Budget within such
thirty (30) day period, then Owner shall be deemed to have approved the Budget.
If Owner objects to all or any portion of the proposed Budget, Owner shall
furnish Manager with the reasons for its objections, and Owner and Manager shall
attempt to agree
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with respect to the items to which Owner objects, and if such agreement is not
reached before the beginning of the applicable Fiscal Year, and without
reference to whether more than one Fiscal Year shall lapse, then the Project
shall be operated under a Budget (which for purposes of this Agreement shall be
considered to be an Approved Budget) which is the same as the last Approved
Budget, and manager shall be authorized to incur expenses necessary for the
management and operation of the Project, including but not limited to:
(a) All costs of utilities, cleaning services, costs of routine
building and mechanical maintenance and repair (including elevator maintenance,
if applicable), ad valorem taxes and insurance coverages, costs of security
services, costs under service contracts, landscaping costs, and personnel costs;
(b) All other expenses in the last Approved Budget, plus five
percent (5%) above an amount equal to the sum of (i) the annualized level (the
"Base Level") of all such other expenses during the last three (3) months of the
preceding Fiscal Year for which there was an Approved Budget, plus (ii) five
percent (5%) of such Base Level for the second Fiscal Year during which the
Project is operated under such Budget not approved by Owner and an annually
compounded five percent (5%) of such Base Level for each subsequent Fiscal Year
during which the Project is operated under such Budget not approved by Owner.
3.2 Approved Budget. An Approved Budget shall constitute an authorization
for Manager to spend money to operate and manage the Project pursuant to such
Approved Budget, and Manager may do so without further approval. Owner
acknowledges that, notwithstanding Manager's experience in the management of
similar developments, the projections contained in the Budget submitted at the
commencement of each Fiscal Year are subject to and may be affected by changes
in financial, economic, and other conditions and circumstances beyond Manager's
control, and the Approved Budget shall be adjusted to take into account such
changes. Any variances in the results of actual operations from those
contemplated in the Approved Budget shall be set forth in a quarterly report
from Manager to Owner, such report to set forth the amount of the variance and
the reasons for such variance.
3.3 Expenditures for Capital Items. The Approved Budget shall constitute
an authorization for Manager to make the capital expenditures contemplated
thereby. If during any Fiscal Year Manager believes the purchase or installation
of new or replacement equipment or other capital items not contemplated by the
Approved Budget is or before the end of such Fiscal Year will be necessary or
desirable, Manager shall advise Owner thereof, but shall cause such items to be
purchased and installed only after obtaining the prior authorization of Owner.
3.4 Rates. Manager and Owner recognize the importance of maintaining room
and other rates which enable the Project to pay
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its obligations but minimize the cost of health care. From time to time, Manager
will recommend to Owner, for approval, rate structures which take into account
the financial obligations of the Project and the level of rates at other
comparable nursing homes nearby and the importance of providing quality health
care at minimal cost.
ARTICLE IV
SERVICES
4.1 Basic Services. As basic services (the "Basic Services"), Manager
shall:
(a) Patient Relations. Operate in compliance with the terms and
conditions of this Agreement and administer a patient relations program which
maintains a high visibility of management presence.
(b) Personnel. Provide a nursing home administrator licensed in the
state in which the Project is located for the day-to-day administration of the
Project. The administrator shall be an employee of and compensated by Manager,
However, Manager shall be reimbursed monthly by Owner for all Salaries and
Benefits of such administrator with such amounts, except for expenses which
shall be charged in arrears, being due and payable in advance on the first day
of each month. Notwithstanding the foregoing, however, if the Project is not
operated within the Budget for any continuous six month period, Owner shall have
the right to require Manager to remove the administrator and provide a new
administrator within sixty (60) days of receiving notice from the Owner. All
other employees shall be employees of the Facility and not employees of Manager.
All matters pertaining to the employment, supervision, compensation, promotion,
and discharge of such employees are the right and responsibility of Manager, and
Owner shall have no right to supervise or direct such employees. The Salaries
and Benefits of such employees and the number of such employees to be employed
on-site at the Project shall be part of the Budget (and thus subject to approval
by Owner), but each Approved Budget shall include and provide for sufficient
funds to enable Manager to pay competitive Salaries and Benefits so as to
attract and retain a sufficient number of capable employees to enable Manager to
operate and maintain the Project to the standard herein provided.
(c) Service Contracts. Enter into or renew, in the name of Owner,
contracts (collectively, and including Subcontracts as defined in Section 2.5
hereof, referred to as "Service Contracts") for electricity, gas, water,
telephone, cleaning, fuel oil, elevator maintenance, vermin extermination, trash
removal, linen service, and other services in the ordinary course of the
operation of the Project; purchase all supplies and equipment necessary to
maintain and so operate the Project; and credit to Owner any
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discounts, rebates, or commissions obtained for purchases or otherwise. Owner
shall not have the right to approve any new Service Contract with a term of less
than one (1) year, or any new Service Contract that provides for termination by
Owner (without the payment of premium or penalty) upon sixty (60) days' written
notice or less.
(d) Maintenance and Repair. Maintain or cause to be maintained the
Improvements and grounds of the Project, including, without limitation, interior
and exterior cleaning, painting and decorating, plumbing, carpentry, and other
normal maintenance and repair work.
(e) Collection. Use diligent efforts to request, demand, collect,
receive, and receipt for all charges due from Patients and otherwise due Owner
with respect to the Project.
(f) Project Expenses: Mortgage Loans. Pay all Project Expenses
(other than any payments required on mortgage loans, except as provided below)
on or before that date, after which interest or penalty will begin to accrue
thereon (the "Due Date"), provided, however, that Manager shall contest, if and
to the extent appropriate, the payment of any Project Expense (or portion
thereof) which Manager has reasonable grounds to believe (on the basis of the
facts and information actually known to Manager) should be contested. Reasonable
contest expenses shall be included as Project Expenses. Manager shall give Owner
reasonable notice, including advance notice if possible, of any such contest.
Additionally, at the request of Owner, Manager shall contest the amount or
validity of any claimed Project Expense. In any instance in which Manager has
contested any Project Expense in accordance with the provisions of this
Agreement, or has been requested by Owner to contest any Project Expense, then
any interest or penalty which accrues and may thereafter become payable with
respect to such Project Expense shall itself be a Project Expense.
If Owner shall so request, Manager shall pay the aggregate amounts
required to be paid pursuant to any mortgages of the Project, including amounts
due under any mortgages for interest, amortization of principal, and for
allocation to reserves or escrow funds. All notices from any mortgagee claiming
any default in any mortgage on the Project, and any other notice from any
mortgagee other than routine notice of payment due, shall be forthwith delivered
by Manager to Owner.
(g) Reports. As soon as reasonable and practicable each month,
render to Owner a statement of income and expenses showing the results of
operation of the Facility for the preceding month and of the Fiscal Year to
date. As soon as reasonable and practicable after the end of each Fiscal Year,
Manager shall deliver to Owner profit and loss statements showing Project
Income, Project Expenses, Payments to Manager, the results of operations for
that Fiscal Year, and (provided Manager has sufficient information) a balance
sheet of the Project as of the end of that
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Fiscal Year, prepared on an accrual basis in accordance with generally accepted
accounting principles consistently applied. All such monthly reports shall be in
the format normally utilized by Manager, Manager shall, upon reasonable notice
from Owner, prepare and submit to Owner such other reports, certificates, or
representations as Owner may reasonably request concerning such matters relating
to the Project as are within the scope of Manager's services provided for in
this Agreement. If any such additional reports or alternate report formats
requested by Owner shall require Manager to engage consultants or other
professionals to assist Manager in designing or preparing such report, or shall
require Manager's employees (other than on-site employees engaged in performing
Manager's services under this Agreement) to expend substantial amounts of
additional time designing or preparing such report, then Owner shall promptly
reimburse Manager for the reasonable actual cost to Manager of engaging such
consultants or other professionals or of such time expended by Manager's
employees.
(h) Records. Maintain, at the address for Manager provided for in
Section 10.2 of this Agreement, or such other place or places as Owner may
approve in advance, a system of office records, books, and accounts, including,
without limitation, copies of all reports filed pursuant to subsection (g)
above, and any additional information or records reasonably required by Owner
for the preparation of federal, state, and local tax returns, all in a manner
reasonably satisfactory to owner. Owner and others designated by Owner,
including Owner's auditors and accountants, shall have, upon reasonable notice
to Manager, during normal business hours, access to and the right to audit and
make copies of such records, accounts, and books, and all vouchers, files and
all other material pertaining to the Project and this Agreement, all of which
Manager shall keep safe and available to Owner and others designated by owner,
and all of which shall be owned by Owner.
(i) Legal Proceedings. Institute and prosecute in the name and at
the expense of Owner such actions and proceedings necessary to effect the
purposes, perform the services, and take the actions contemplated by this
Agreement, including without limitation, to evict Patients in default; to
recover possession of rooms occupied by such Patients; to sue for and recover
charges and other damages due from Patients and other persons obligated to Owner
or Manager in connection with the Project; to settle, compromise, and release
any such actions or suits or reinstate such Patients; and to sign and serve in
the name of Owner notices and other communications relating to any of the
foregoing matters. Manager shall not incur legal fees and expenses exceeding
Five Thousand Dollars ($5,000.00) in prosecuting or defending any action,
proceeding, or suit on behalf of Owner in connection with the Project without
first securing written permission from Owner, Manager shall keep Owner advised
of all actions filed against Owner or all actions filed by Owner that are beyond
the scope of ordinary business operations, Owner shall be responsible for
reasonable expenses incurred in defending Manager for actions brought against
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Manager based upon Manager's performance of its duties in connection with
operation of the Project.
(j) Process Insurance Claims. If requested by Owner, process all
claims under any insurance coverages pertaining to the Project in an expeditious
manner, so as to minimize delay in receipt by the Project of the proceeds of
such insurance.
(k) Maintenance of Licenses. Assist in obtaining and maintaining all
licenses and certifications required for operation of the Project, such as
contracts with fiscal intermediaries and agencies and eligibility for
participation in medical reimbursement programs. All licenses and permits shall
be obtained in the name and at the expense of the Owner unless otherwise
stipulated pursuant to applicable regulations or unless otherwise agreed between
Owner and Manager.
(l) Reimbursement Schedule. Develop price and reimbursement
schedules satisfactory to Owner; obtain approval of appropriate price schedules
by government agencies and appropriate reimbursement schedules from third-party
paying agencies; provide all statistical, financial, and other data necessary to
obtain reimbursement from the appropriate agencies; and effect final settlement
of all claims for reimbursement.
4.2 Extraordinary Services. Whenever Manager determines that a service or
services not included in the Basic Services required to be rendered pursuant to
the Agreement (and not constituting an emergency) is necessary or desirable for
the efficient, economic, and profitable operation of the Facility (collectively,
the "Extraordinary Services"), Manager shall advise Owner of the need and cost
therefore and make recommendations related thereto. Manager shall then perform
the Extraordinary Services in accordance with the directions of Owner as to the
performance thereof and the amount to be expended therefore. The Extraordinary
Services shall be as follows:
(a) Major Repairs. Performance and supervision of all major repairs,
replacements, and alterations to the Facility not covered by the Budget.
(b) Compliance with Legal Requirements. Ensuring compliance with any
and all orders or requirements affecting the Project by any federal, state,
county, municipal, or other governmental authority or agency having jurisdiction
thereover, and order of the Board of Fire Underwriters or any similar bodies.
Manager, however, shall not take any such action as long as Owner is contesting
or has notified Manager of its intention to contest (or has otherwise directed
Manager to take no action), and promptly institutes proceedings contesting any
such order or requirement, except that if failure to comply promptly with any
such order or requirement would or might expose Manager to civil or criminal
liability, Manager shall cause the same to be complied with.
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(c) Tax Abatement and Eminent Domain. Rendering of advice and
assistance to owner in the negotiation or prosecution of all claims for the
abatement of property and other taxes affecting the Facility and for awards for
taking by eminent domain affecting the Facility.
(d) General. Performance of any other services, acts, items, or
matters relating to or affecting the Facility which are or may be desirable or
necessary for the efficient, economic, and profitable operation thereof and
which are not included within the services required by this Agreement.
4.3 Emergency Services. "Emergency Services" are defined as any and all
emergency repairs or services immediately necessary for the preservation and
safety of the Facility or to avoid the suspension of any substantial and
important service to the Facility or danger to life or property. Emergency
Services may be performed by Manager in its discretion, without owner's prior
approval of the performance or amount to be expended therefore; provided,
however, that Manager shall, if at all possible, attempt to consult Owner by
telephone before performing any Emergency Services. Thereafter, as soon as
practicable, Manager shall notify Owner in writing of the details and expenses
thereof.
4.4 Expense of Owner. All services performed by Manager under this
Agreement shall be at the expense of Owner. Notwithstanding any other provision
of this Agreement, Manager shall not be obligated to make any advance to or for
the account of Owner or to pay any sums, except out of funds held in any account
maintained under Article VI, nor shall Manager be obligated to incur any
liability or obligation for the account of Owner without assurance that the
necessary funds for the discharge thereof are or shall be available, nor shall
Manager be responsible for the failure of the Facility to be managed, operated,
or maintained to the standard required by this Agreement as a result of Owner's
failure to provide funds for the Facility.
ARTICLE V
INSURANCE
5.1 Owner's Insurance. If requested by Owner, Manager will obtain in
Owner's name and at Owner's expense and keep in force (or Owner will obtain and
keep in force) during the term of this Agreement:
(a) Comprehensive general liability insurance, with broad form
comprehensive endorsement, protecting and indemnifying Owner against claims for
injury to or death of persons or damage to or destruction of property occurring
upon, in, or about the Project and the adjoining streets (other than streets
dedicated to and accepted for maintenance by the public); such insurance to
afford immediate protection to the limit of not less than $1,000,000 for
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injury to or death of persons and $500,000 for damage to or destruction of
property, with overlying umbrella liability insurance coverage of not less than
$3,000,000 as to both injury to or death of persons and damage to or destruction
of property; such insurance to be issued on an 'occurrence basis' and to be
endorsed specifically to include within its scope of coverage all liabilities
and indemnities for which Owner is obligated and liable under the terms of this
Agreement; and with respect to such umbrella liability insurance, coverage shall
not provide for a self-insured retention in excess of $25,000;
(b) Worker's compensation insurance with statutory and employee's
liability insurance;
(c) Auto liability insurance covering motor vehicles owned or hired
by Owner, protecting and indemnifying Owner against claims for the injury to or
death of persons or damage to or destruction of property; such insurance to
afford immediate protection to the limit of not less than $250,000 for injury or
death of each person; $500,000 for injury to or death of persons for each
occurrence; and $100,000 for damage to or destruction of property;
(d) Professional liability insurance against claims for bodily
injury or death or otherwise arising out of the operations of the Facility, such
insurance to afford minimum protection of not less than $500,000 with respect to
bodily injury or death to any one person;
(e) Business interruption insurance in an amount sufficient to cover
the estimated Management Fees payable hereunder and all other fixed expenses of
the Facility for a period of not less than six months; and
(f) Such other coverages, in such amounts as shall be set forth in
the insurance plan portion of the Operating Plan. Such insurance shall be
written by companies selected by Owner which are nationally recognized and
legally qualified to issue such insurance in the state or states in which the
Project is located and shall name Owner as insured and Manager as an additional
named insured.
5.2 Manager's Insurance. Manager shall obtain, at Manager's expense, and
keep in force during the term of this Agreement:
(a) Property damage insurance covering, and in an amount
substantially equal to, the value of Manager's furniture, trade fixtures, and
other property maintained in the Management Office;
(b) Comprehensive general liability insurance, with broad form
comprehensive endorsement, protecting and indemnifying Manager against claims
for injury to or death of persons or damage to or destruction of property
occurring upon, in, or about the Project and the adjoining streets (other than
streets dedicated to
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and accepted for maintenance by the public); such insurance to afford immediate
protection to the limit of not less than $1,000,000 for injury to or death of
persons and $300,000 for damage to or destruction of property, with overlying
umbrella liability insurance coverage of not less than $3,000,000 as to both
injury to or death of persons and damage to or destruction of property; such
insurance to be issued on an 'occurrence basis, and with respect to the umbrella
liability insurance, coverage shall not provide for a self-insured retention in
excess of $25,000;
(c) Employee's fidelity insurance in the amount of $50,000 to
protect Owner against misapplication of rents and other funds derived from
operation of the Project by Manager and Manager's employees (which for purposes
of this Section 5.2, do not include employees of the Facility);
(d) Auto liability insurance covering motor vehicles owned or hired
by Manager, protecting and indemnifying Manager against claims for the injury to
or death of persons or damage to or destruction of property; such insurance to
afford immediate protection to the limit of not less than $250,000 for injury or
death of each person; $500,000 for injury to or death of persons for each
occurrence; and $100,000 for damage to or destruction of property; and
(e) Worker's compensation insurance with statutory and employee's
liability coverage for Manager's employees (which for purposes of this Section
5.2, do not include employees of the Facility).
On the condition that the comprehensive general liability insurance
maintained by Manager under this Section 5.2 shall (i) be issued by a nationally
recognized insurer, and (ii) have the limits set forth in Section 5.2 above,
Manager shall be deemed to have satisfied its obligation to maintain such
general comprehensive liability insurance for all purposes of this Agreement.
Such insurance shall be written by companies selected by Manager, which
are nationally recognized and legally qualified to issue such insurance in the
state or states in which the Project is located, and shall name Manager as the
insured and Owner as additional named insured.
5.3 Policies. Manager shall attempt to insure that each policy referred to
in Sections 5.1 and 5.2 above shall:
(a) Provide that it will not be cancelled, amended, or reduced
except after not less than ten (10) days' written notice to Owner and Manager;
(b) Provide that such insurance shall not be invalidated by any act
or negligence of Owner or Manager or any person or entity having an interest in
the Project, nor by any foreclosure or
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other proceedings or notices thereof relating to the Project, nor by any change
in title to or ownership of the Project; and
(c) Include a waiver of all rights of subrogation against Manager
and Owner, their officers, directors and shareholders, constituent partners,
employees, and agents.
Owner, with respect to the coverages required under Section 5.1, shall
deliver to Manager, and Manager, with respect to the coverages required under
Section 5.2, shall deliver to Owner, certificates of insurance evidencing the
existence of all insurance required to be maintained by Owner and Manager,
respectively, under Sections 5.1 and 5.2, such delivery to be made:
(a) Within ten (10) days after the execution and delivery of this
Agreement; and
(b) At least ten (10) days prior to the expiration date of any such
insurance policy.
5.4 Cooperation. Manager and Owner each shall furnish whatever information
is reasonably requested by the other for the purpose of establishing insurance
coverages.
5.5 Subcontractor's Insurance. Pursuant to the program of insurance for
the Project, Manager shall require that each Subcontractor maintain insurance at
the Subcontractor's expense, with such coverages and in such minimum amounts as
are called for by said program except that Manager may on behalf of itself and
Owner, in its sole discretion, waive any of the above requirements. Manager
shall obtain and keep on file a certificate of insurance which shows that the
Subcontractor is so insured, if required.
ARTICLE VI
BANK ACCOUNTS
6.1 Operating Account. Manager is authorized for and on behalf of Owner to
establish an operating account for the Project at a banking institution of its
choosing, provided it is located in the area in which the Project is located, to
deposit all Project Income therein, and to pay all Project Expenses therefrom.
Manager shall designate the authorized signatories on such account.
6.2 Owner's Obligation to Provide Funds. If at any time cash in the
operating account shall not be sufficient to pay expenses and the accrued
Payments to Manager, Manager shall not be obligated to pay such expenses from
its own account. Manager shall notify Owner as soon as practicable upon first
projection or awareness of a cash shortage or impending cash shortage, and Owner
shall determine payment priority. After Manager has paid, to the extent of cash
available in the operating account, all expenses based upon the ordered
priorities set by Owner, Manager shall submit to Owner
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a statement of all remaining unpaid expenses and accrued Payments to Manager.
Within five (5) business days after receiving such statement, Owner shall
provide sufficient monies to pay any unpaid expenses and all accrued Payments to
Manager. Such funds shall be provided to Manager within twenty-four (24) hours
of Owner's receipt of such statement and by wire transfer of funds if more than
$1,000 is due. If Owner has insufficient monies available to pay unpaid expenses
and/or accrued Payments to Manager, no obligation shall arise on the part of any
general partner of Owner to advance or otherwise provide such monies to Owner or
Manager.
6.3 Right to Collect Payments to Manager. To the extent funds are
available in the operating account, Manager shall be entitled to and is hereby
authorized to disburse to itself the accrued Payments to Manager, but not more
than once each calendar month. To the extent funds are not available in the
operating account to pay same, Owner agrees to pay Manager, within five (5)
business days after demand therefor, but not more than once each calendar month,
such sums as are necessary to discharge its liability to Manager therefore. Any
accrued Payments to Manager remaining unpaid after such five (5) day period
shall bear interest at the Interest Rate from the date due until paid. If
Manager collects payments due hereunder by an attorney-at-law, Owner hereby
agrees to pay all costs of collection, including reasonable attorneys' fee.
ARTICLE VII
MANAGEMENT FEE AND ADDITIONAL PAYMENTS
7.1 Amount of Management Fees. During the term of this Agreement, Owner
shall pay Manager in the manner provided below, management fees equal to six
percent (6.0%) of the Project Income during the year concerned ("Management
Fees").
7.2 Monthly Payments of Management Fees. The Management Fees shall be due
in advance on the first day of each month and be paid no later than the tenth
day of each month and shall be calculated by multiplying the number of patient
days in the preceding month, times the Project Income of the Project per patient
day for the Fiscal Year to date as shown on the most recent previously monthly
statement provided under Section 4.1(g) hereof, times six percent (6.0%).
7.3 Adjustment. Owner may request, not more than four times in any one
year period, an adjustment of the Management Fees for such period. After such a
request by Owner, within fifteen days after the preparation of the year-to-date
financial statements for the month in which the request was made, manager shall
pay to Owner or Owner shall pay to Manager such amount as is necessary to make
the amount of Management Fees paid with respect to such period covered by the
request equal to the amount of Management Fees shown to be due on the
year-to-date financial statements for such period.
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ARTICLE VIII
TERM
8.1 Term. This Agreement shall commence as of the date hereof and shall
thereafter continue for twenty (20) years and unless otherwise terminated
pursuant to the terms herein, shall be renewable for two (2) successive
additional terms of ten (10) years each at the option of Manager by Manager
giving written notice to Owner not later than three months prior to the end of
the original or extended term. All of the provisions of this Agreement shall
apply during the extended term(s).
8.2 Termination by Owner. This Agreement shall be terminated upon the
sale, foreclosure or other disposition of the Project (or any facility that is a
part of the Project), without cause or penalty upon sixty (60) days' prior
written notice by Owner to Manager. No termination by Owner permitted hereunder
shall affect or prejudice Manager's right to receive Payments to Manager from
Owner which accrue hereunder prior to the date of such termination or are
otherwise payable hereunder.
8.3 Termination Upon Events of Default. The following shall
constitute Events of Default:
(a) The filing of a voluntary petition in bankruptcy or insolvency
or a petition for reorganization under any bankruptcy law by either Owner or
Manager;
(b) The consent to an involuntary petition in bankruptcy or the
failure by either Owner or Manager to vacate within ninety (90) days from the
date of entry thereof any order approving an involuntary petition;
(c) The entering of an order, judgment, or decree by any court of
competent jurisdiction, on the application of a creditor, adjudicating either
Owner or Manager a bankrupt or insolvent or approving a petition seeking
reorganization or appointment of a receiver, trustee, or liquidator of all or a
substantial part of such party's assets, which order, judgment, or decree shall
continue unstayed and in effect for a period of one hundred twenty (120)
consecutive days;
(d) The failure or refusal of Owner to provide funds necessary to
pay Project Expenses, as and when provided for in this Agreement, and the
Payments to Manager, as and when provided for in this Agreement; provided,
however, that Manager shall have first delivered the notices relating to Owner's
obligation to provide such funds for payment of Project Expenses or Payments to
Manager as required by this Agreement; provided, further, that, as to Project
Expenses, Owner's failure to pay such expenses is of such materiality as to make
it reasonably impractical for Manager to fulfill its obligations hereunder
(which impracticality shall be
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presumed if the Project Expenses for which Owner has failed to advance funds
exceed, in the aggregate, $1,000.00), and the continuance of any such failure
for a period of five (5) days after written notice from Manager of the amounts
required and the purposes thereof;
(e) The failure or refusal of Manager to deposit, for collection, in
the Operating Account all Project Income within ten (10) business days of
receipt thereof by Manager;
(f) The failure of Owner or Manager to perform, keep, or fulfill any
of the covenants, undertakings, obligations, or conditions set forth in this
Agreement and the continuance of any such failure for a period of thirty (30)
days after written notice of said failure; provided, however, that if such
failure constitutes an Event of Default under subsections (b) or (e) above,
neither Owner or Manager shall be entitled to notice;
(g) Suspension of the license for the operation of the Project and
such suspension lasts more than one hundred twenty (120) days or is finally
revoked or terminated;
(h) The default by Owner under the Note or the Loan Documents; or
(i) The termination of this Agreement by Owner without the Lender's
prior written consent.
If any party hereto desires to terminate this Agreement as a result of any
such Event of Default by any other party hereto, a non-defaulting party shall
first deliver to the defaulting party notice (a "Final Notice") of its intention
to terminate this Agreement. After the expiration of a period of fifteen (15)
days from the date of such Final Notice, this Agreement shall terminate. If,
however, upon receipt of such Final Notice, the defaulting party shall cure the
default within said fifteen (15) day period (or, if the default is other than as
referred to in subsections (d), (e), (g) and (h) above, such longer period as is
reasonably necessary to remedy such default; provided, however, that the
defaulting party shall commence curative efforts as soon as reasonably
practicable and pursue such remedy with all diligence until such default is
cured), then this Agreement shall not terminate by reason of such Final Notice.
Notwithstanding the provisions of this paragraph, in no event shall any party be
obligated to deliver more than two (2) such Final Notices with regard to Events
of Default listed herein to any other party hereto within any consecutive twelve
(12) month period or one (1) Final Notice with regard to an Event of Default
substantially similar in nature to an Event of Default occurring within the
previous twelve (12) months, and upon the third (or second, as applicable) such
Event of Default by the other party hereto within such twelve (12) month period,
and after the notice provided above for such third (or second, as applicable)
Event of Default shall have been given and the curative period applicable
thereto shall have lapsed, then
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the non-defaulting party may terminate this Agreement without giving another
Final Notice.
Notwithstanding any other provisions of this Agreement, but without
otherwise affecting Manager's rights or remedies hereunder, Owner agrees that,
in the event Owner breaches this Agreement, by wrongfully terminating or
wrongfully purporting to terminate, in whole or in part, Manager's position as
Manager hereunder, Manager shall be entitled to the remedy of specific
performance in addition to an action for damages.
8.4 Effect of Termination. Upon termination of this Agreement,
Manager shall forthwith:
(a) Surrender and deliver up to Owner any and all Project Income and
security deposits on hand or in the operating account less the Payments to
Manager due Manager through the termination date, as provided in this Agreement;
(b) Deliver to Owner as received any monies due Owner under this
Agreement but received by Manager after such termination;
(c) Deliver to Owner, or its designee, all materials, supplies,
keys, contracts and documents, plans, specifications, promotional materials, and
such other accountings, papers, and records pertaining to this Agreement;
(d) At Owner's request, assign to Owner (without recourse to or
warranty by Manager) executed contracts relating to the operation and
maintenance of the Project;
(e) Deliver to Owner a final accounting of the Project prepared in
accordance with the provisions of Section 4.1(g) up to and including the date of
termination;
(f) Cease the performance of all services required to be performed
by Manager under this Agreement; and
(g) Cooperate reasonably with Owner to accomplish an orderly
transfer of the operation and management of the Project to the party designated
by Owner.
Upon termination of this Agreement for any reason, any right of Manager to
receive Payments to Manager which accrue under the terms of this Agreement,
prior to such termination, but which are payable after the date of such
termination, shall survive such termination and continue in force and effect,
and Owner shall be obligated to make such Payments to Manager in the amounts and
at the times provided for in this Agreement, subject to offset by the amount of
any debt of Manager to Owner or claims of Owner against Manager if such claims
are evidenced by or provided under any final judgments held by Owner against
Manager.
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8.5 Payment Upon Termination. Upon termination of this Agreement for any
reason other than the sale, foreclosure or other disposition of the Project,
Owner shall pay to Manager a termination fee equal to twelve months Management
Fees based on the Management Fees for the twelve months prior to the termination
date, in addition to any other amounts owed to Manager pursuant to the terms of
this Agreement.
ARTICLE IX
CASUALTY: CONDEMNATION
9.1 Total or Substantial Destruction. If the Project or any portion
thereof shall be damaged or destroyed at any time or times during the term of
this Agreement by fire, casualty, or any other cause which renders the Project
totally or substantially inoperative for its intended purpose, and Owner does
not notify Manager within three (3) months following the occurrence of such
damage or destruction that Owner intends to rebuild or replace the same to
substantially its former condition prior to such damage or destruction, this
Agreement shall terminate as of the date of the damage or destruction, with each
party's rights accruing through such date. If Owner notifies Manager within
three (3) months following the occurrence of such damage or destruction that
Owner intends to rebuild or replace the Project and does rebuild or replace the
Project within a reasonable time, this Agreement shall continue in full force
and effect except that the term hereof shall be extended for the period of time
equal to that period during which the Project is inoperative.
For purposes of this Agreement, total destruction or damage "which renders
the Project totally or substantially inoperative for its intended purpose" shall
mean damage or destruction which, according to an engineer selected by Owner and
Manager (each party agreeing to cooperate reasonably in such selection), could
not reasonably be expected to be repaired or restored within twelve (12) months
after the occurrence of such damage or destruction, so that at such time the
Project will be restored substantially to the condition in which it existed
prior to such damage or destruction, with services and amenities substantially
equivalent to those which existed prior to such damage or destruction.
9.2 Partial Damage or Destruction. If the Project is damaged or partially
destroyed in such a manner as to not totally or substantially render the Project
inoperative for its intended purpose,(as defined in Section 9.1 above), this
Agreement shall remain in force and effect as to that portion of the Project not
so damaged or destroyed, with an appropriate abatement in the services to be
performed by Manager as to such damaged or destroyed portion, except that if
Owner does not notify Manager within three (3) months following the occurrence
of such damage or destruction that Owner intends to repair or replace the
portion of the Project which was damaged or destroyed, Manager shall have the
option, upon
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thirty (30) days' notice to Owner, to terminate this Agreement, such termination
to be effective upon the expiration of said thirty (30) day period, and
thereafter Manager will have no claim against Owner (except as provided in
Section 8.4 hereof) arising from such failure to rebuild and such termination.
9.3 Condemnation. If the whole or substantially all of the Project shall
be condemned or taken in any manner for any public or quasi-public use under any
statute or by right of eminent domain, then this Agreement shall terminate as of
the date of vesting of title thereto in the condemning authority, with each
party's rights accruing through such date. If a part of the Project is so taken
or condemned, and if such taking shall substantially affect the Project or if
such taking shall be of a substantial part of the Project, Manager shall have
the right, by delivery of notice to Owner within sixty (60) days after such
taking, to terminate this Agreement as of the date of the vesting of title
thereto in the condemning authority, with each party's rights accruing through
such date. If Manager shall not so elect, this Agreement shall be and remain
unaffected by such taking, except that, effective as of the date of such taking,
appropriate abatement shall be made in the services to be performed by Manager
as to such taken area of the Project.
For purposes of this Agreement, the condemnation or taking of the "whole
or substantially all of the Project" shall mean the condemnation or taking (or
conveyance in lieu thereof) of a material portion of the Project, such that the
Project ceases to be a first-class nursing home, or ceases to have adequate
available parking or access, or ceases to have services and amenities
substantially similar to those which existed immediately prior to such
condemnation or taking (or conveyance in lieu thereof).
ARTICLE X
MISCELLANEOUS
10.1 Delegation: Assignment.
(a) Manager shall have the right to delegate its responsibilities
under this Agreement to employees or agents of Manager or to engage
Subcontractors for performance of all or any part of the services to be provided
hereunder; provided, however, that Manager shall at all times supervise the
performance of Manager's duties and obligations hereunder. Additionally, Manager
shall have the right, without obtaining owner's consent, to assign this
Agreement to an affiliate of Manager. Otherwise Manager shall not, without
Owner's prior approval (which may be given or denied in Owner's sole
discretion), assign any of its rights, other than its right to receive the
Payments to Manager (which Manager may freely transfer or encumber) or its
obligations under this Agreement, whether by operation of law or otherwise.
Except as expressly provided in this Agreement to the contrary, no assignment
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or delegation of responsibilities by Manager shall relieve Manager of any of its
duties or responsibilities under this Agreement.
(b) For the term hereof, this Agreement and the rights and
obligations of Owner hereunder shall constitute a covenant running with the
title to the Project for so long as Owner holds title to the Project, and this
Agreement shall remain in full force and effect between Owner and Manager, and
Manager's successors and permitted assigns, in accordance with all of its terms
and provisions.
Notwithstanding the provisions of this paragraph, upon a sale, conveyance,
transfer, or other disposition of the Facility by Owner to any person, the
rights and obligations of Owner hereunder shall not constitute a covenant
running with the title to the Project and thus shall not be an obligation if any
such unaffiliated purchaser terminates or refuses to honor this Agreement. If
such termination or refusal is not as a result of an Event of Default hereunder
by Manager, then such termination or refusal to honor this Agreement shall
constitute and be deemed to be an Event of Default hereunder by Owner (following
any notice and curative period herein provided) and a wrongful termination of
this Agreement by owner for purposes of this Agreement, but Manager's remedies
under this Agreement shall be an action for damages against Owner and all other
parties who may have expressly assumed Owner's rights, duties, and obligations
hereunder, if any.
(c) If any person or entity other than owner succeeds or attempts to
succeed to title of the Nursing Home, Manager shall have the option to terminate
this Agreement upon ten (10) days' notice to the then Owner of the Facility. If
Manager does not so terminate within ninety (90) days following actual notice to
manager of the transfer of title to the Facility from Owner, this Agreement
shall remain in full force and effect.
10.2 Notices.
(a) All notices, directives, or demands required or contemplated by
this Agreement shall be in writing and shall be delivered by hand, transmitted
by cable, telegram or telecopy (receipt confirmed), sent by registered or
certified mail, return receipt requested, postage prepaid, or by overnight
courier service (and overnight courier shall be used when the circumstances
merit expedient delivery), addressed, in the case of Owner, to 7000 Central
Parkway, Suite 970, Atlanta, Georgia 30328, Attention: Jere M. Ervin, and
addressed, in the case of Manager, to 7000 Central Parkway, Suite 970, Atlanta,
Georgia 30328, Attention: J. Stephen Eaton, or to such other address or
addresses as shall, from time to time, be designated by notice by any party to
the other parties. Notices given in compliance with the foregoing provisions by
registered or certified mail shall be effective on the date shown on the return
receipt thereon as the date of delivery or attempted delivery, notices sent by
overnight courier shall be effective on the date shown on the courier's receipt
therefor as the date of
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delivery, and notices delivered by hand, transmitted by cable, telegram or
telecopy (receipt confirmed) shall be effective when so delivered or sent.
(b) Upon notification from Owner or any person or entity designated
as Owner's agent hereunder for all purposes (which agent must be an affiliate of
Owner), Manager agrees to forward all information, reports, and notices provided
for hereunder to be delivered to Owner or such designated agent, and Owner or
such agent shall be Owner's agent for all purposes under this Agreement until
Owner shall designate to Manager a replacement agent for Owner hereunder or
shall deliver notice of termination of such agency.
10.3 Entire Agreement. This Agreement shall constitute the entire
agreement between the parties hereto and shall supersede all other prior
agreements, written or oral, between the parties hereto and relating to the
Project. No modification hereof shall be effective unless made by supplemental
agreement in writing executed by the parties hereto.
10.4 Nature of Contract. Neither the relationships between Owner and
Manager nor anything contained in this Agreement shall be deemed to constitute a
partnership, joint venture, or any other similar relationship, and Manager shall
at all times be deemed an independent contractor for purposes of this Agreement.
10.5 Governing Law. This Agreement is made pursuant to, and shall be
governed by and construed and enforced in accordance with, the laws applicable
to contracts made and to be performed in the state of Georgia.
10.6 No Waiver: Cumulative Remedies. The failure of Owner or Manager to
seek redress for violation or to insist upon the strict performance of any
covenant, agreement, provision, or condition of this Agreement shall not
constitute a waiver of the terms of such covenant, agreement, provision, or
condition, and Owner and Manager shall have all remedies provided herein and by
applicable law with respect to any subsequent act which would have originally
constituted a violation.
10.7 Maintenance of Existence. Manager agrees to maintain its existence as
a Georgia corporation qualified to do business in New Mexico and, during the
time that it serves as manager under the terms of this Agreement, will not
dissolve, liquidate, sell, lease, transfer or otherwise dispose of all or
substantially all of its assets (in a single transaction or a series of
transactions).
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
OWNER: INTERNATIONAL HEALTH CARE
PROPERTIES VII & VIII, L.P.
By: /s/ Jere M. Ervin
-------------------------------------
Jere M. Ervin, General Partner
MANAGER: WELCARE INTERNATIONAL MANAGEMENT
CORPORATION
By: /s/ J. Stephen Eaton
-------------------------------------
J. Stephen Eaton, President
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SCHEDULE 10.30
CHMC has entered into an agreement substantially identical to Exhibit
10.30 as follows:
1. Management Agreement dated August 1, 1991 with International Health
Care Properties VI, L.P. ("IHCP") for Albuquerque, New Mexico facility. A
material detail in which this agreement differs from Exhibit 10.30 is that the
management fees under this agreement are subordinated to the monthly payments by
IHCP to SouthTrust Bank of Alabama pursuant to the Promissory Note dated August
22, 1991 in the original principal amount of $2,403,178.12.
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EXHIBIT 10.31
<PAGE>
MANAGEMENT AGREEMENT
MANAGEMENT AGREEMENT dated this 1st day of January, 1992, by and between
WELCARE INTERNATIONAL MANAGEMENT CORPORATION, ("WelCare"), a Georgia
corporation, and CONSOLIDATED RESOURCES HEALTH CARE FUND VI, a Georgia limited
partnership ("Owner").
W I T N E S S E T H:
WHEREAS, WelCare is engaged in providing nursing home management and
technical services to nursing homes throughout the United States and desires to
provide such services to Owner by this Agreement; and
WHEREAS, Owner owns a 118 bed nursing home in Camp Point, Illinois,
hereinafter sometimes referred to as the "Facility";
WHEREAS, Owner has investigated various alternative arrangements
respecting the management of the nursing home and has concluded that the
alternative of employing WelCare is most desirable considering both cost and
quality of service; and
WHEREAS, owner desires to employ WelCare by this Agreement, to manage the
nursing home; and
WHEREAS, it is the joint goal of WelCare and Owner to:
(a) operate the nursing home on a sound financial basis;
(b) provide high quality of services to residents of the nursing home;
(c) establish an excellent public image for the nursing home;
(d) establish high quality staffing of the nursing home;
(e) institute sound financial accounting systems;
(f) institute internal controls through budgeting procedures;
(g) prevent loss of revenues through sound billing procedures;
(h) control the cash position of the nursing home through sound collection
methods; and
(i) take such other steps as are necessary to provide high quality health
care to the residents of the nursing home.
<PAGE>
NOW, THEREFORE, in consideration of their mutual covenants herein
contained, Owner does hereby employ WelCare to perform the duties and to provide
the services hereinafter described and WelCare does hereby accept such
employment on the terms and conditions hereinafter set out.
SECTION ONE: RETENTION OF AUTHORITY BY OWNER
1.1 Control Retained in Board. Owner, acting through its general partners,
shall at all times exercise control over the assets and operation of the nursing
home and WelCare shall perform the duties herein required to be performed by it
as the agent of Owner and in accordance with the reasonable policies and
directives of Owner.
1.2 Methods of Operation. WelCare shall make substantial changes in the
method of operating the nursing home only after timely notification to, and with
the consent of Owner. Changes made to conform to governmental laws, regulations
and ordinances shall not be deemed "substantial" for the purposes of this
agreement.
1.3 Reports. WelCare shall cause to be presented to Owner monthly reports
on the financial condition of the nursing home and steps being taken to
implement this Agreement, periodic written progress reports summarizing
WelCare's management decisions and the results thereof, and such other reports
as WelCare shall deem appropriate to keep Owner informed as to the status and
condition of the nursing home.
1.4 General Management. Subject to the foregoing, Owner hereby delegates
to WelCare the general authority to supervise and manage the day-to-day
operations of the nursing home and to perform the specific duties hereinafter
set out.
SECTION TWO: MANAGEMENT OF THE NURSING HOME
2.1 Executive Operating Committee. To assure adequate liaison between
Owner and WelCare, WelCare shall create an Executive Operating Committee which
shall consist of (1) a member of the WelCare Staff, (2) the Administrator of the
nursing home, and (3) a representative of Owner to be selected by Owner. The
Executive Operating Committee shall meet at least quarterly, keep minutes of its
proceedings, and shall have the following duties:
(a) To see that the highest medical, ethical and professional standards
are maintained within the nursing home.
(b) To see that all residents admitted to the nursing home receive the
best possible patient care.
(c) To see that all federal, state and local regulations are met or
exceeded, in the name of and on behalf of the Owner.
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(d) To act in an advisory capacity in the overall operation of the nursing
home.
2.2 Maintenance of Standards.
2.21 Standard of Health Care. WelCare shall endeavor to perform all
of the duties herein required of it in such manner as to assure that the nursing
home meets as high a standard of health care as is consistent with the policies
adopted by Owner and the resources available to the nursing home.
2.22 Quality Controls. WelCare shall activate and maintain, on a
continuing basis, its Quality Assurance Program to provide objective
measurements of the quality of health care provided by the nursing home and in
connection therewith shall utilize such techniques as patient questionnaires and
interviews, physician questionnaires and interviews, and survey inspections.
2.23 Staff Specialists. In addition to the other managerial services
provided for herein, WelCare shall make available to the nursing home for
consultation and advice its staff specialists in such fields as accounting,
auditing, budgeting, dietary services, environmental control, food management,
maintenance, nursing, personnel, pharmacy operations, public relations,
purchasing, quality assurance, systems and procedures and third party
reimbursement.
2.24 Government Regulations. WelCare shall, at the Facility's
expense, cause all things to be done in and about the nursing home necessary to
comply with the requirements of any statute, ordinance, law, rule, regulation or
order of any governmental or regulatory body having jurisdiction in the
premises, respecting the use of the nursing home, maintenance, or operation
thereof, and with all orders and requirements of the local Board of Fire
Underwriters or any other body which may hereafter exercise similar functions.
2.25 Licenses and Permits. WelCare shall apply for, obtain and
maintain, in the name of and at the expense of Owner, all licenses and permits
required in connection with the management and operation of the nursing home.
2.26 Rights of Residents. WelCare shall exercise reasonable care not
to release medical records of residents to unauthorized persons, and if the
nursing home receives a subpoena for the production of the medical records of a
patient, WelCare shall see that the resident is promptly informed of that fact.
2.27 Resident Services. Prior to instituting any change in the scope
or level of services offered by the nursing home, WelCare shall inform and
obtain the approval of Owner.
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2.3 Fiscal Matters.
2.31 Preparation and Acceptance of Annual Budget. WelCare shall
supervise preparation of an annual budget conforming to Medicare/Medicaid
regulations which sets out anticipated income, expenses and capital expenditures
and shall cause the budget to be presented to Owner 30 days prior to the
commencement of each fiscal year for its acceptance, rejection, or modification.
Upon acceptance of such budget, or any modification thereof, by Owner, duly
recorded in minutes of the Executive Operating Committee, such budget shall
serve as a guide for the financial operation of the nursing home during the
ensuing year.
2.32 Accounting Records. WelCare shall establish, supervise, direct
and maintain the operation of a suitable nursing home accounting system and
shall cause to be prepared and delivered to Owner financial statements as
follows:
(a) On or before thirty (30) days after the close of each month, a
statement of income and expenses showing the results of the operation of the
nursing home for the preceding month and of the fiscal year to date.
(b) On or before one hundred twenty (120) days after the close of each
fiscal year, a balance sheet, related statement of income showing the results of
the operation of the nursing home during said fiscal year, and statement of
changes in financial position which, if requested by Owner, shall be certified
by an independent certified public accounting firm to be selected by Owner, and
having annexed thereto a computation of the Management Fees for such twelve
month period. Fees of the independent public accounting firm shall be borne by
the Facility.
2.33 Deposit and Disbursement of Funds. WelCare, in the Facility's
name and as agent for Owner, shall deposit in a nursing home bank account all
receipts and monies arising from the operation of the Facility and shall
disburse and pay all costs and expenses of the Facility, inclusive of Management
Fees and other charges payable to WelCare under this Agreement, from said
accounts on behalf and in the name of the Facility and Owner, in such amounts
and at such times as shall be appropriate or necessary. WelCare shall specify
the identity of signatories to nursing home bank accounts and the number of
signatures required for checks of various amounts.
2.34 Collection of Accounts. WelCare shall supervise and direct the
collection of all accounts due the Facility and shall take all reasonable steps
necessary to minimize the amount of bad debts.
2.35 Legal Actions. WelCare shall, with approval of Owner, institute
in the name and at the expense of Owner, any and all legal actions or
proceedings necessary to collect charges,
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rent or other income due the nursing home or to oust or dispossess tenants or
other persons unlawfully in possession under any lease, license or concession
agreement, and to collect damages for the breach thereof or default thereunder
by the tenant or licensee or concessionaire.
2.36 Rates. WelCare and Owner recognize the importance of
maintaining room and other rates which enable the Facility to pay its
obligations but minimize the cost of health care. From time to time, WelCare
will recommend to Owner, for approval, rate structures which take into account
the financial obligations of the Facility and the level of rates at other
comparable nursing homes nearby and the importance of providing quality health
care at minimal cost.
2.37 Insurance. The establishment and maintenance of insurance
coverage of the Facility and its operations, against all hazards, shall be the
responsibility of Owner, but WelCare shall, at Owner's request, arrange for the
design and installation of an appropriate insurance program for the Facility.
WelCare shall incur no liability for the omission or inadequacy of any insurance
coverage. Upon the request of Owner, WelCare shall furnish evidence of a
fidelity bond in the amount of $50,000 insuring Owner against defalcation by any
of WelCare employees in the handling of Owner funds hereunder. WelCare shall
also furnish evidence of professional lability insurance coverage in an amount
not less than $1,000,000.
2.38 Working Capital. The Owner shall provide working capital for
the Facility. WelCare shall render such counsel to the Owner as WelCare in its
discretion shall deem appropriate to assist Owner in securing working capital
loans for the Facility.
2.4 Contracts and Purchases.
2.41 Food and Supplies. WelCare shall purchase such food, beverages,
equipment, operating supplies and other materials and supplies in the name of
Owner and for the account of the Facility as may be needed from time to time for
the maintenance of the Facility.
2.42 Prices. In order to minimize the cost of supplies and services
to the Facility, WelCare shall offer to Owner participation in such of WelCare
national purchasing contracts as may be appropriate.
2.43 Certain Agreements. WelCare shall, in the name of and for the
account of Owner, negotiate and enter into such term agreements as it may deem
necessary or advisable, for the furnishing of services, concessions and supplies
for the maintenance and operation of the Facility. WelCare will obtain the
approval of Owner prior to entering into any such agreement involving an initial
expenditure of more than $2,000 by the nursing home.
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2.44 Repairs and Renewals. WelCare shall, with approval of Owner, in
the name of and for the account of Owner, negotiate, contract for and supervise
such repair and renewal of the physical property and equipment of the nursing
home as shall be necessary to keep and maintain the same in good working order
and condition. WelCare will obtain the approval of Owner prior to commencing an
repair or renewal involving more than $5,000.00.
2.45 Capital Improvements. WelCare shall, in the name of and for the
account of Owner, negotiate and contract for and supervise the installation of
all capital improvements related to the operation of the nursing home at its
present site, including the leasing of equipment, for which provision is made in
the budget. In the event Owner desires to undertake a major expansion of the
nursing home in the future, WelCare will make a presentation to Owner concerning
an appropriate Development Agreement relating thereto.
2.5 Employees.
2.51 General. Except as hereinafter specifically provided, WelCare
shall have direct responsibility for recruiting, hiring, training, promoting,
assigning and discharging all operating and service personnel necessary for the
proper operation and maintenance of the Facility. All such employees shall be
employees of the Facility and Owner and shall not be employees of WelCare.
2.52 Employee Identification. Notwithstanding the fact that
employees are employees of Owner, WelCare shall utilize its own "Employee
Handbook" in the facility. The purpose is to:
1) Unify employees.
2) Provide identification with the management.
3) Utilize experience for the management company in establishing policies,
work rules, employee benefits, etc.
2.53 Employee Benefits. WelCare shall establish appropriate employee
benefits for the employees of Owner under the management of WelCare and at the
cost of the Facility and Owner. These benefits shall be described in the WelCare
Employee Handbook.
2.54 Pay Scales. WelCare shall be responsible for general changes in
the pay scale paid employees, both throughout the nursing home or within one or
more selected classifications.
2.55 Special Employees. WelCare shall provide the nursing home with
a qualified licensed Administrator acceptable to Owner. The nursing home
Administrator shall be an employee of and compensated by WelCare, but WelCare
shall be reimbursed monthly by Owner, for all compensation inclusive of salary,
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fringe benefits, bonus and approved reimbursable business expenses paid to such
administrator, such amount, except for expenses which shall be charged in
arrears, being due and payable in advance on the 5th day of each month. Fringe
benefits shall include the employer's contribution to F.I.C.A., unemployment
compensation, and other employment taxes, bonuses, workman's compensation, group
life and accident and health insurance premiums, disability coverage, and other
benefits.
2.7 Operational Plan and Reports.
2.71 Operational Plan. Not applicable.
2.72 Occupancy Plan. Not applicable.
2.73 Financial Plan. Not applicable.
2.74 Staffing Plan. Not applicable.
2.75 Public Relations Plan. WelCare shall have direct responsibility
for maintaining satisfactory public relations between the facility and the
community. All costs incurred for items relating to the Public Relations Plan
shall be expenses of the Facility. Programs shall include, but not be limited
to:
A. Pre-Opening Phase - Not applicable.
B. Post-Opening Phase
1) Establish working relationship with local media.
2) Provide local media a minimum of one release per month.
3) Provide speaker and program services to local area community and
civic organizations.
4) Create an active volunteer organization.
5) Host at least one event each year to which the general public is
invited.
2.76 Management Reports and Meetings. WelCare shall, through the
Executive Operating Committee and WelCare staff members when appropriate, render
periodic management reports to and hold periodic meetings with Owner. These
services shall include:
A. Reports
1) Weekly
a) Census and statistical report
b) Cash position report
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2) Monthly
a) Administrator's report to management
b) Regional Manager's report on facility
c) Financial statements
3) Quarterly
a) Management evaluation
4) Annually
a) Audited financial statements
b) Certified Medicaid cost report
B. Meetings
1) Weekly
WelCare's staff and Administrator
2) Monthly
Administrator and Facility Staff
3) Quarterly
a) WelCare staff and owner
b) WelCare staff and administrative group
2.77 Agreement of Parties to Operational Plan. WelCare and Owner
shall mutually agree to the Operational Plan set forth in Section 2.7. Upon
agreement duly recorded in the minutes of the executive committee, the Plan
shall become the operational guide for the facility.
2.78 Facility Identification. Not applicable.
SECTION THREE: MANAGEMENT FEES AND ADDITIONAL PAYMENTS
3.1 Amount. During each of the first five (5) years of this agreement,
Owner shall pay to WelCare in the manner as provided below, Management Fees
equal to 6% of the "Net Revenue" derived from the operation of the Facility
during the year concerned. In each year thereafter, Owner shall pay to WelCare
Management Fees equal to 6% of the "Net Revenue" derived from the operation of
the Facility. The term "Net Revenue" shall mean the gross revenue from
operations, less contractual adjustments determined on an accrual basis, in
accordance with general accepted accounting principles as applied to the nursing
home industry.
3.2 Monthly Payments. The Management Fee shall be due in advance on the
first day, and be paid no later than the tenth day of each month, and shall be
calculated by multiplying the number of patient days in the preceding month,
times the Net Revenues of the nursing home per patient day for the fiscal year
to date as
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shown on the most recent previous monthly statement of income and expense
provided under Section 2.32(a) hereof, times 6%.
3.3 Annual Adjustment. Within fifteen (15) days after delivery of the
audited annual financial statements of the nursing home, Owner shall pay to
WelCare or WelCare shall pay to Owner such amount as is necessary to make the
amount of said fees paid with respect to the year equal to the amount of
Management Fees shown to be due by the annual audit provided in Section 2.32(b)
hereof.
3.4 Additional Payments For Services; Preoperational Fee. Not applicable.
SECTION FOUR: MISCELLANEOUS
4.1 Term. The term of this Agreement shall commence on January 1, 1992
and, unless sooner terminated in accordance with the provisions of paragraph 4.2
below, shall extend for 5 years thereafter, and shall be renewable for 2
successive additional terms of 5 years each at the option of WelCare. Unless
WelCare shall give to Owner, at least ninety (90) days prior to the expiration
of the preceding term, notice of its election not to renew this Agreement for an
additional term, this Agreement shall be deemed to be automatically renewed.
4.2 Termination. Either party may terminate this Agreement at any time
without penalty upon sixty days written notice to the other party.
4.3 Status of Employees After Termination. For the one year period
commencing with the date of the termination or expiration of the term hereof
pursuant to Section 4.2, Owner shall not employ or engage, directly or
indirectly, any employee of WelCare of its affiliates, including, but not
limited to the Nursing Home Administrator, without the approval of WelCare,
provided Owner may re-employ persons who were employed by Owner on the date
hereof.
4.4 Notices. Any notice or other communications by either party to the
other shall be in writing and shall be delivered personally or mailed, postage
prepaid, via registered or certified mail, to the addresses shown below:
TO: Owner TO: WelCare
7000 Parkway Center 7000 Parkway Center
Suite 970 Suite 970
Atlanta, Georgia 30328 Atlanta, Georgia 30328
Attn: J. Stephen Eaton Attn: J. Stephen Eaton
or to such other address, and to the attention of such other person or officer,
as either party may designate in writing hereunder.
9
<PAGE>
4.5 Modification and Changes. This Agreement cannot be changed or modified
except by instrument in writing executed by both parties.
4.6 Assignment by WelCare. WelCare shall have the right to assign this
Agreement to an affiliate or a wholly or majority owned subsidiary.
4.7 Headings. The headings contained herein are for convenience of
reference only and are not intended to define, limit or describe the scope or
intent of any provision of this Agreement.
4.8 Governing Law. This Agreement shall be deemed to have been made and
shall be construed and interpreted in accordance with the laws of the State of
Georgia.
4.9 Access to Books and Records. This provision shall only apply if:
(1) this contract and the services furnished pursuant to it are within the
terms of Section 952 of the Omnibus Reconciliation Act of 1980, as defined in
implementing regulations issued by the Department of Health and Human Services
(HHS), and (2) the value or cost of this contract equals $10,000 or more over a
twelve month period.
If the above conditions are met, WelCare agrees that, until the expiration of
four years after the furnishing of services pursuant to this contract, it shall,
upon written request, make available to the Secretary of the Department of HHS
or the Secretary's duly authorized representatives, or upon request to the
Comptroller General or the Comptroller General's duly authorized
representatives, the contract and such books, documents and records that are
necessary to certify the nature and extent of costs under this contract. The
availability of WelCare's books, documents and records shall be subject at all
times to such criteria and procedures for seeking or obtaining access as may be
promulgated by the Secretary of HHS in regulations, and other applicable laws.
WelCare's disclosure under this paragraph shall not be construed as a waiver of
any other legal rights to which WelCare may be entitled under law or
regulations.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement, as of the date first above written.
CONSOLIDATED RESOURCES HEALTH CARE
FUND VI
By: Consolidated Resources VI,
Inc., Its General Partner
By: /s/ J. Stephen Eaton
-------------------------------------
J. Stephen Eaton, President
WELCARE INTERNATIONAL MANAGEMENT
CORPORATION
By: /s/ J. Stephen Eaton
-------------------------------------
J. Stephen Eaton, President
11
<PAGE>
STATE OF GEORGIA
COUNTY OF FULTON
Before me, Sondra M. Hicks, a Notary Public in and for the State and
County aforesaid, personally appeared J. Stephen Eaton, with whom I am
personally acquainted, and who upon oath acknowledged himself to be President of
Consolidated Resources VI, Inc., the general partner of Consolidated Resources
Health Care Fund VI, the within named bargainor, a Georgia limited partnership,
and that he as such President, being authorized so to do, executed the foregoing
instrument for the purposes therein contained by signing the name of the general
partner of the limited partnership by said J. Stephen Eaton, as such President.
WITNESS my hand and seal at Atlanta, Georgia this 1 day of May , 1992.
/s/ Sondra M. Hicks
-----------------------------------------
NOTARY PUBLIC
My Commission Expires:
7-30-95
STATE OF GEORGIA
COUNTY OF FULTON
Before me, Sondra M. Hicks, a Notary Public in and for the State and
County aforesaid, personally appeared J. Stephen Eaton, with whom I am
personally acquainted, and who upon oath acknowledged himself to be President of
WelCare International Management Corporation, the within named bargainor, a
Georgia corporation, and that he as such President, being authorized so to do,
executed the foregoing instrument for the purposes therein contained by signing
the name of the corporation by said J. Stephen Eaton, as such President.
WITNESS my hand and seal at Atlanta, Georgia this 1 , day of May , 1992.
/s/ Sondra M. Hicks
-----------------------------------------
NOTARY PUBLIC
My Commission Expires:
7-30-95
12
<PAGE>
SCHEDULE 10.31
CHMC has entered into agreements substantially identical to Exhibit 10.31
as follows:
1. Management Agreement dated March 20, 1992 with River Hills South
Investors, L.P. for Milwaukee, Wisconsin facility.
2. Management Agreement dated July 1, 1992 with Consolidated Resources
Health Care Fund VI for Shreveport, Louisiana facility. Material details in
which this agreement differs from Exhibit 10.31 are that this agreement
terminates on July 1, 2012, and this agreement has no renewal provisions.
3. Management Agreement dated October 1, 1993 with Consolidated Resources
Health Care Fund IV for Hoisington, Kansas facility. Material details in which
this agreement differs from Exhibit 10.31 are that this agreement terminates on
October 1, 2013, and this agreement has no renewal provisions.
4. Management Agreement dated September 1, 1991 with Consolidated
Resources Health Care Fund IV for Emporia, Kansas facility.
13
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EXHIBIT 10.32
<PAGE>
LONG TERM CARE FACILITY
MANAGEMENT AGREEMENT
(THS OF CLARK COUNTY)
THIS MANAGEMENT AGREEMENT (the "Agreement") made as of the 1st day of
January, 1996, by and between Transitional Health Partners d/b/a Transitional
Health Services, a Delaware general partnership ("Lessee"), and WelCare
International Management Corporation, a Georgia corporation ("Manager").
W I T N E S S E T H:
WHEREAS, Lessee presently leases certain real and personal property
comprising a certain nursing home facility commonly known as THS of Clark
County, located in Clark County, Indiana (the "Facility"), pursuant to that
certain Operating Lease dated as of August 8, 1990, as amended by that certain
Amendment to Operating Lease dated November 1, 1993, and by that certain Second
Amendment to Operating Lease dated as of April 1, 1994, and by that certain
Third Amendment to Operating Lease dated as of June 29, 1994, and by that
certain Fourth Amendment to Operating Lease dated as of March 31, 1995, between
Health Care Property Investors, Inc. and Lessee by assignment from HRO
Acquisition Corporation (the "Lease"); and
WHEREAS, Lessee desires to retain Manager under the terms of this
Agreement to provide its experience, skill and supervision to manage the
Facility on behalf of Lessee; and
WHEREAS, Manager desires to perform the management services on behalf of
Lessee under and subject to the terms of this Agreement.
NOW, THEREFORE, in consideration of ten dollars ($10.00) in hand paid, the
premises and mutual promises and covenants of the parties contained herein and
other good and valuable consideration, the receipt, adequacy and sufficiency of
which is hereby acknowledged, the parties hereby agree as follows:
ARTICLE I
MANAGEMENT DUTIES AND OBLIGATIONS
1.01 Control Retained by Lessee. Lessee shall at all times exercise
overall control over the assets and operations of the Facility, and Manager
shall perform the duties herein required to be performed by it as the agent of
Lessee and in accordance with the policies and directives from time to time
adopted by Lessee.
1.02 Changes in Method of Operation. Manager shall make substantial
changes in the method of operating the Facility only after timely notification
to and approval from Lessee which approval shall not be unreasonably withheld.
1.03 Management of Facility. During the term of this Agreement, Manager
shall on behalf of Lessee manage all aspects of the operation of the Facility,
including, but not limited to staffing, accounting, billing, collections,
setting of rates and charges and general
<PAGE>
administration. In connection therewith, Manager (either directly or through
supervision of employees of the Facility) shall:
(a) Establish, maintain, revise and administer an overall pricing
structure for services rendered in the Facility, including, without limitation,
patient room charges, charges for all ancillary services, charges for supplies,
medication and special services.
(b) Hire on behalf of Lessee and retain (to the extent such
personnel are reasonably available in the community in which the Facility is
located) an adequate staff of nurses, technicians, nurse aides, office and other
employees, including a qualified administrator (the "Administrator") and
promote, direct, assign and discharge all such employees at Manager's sole
discretion. All employees shall be employees of Lessee and carried on the
payroll of the Facility and shall not be deemed employees or agents of Manager.
(c) Institute and amend, from time to time, general salary scales,
personnel policies and appropriate employee benefits for all employees. Employee
benefits may include pension and profit sharing plans, insurance benefits,
incentive plans for key employees and holiday, vacation, personal leave and sick
leave policies.
(d) Issue appropriate bills for services and materials furnished by
the Facility and use its reasonable best efforts to collect accounts receivable
and monies owed to the Facility, design and maintain accounting, billing,
patient and collection records; and prepare and file insurance, Medicare,
Medicaid and any and all other necessary or desirable reports and claims related
to revenue production. Lessee hereby grants Manager the right to enforce
Lessee's rights as creditor under any contract or in connection with rendering
any services for purposes of collecting accounts receivable and monies owed the
Facility.
(e) Order, supervise and conduct a program of regular maintenance
and repair.
(f) Purchase food, beverage, medical, cleaning and other supplies,
equipment, furniture and furnishings for the account of Lessee.
(g) Administer, supervise and schedule all patient and other
services of the Facility, including the operation of food, barber/beautician and
other ancillary services.
(h) Provide for the orderly payment (to the extent funds of Lessee
are available therefor) of accounts payable, employee payroll, amounts due on
short and long-term indebtedness, taxes, insurance premiums, and all other
obligations of the Facility.
(i) Institute standards and procedures for admitting patients, for
charging patients for services, and for collecting the charges from the patients
or third parties.
(j) Obtain and maintain insurance coverage for the Facility naming
Lessee, Manager and such other persons requested by Lessee as insureds as
provided in Section 4.01 hereof.
(k) Negotiate and enter into such agreements, contracts and orders
as Manager may deem necessary or advisable, for the furnishing of services,
concessions and supplies for the operation and maintenance of the Facility.
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<PAGE>
(l) Negotiate on behalf of Lessee (and in conjunction with Lessee's
counsel) with any labor union lawfully entitled to represent employees of Lessee
who work at the Facility, but any collective bargaining agreement or labor
contract must be submitted to Lessee for its approval and execution.
(m) Assist in maintaining all licenses and permits required for the
operation of the Facility, its contracts with third party payors and other
similar governmental and non-governmental agencies and intermediaries.
(n) Make periodic evaluations of the performances of all departments
of the Facility.
(o) Design, establish and maintain a suitable accounting system
using accounts and classifications consistent with those used in similar
facilities.
(p) Advise and assist Lessee in designing an adequate and
appropriate public relations program.
(q) Acquire at Manager's expense all items required to properly
equip and operate the Facility which are not provided by Lessee, which items
shall remain the property of Manager regardless of whether or not such items are
or become attached to real property or constitute fixtures.
(r) Engage counsel and cause such legal proceedings to be instituted
as may be necessary in Manager's reasonable determination to enforce payment of
charges, collect accounts receivable, or enforce compliance with other terms of
residency agreements, or to dispossess residents and patients, with full
authority to compromise disputes with residents and patients involving setoffs
or damage claims.
1.04 Reports to Lessee.
(a) Manager shall prepare and deliver to Lessee, within forty-five
(45) days after the close of each calendar month, unaudited financial statements
covering such prior month and containing a balance sheet and statement of income
and expenses in reasonable detail. Manager shall also provide any required
assistance to the independent accountants for the Facility, who shall be
selected by Manager and approved by Lessee, in the preparation of unaudited (or
audited if so requested by Lessee) financial statements for the operation of the
Facility. Such financial statements shall be prepared at Lessee's expense in
accordance with generally accepted accounting principles in the health care
field consistently applied and delivered to Manager and Lessee promptly after
the end of each fiscal year of the Facility.
(b) Manager shall submit to Lessee each twelve (12) months a
proposed budget for the operation of the Facility setting out anticipated
income, expenses and capital expenditures during the succeeding twelve (12)
month period, and shall use reasonable efforts to operate the Facility in
accordance with the provisions of the budget for the Facility submitted to and
approved by Lessee. Such proposed budget for the Facility shall be delivered to
Lessee no later than thirty (30) days prior to the commencement of the
operational fiscal year of the Facility.
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<PAGE>
(c) Manager shall schedule periodic management meetings to be
attended by representatives of both Manager and Lessee no less frequently than
semi-annually and shall furnish to Lessee semi-annual written progress reports
concerning the operation of the Facility.
1.05 Bank Accounts and Working Capital. Manager, in the Facility's name
and on behalf of Lessee, shall deposit in a bank account or accounts of the
Facility (the "Operating Accounts") established in Lessee's name all funds
received from the operations of the Facility. Lessee shall provide sufficient
working capital for the operation of the Facility, which shall be deposited into
or drawn from the Operating Accounts. All costs and expenses incurred in the
operation of the Facility shall be paid out of the Operating Accounts. Manager
shall specify the signatory or signatories required on all checks or other
documents of withdrawal for the Operating Accounts.
1.06 Access to Books, Records and Documents. If it is ultimately
determined that Section 952 of the Omnibus Reconciliation Act of 1980 and final
regulations promulgated thereunder apply to this Agreement:
(a) Until the expiration of four (4) years after the furnishing of
services pursuant to this Agreement, Manager shall, as provided in Section 952,
make available, upon written request, to the Secretary of Health and Human
Services, or upon request, to the Comptroller General of the United States, or
any of their duly authorized representatives, this Agreement, and all books,
documents and records of Manager that are necessary to verify the nature of this
Agreement for which payment may be made under the Medicare program; and
(b) If Manager carries out any of the duties of this Agreement
pursuant to a subcontract or subcontracts with an aggregate value or cost of
$10,000 or more over a twelve (12) month period with a related organization,
such subcontract or subcontracts shall contain a clause to the effect that,
until the expiration of four (4) years after the furnishing of such services
pursuant to such subcontract or subcontracts, the related organization shall, as
provided in Section 952, make available, upon written request, to the Secretary
of Health and Human Services, or upon request, to the Comptroller General of the
United States, or any of their duly authorized representatives, the subcontract
or subcontracts, and all books, documents and records of such subcontractors for
which payment may be made under the Medicare program.
1.07 Licenses.
(a) Manager shall, on behalf of Lessee, use its reasonable best
efforts to apply for, obtain and maintain all necessary licenses, permits,
consents, and approvals from all governmental agencies which have jurisdiction
over the operation of the Facility.
(b) Neither Lessee nor Manager shall knowingly take any action or
fail to take any action which may (1) cause any governmental authority having
jurisdiction over the operation of the Facility to institute any proceeding for
the rescission or revocation of any necessary license, permit, consent or
approval, or (2) adversely affect Lessee's right to accept and obtain payments
under Medicare, Medicaid, or any other public or private third party medical
payment program.
(c) Manager shall, with the written approval of Lessee, have the
right to contest by appropriate legal proceedings, diligently conducted in good
faith in the name of
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<PAGE>
Lessee, the validity or application of any law, ordinance, rule, ruling,
regulation, order or requirement of any governmental agency having jurisdiction
over the operation of the Facility. Lessee, after having given its written
approval, shall pay attorneys' fees incurred with regard to the contest. Counsel
for any such contest shall be selected by Manager and approved by Lessee.
Manager shall have the right, without the written consent of Lessee, to process
all third-party claims for the services of the Facility, including, without
limitation, the full right to contest to the exhaustion of all applicable
administrative proceedings or procedures, adjustment and denials by governmental
agencies or their fiscal intermediaries as third-party payors.
1.08 Administrator. Manager shall employ for the Facility an Administrator
reasonably acceptable to Lessee, to serve as the chief executive officer of such
Facility. The Administrator shall be an employee of and shall be compensated by
Lessee and Lessee shall pay, in advance, on or before the fifth (5th) day of
each month all compensation, including salary, fringe benefits, bonuses and
business expense reimbursements approved by Manager, payable to the
Administrator. The term "fringe benefits" shall include, without limitation,
employer's F.I.C.A. payments, unemployment compensation and other employment
taxes, bonuses, vacation, personal and sick leave benefits, workers'
compensation, group life, health and accident insurance premiums and disability
and other benefits.
1.09 Taxes. Any federal, state or local taxes, assessments or other
governmental charges properly imposed on the Facility are the obligations of
Lessee, not of Manager, and shall be paid out of the Operating Accounts of the
Facility. With Lessee's prior written consent, Manager may contest the validity
or amount of any such tax or imposition on the Facility in the same manner as
described in Section 1.07(c) hereof.
1.10 Use of Manager's Personnel. An authorized representative of Manager
shall visit the Facility as often as Manager deems necessary. The time spent by
such authorized representative of Manager during such visits and all
out-of-pocket expenses arising from travel and lodging connected with such
visitations shall not be charged separately to Lessee.
1.11 Government Regulations. Manager agrees to operate and maintain the
Facility in substantial compliance with the requirements of any material
statute, ordinance, law, rule, regulation or order of any governmental or
regulatory body having jurisdiction over the Facility and to comply with all
orders and requirements of the local board of fire underwriters or any other
body which may exercise similar functions; provided, however, that Manager shall
not be required to expend any funds in order to comply with any such statutes,
ordinances, laws, rules, regulations or orders, and to the extent any funds are
so required, it shall fulfill its obligations hereunder by notifying Lessee of
the actions necessary in order to be in compliance therewith.
1.12 Quality Controls. Manager shall activate and maintain on a continuing
basis a "Quality Assurance Program" to provide objective measurements of the
quality of health care provided at the Facility and, in connection therewith,
shall utilize such techniques as patient questionnaires and interviews,
physician questionnaires and interviews, and inspections.
1.13 Staff Specialists. In addition to the other managerial services
provided for herein, Manager shall make available to the Facility, for
consultation and advice, when necessary, specialists in such fields as
accounting, auditing, budgeting, dietary services, environmental control,
management, maintenance, nursing, personnel, pharmacy operations,
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<PAGE>
public relations, purchasing, quality assurance, systems and procedures, and
third-party reimbursement.
1.14 Performance of Services by Manager. In the performance of its
services hereunder, Manager shall exercise the same standards and degree of care
used by reasonable and prudent managers of nursing homes of similar size, nature
and character as the Facility. Notwithstanding anything herein to the contrary,
Manager shall not be deemed in violation of this Agreement if Manager is
prevented from performing any of its obligations hereunder for any reason beyond
its reasonable control including, without limitation, strikes, walkouts or other
employee disturbances, acts of God, or the action or promulgation of any
statute, rule, regulation or order by any federal, state, or local governmental
or judicial agency or official, nor shall it be deemed in default hereunder or
otherwise liable for any error of judgment or act or omission in the performance
of its services hereunder, which is made in reasonable good faith, except for
its wilful default or gross negligence.
1.15 Extraordinary Services. Lessee agrees that any extraordinary or
specialized service recommended by Manager and approved by Lessee, even if
provided by Manager, may be performed for a separate fee as agreed upon by
Manager and Lessee in advance of the performance of such service.
ARTICLE II
TERM AND TERMINATION
2.01 Term. The term of this Agreement shall commence on the date hereof
and shall continue for an initial term consisting of the period ending on the
earlier of sixty (60) months from the date of this Agreement, or the expiration
of the stated term of the Lease or termination of the Lease under a right or
remedy reserved in such Lease, and thereafter from year to year subject to (a)
the right of either party to terminate this Agreement at the end of the initial
term or the end of any anniversary thereof upon not less than ninety (90) days
prior written notice, or (b) Manager's right to terminate this Agreement as
provided herein.
2.02 Termination for Cause.
(a) If either party shall apply for or consent to the appointment of
a receiver, trustee or liquidator of such party of all or a substantial part of
its assets, file a voluntary petition in bankruptcy, make a general assignment
for the benefit of creditors, file a petition or an answer seeking
reorganization or arrangement with creditors or take advantage of any insolvency
law, or if an order, judgment or decree shall be entered by any court of
competent jurisdiction, on the application of a creditor, adjudicating such
party bankrupt or insolvent or approving a petition seeking reorganization of
such party or appointing a receiver, trustee or liquidator for such party or all
or a substantial part of its assets, and such order judgment or decree shall
continue unstayed and in effect for any period of one hundred twenty (120)
consecutive days, then, in case of any such event, the term of this Agreement
shall expire, at the other party's option, upon five (5) days written notice.
(b) If Lessee or Manager shall fail to keep, observe or perform any
material covenant, agreement, term or provision of this Agreement to be kept,
observed, or performed by such party, and such default shall continue for a
period of thirty (30) days, (or ten (10) days in the case of a failure to pay
any amounts due Manager under this Agreement) after
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<PAGE>
notice thereof by one party to the other, then, in case of any such event and
upon the expiration of any period of grace applicable thereto, the term of this
Agreement shall expire, at the option of the nondefaulting party, upon five (5)
days written notice to the other party. Such termination shall be without
prejudice to Manager's right to receive management fees under Article III hereof
through the end of the month in which such termination becomes effective.
2.03 Optional Termination.
(a) Either party has the option to terminate this Agreement, without
damage or penalty, upon ten (10) days prior written notice to the other, upon
the occurrence of either of the following events:
(i) The Facility or any material portion thereof is damaged
or destroyed to the extent that in the written opinion of an independent
architect or engineer reasonably acceptable to both parties (x) it is not
practicable or desirable to rebuild, repair or restore the Facility within
a period of six (6) months to its condition immediately preceding such
damage, or (y) the conducting of normal operations of the Facility would
be prevented for a period of six (6) months or more; or
(ii) Title to or the temporary use of all or substantially all
the Facility is taken under the exercise of the power of eminent domain by
any governmental authority or person, firm or corporation acting under
governmental authority which in the opinion of an independent architect or
engineer reasonably acceptable to both parties prevents or is likely to
prevent the conducting of normal operations at the Facility for a period
of at least six (6) months.
Provided, however, that in either of such events, if Lessee or any
affiliate thereof rebuilds, restores or otherwise rearranges the Facility and
recommences operations thereof, Lessee shall give Manager the first option to
manage the Facility under the same terms, conditions, and fees as provided
herein.
(b) Manager shall have the option to terminate this Agreement
without damage or penalty upon ten (10) days prior written notice to Lessee
following the sale, transfer, assignment, or other disposition, in whole or in
part, by Lessee of its interest in the Facility. In the event Lessee is a
corporation, any dissolution, merger, consolidation or other transfer of a
substantial portion of the stock of Lessee shall constitute an assignment of the
Facility for all purposes of this Section 2.03(b). The term "substantial
portion" means the ownership of stock possessing, and of the right of exercise,
at least fifty percent (50%) of the total combined voting power of all classes
of stock of such corporation, issued, outstanding and entitled to vote for the
election of directors whether such ownership is direct ownership, or indirect
ownership through ownership of stock possessing, and of the right to exercise,
at least fifty percent (50%) of the total combined voting power of all classes
of stock of another corporation or corporations; provided, however, that this
prohibition on stock transfer shall not apply to a "publicly traded
corporation," which term is hereby defined for all purposes under this Agreement
as a corporation whose shares of stock have been registered pursuant to the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, or the state securities laws pursuant to an exemption from the
aforementioned statutes. In the
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<PAGE>
event Lessee is a general or limited (including limited liability) partnership,
the transfer of any portion or all of any general partnership or managing
partnership interest shall constitute an assignment of the Facility for purposes
of this Section 2.03(b). In the event Lessee is a limited liability company, the
transfer of any portion or all of any membership interest shall constitute an
assignment of the Facility for purposes of this Section 2.03(b).
ARTICLE III
MANAGEMENT FEE
3.01 Management Fee. Effective as of the date of this Agreement and for
the remainder of the term, Manager shall receive from Lessee, and Lessee shall
pay to Manager, each month during the term hereof, as the amount due for
services, a management fee equal to six percent (6%) of the Gross Revenues of
the Facility. "Gross Revenues" shall mean, for the Facility, total revenues of
such Facility, including, without limitation, all ancillary fees, charges,
rentals and other revenue derived in any way from the operation of such
Facility, on an accrual basis, after deduction of allowances for contractual
adjustments as they relate to third-party payors and before deduction of any and
all expenses.
3.02 Payment of Management Fees. On or before the tenth (10th) day of each
month during the term hereof, Lessee shall be obligated to pay Manager an
estimated management fee, calculated in accordance with Section 3.01 hereof,
based on the estimated Gross Revenues of the Facility during the current month.
All management fees due hereunder shall be withdrawn from the Operating Accounts
and paid to Manager. Any late payments of management fees not made after three
(3) days written notice to Lessee shall bear interest equal to the Advance Rate
(as defined in Section 5.11 hereof) from their original due date until fully
paid.
3.03 Adjustment. Within fifteen (15) days after the delivery of the annual
financial statements of the Facility, Lessee shall pay to Manager or Manager
shall pay to Lessee such amount as is necessary to make the amount of the
management fees paid with respect to the year to which the financial statements
relate equal to the amount of management fees shown to be due by the annual
audit.
ARTICLE IV
COVENANTS OF LESSEE
4.01 Insurance. Manager shall provide and maintain, on behalf of Lessee
and at Lessee's expense, throughout the term of this Agreement, insurance with
responsible companies naming Lessee and Manager (as their respective interests
may appear) as insureds in the minimum amounts and covering the risks described
below:
(a) Comprehensive public liability insurance, including personal
injury or death and property damage in the combined single limit of not less
than $500,000.00;
(b) Workmen's compensation, employers' liability or similar
insurance as may be required by law;
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<PAGE>
(c) Insurance against loss or damage to the Facility from fire,
lightning and such other risks and casualties now or thereafter covered by the
uniform standard form of extended coverage insurance endorsement then in use in
the State of Indiana and against loss or damage with respect to all boilers and
pressure vessels and pressure pipes, if any, installed in the Facility and, if
the Facility is located within a 100 year flood plain designated by the Untied
States Army Corps of Engineers, against loss or damage due to floods to be
maintained under the National Flood Insurance Program or under comparable
commercial insurance programs; all such policies being in an amount not less
than ninety percent (90%) of the actual replacement cost of the Facility as
determined every two (2) years by Lessee;
(d) Professional liability insurance against claims for bodily
injury or death or otherwise arising out of the operations of the Facility, such
insurance to afford minimum protection of not less than $500,000.00 with respect
to bodily injury or death to any one person;
(e) Automobile liability insurance covering owned, hired and
non-owned vehicles, such insurance to afford minimum protection of not less than
$500,000.00 for bodily injury or death to any one person in any one accident
(subject to a maximum recovery by all persons in any one accident of
$500,000.00) and $50,000.00 for damage to property (including loss of the use
thereof) in any one accident;
(f) Business interruption insurance in an amount sufficient to cover
the estimated management fees payable hereunder and all other fixed expenses of
the Facility for a period of not less than six (6) months;
(g) Employee fidelity bond or insurance, including comprehensive
coverage for dishonesty, disappearance and discrepancy for all employees of
Lessee; and
(h) Such other insurance or additional insurance as both Manager and
Lessee shall reasonably deem necessary for protection against claims,
liabilities and losses arising from the operation or ownership of the Facility.
The insurance specified above for the Facility may be provided by any
combination of underlying and umbrella policies, which policies may also cover
other facilities owned, leased or managed by Manager or its affiliates. No
policy shall have deductible provisions in excess of $10,000.00, plus, if an
umbrella policy, the amount of the underlying policy. Lessee and Manager may
from time to time agree on insurance coverages, terms and limitations which
differ from the foregoing; provided, however, such agreement shall comply with
any minimum requirements for such insurance as set forth in the Lease or any
other documents binding upon Lessee or to which the Facility is subject.
4.02 Licensing; Changes and Services. Lessee agrees to take or cause to be
taken any and all actions necessary to be taken by it as the overall supervisor
of the assets and operations of the Facility in order to maintain all required
licenses, permits for the operation of the Facility and the Facility's
eligibility to participate in all public or private third-party medical payment
programs, including providing sufficient funds to bring the Facility in
compliance with all applicable fire safety codes and other laws, regulations and
orders, and to correct all structural, maintenance, procedural and staffing
deficiencies as shown on the surveys and reports of governmental agencies having
jurisdiction over the Facility. Lessee agrees that it will not, through the
exercise of its overall supervisory powers, substantially
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change the services rendered by the Facility during the term hereof without the
prior written approval of Manager.
Nothing contained in this Section 4.02 shall affect the duties and
obligations of Manager with regard to the applying for, obtaining and
maintaining all necessary governmental licenses, permits, consents and approvals
set forth in Section 1.07 hereof.
4.03 Transfer of Ownership. Lessee further acknowledges and agrees that
upon the transfer, lease, assignment, sale or other disposition or conveyance of
all or any part of its ownership of the Facility, this Agreement shall remain in
full force and effect unless otherwise terminated as provided in Article II
hereof. Lessee covenants and agrees that in the event that it sells, assigns or
otherwise transfers its ownership of the Facility at any time while this
Agreement is in effect, it will require the transferee to assume the obligations
of Lessee hereunder.
4.04 Damage or Destruction. If the Facility or any portions thereof shall
be damaged or destroyed by fire or other casualty, Lessee shall commence to
repair, restore, rebuild or replace any such damage or destruction within sixty
(60) days after such fire or other casualty and shall proceed with due diligence
to complete such work within a reasonable period of time.
ARTICLE V
MISCELLANEOUS COVENANTS
5.01 Assignment. Lessee shall not assign its rights and/or obligations
under this Agreement without the prior written consent of Manager, except to
Lessee's construction or permanent lender, in the event of foreclosure of such
lender's mortgage against the Facility; provided, however, that such lender or
lenders shall first agree in writing to assume and be bound by Lessee's
obligations hereunder. Manager shall not assign its rights and/or obligations
under this Agreement, except to an affiliate of Manager, without prior written
consent of Lessee.
5.02 Binding Agreement. The terms, covenants, conditions, provisions and
agreements herein contained shall be binding upon and inure to the benefit of
the parties hereto, their successors and assigns.
5.03 Relationship of Parties. Nothing contained in this Agreement shall
constitute or be construed to be or to create a partnership, joint venture or
lease between Lessee and Manager with respect to the Facility.
5.04 Notices. All notices, demands and requests contemplated hereunder by
either party to the other shall be in writing, and shall be delivered by hand,
transmitted by cable, telegram or telecopy (receipt confirmed), or mailed,
postage prepaid, registered, or certified mail return receipt requested:
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<PAGE>
(a) to Lessee, by addressing the same to:
Transitional Health Partners d/b/a
Transitional Health Services
7000 Central Parkway
Suite 970
Atlanta, Georgia 30328
Attn: Mr. Alan C. Dahl
With a copy to:
Paul A. Quiros, Esquire
Nelson Mullins Riley & Scarborough, L.L.P.
1201 Peachtree Street, 400 Colony Square
Suite 2200
Atlanta, Georgia 30361
(b) to Manager, by addressing the same to:
WelCare International Management Corporation
7000 Central Parkway
Suite 970
Atlanta, Georgia 30328
Attn: Mr. Alan C. Dahl
With a copy to:
Paul A. Quiros, Esquire
Nelson Mullins Riley & Scarborough, L.L.P.
1201 Peachtree Street, 400 Colony Square
Suite 2200
Atlanta, Georgia 30361
or to such other address or to such other person as may be designated by notice
given from time to time during the term of this Agreement by one party to the
other. Any notice hereunder shall be deemed given five (5) days after mailing,
if given by mailing in the manner provided above, or on the date delivered or
transmitted if given by hand, cable, telegraph or telecopy (receipt confirmed).
5.05 Entire Agreement; Amendments. The Agreement contains the entire
agreement between the parties hereto, and no prior oral or written, and no
contemporaneous oral representations or agreements between the parties with
respect to the subject matter of this Agreement shall be of any force and
effect. Any additions, amendments or modifications to this Agreement shall be of
no force and effect unless in writing and signed by both Lessee and Manager.
5.06 Governing Law. This Agreement has been executed and delivered in the
State of Georgia, and all the terms and provisions hereof and the rights and
obligations of the parties
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<PAGE>
hereto shall be governed by, and construed and enforced in accordance with, the
laws of the State of Georgia (without regard to its rules of conflicts of laws).
5.07 Captions and Headings. The captions and headings throughout this
Agreement are for convenience and reference only and do not constitute a part
hereof.
5.08 Disclaimer of Employment of Facility Employees. No person employed in
the operation of the Facility will be an employee of Manager, and Manager will
have no liability for payment of their wages, fringe benefits, payroll taxes and
other expenses of employment.
5.09 Costs and Expenses; Indemnity. All fees, costs and expenses arising
out of, relating to or incurred in the operation of the Facility, including,
without limitation, the fees, costs, and expenses of outside consultants and
professionals, shall be the sole responsibility of Lessee. Manager, by reason of
the execution of this Agreement or the performance of its services hereunder,
shall not be liable for or deemed to have assumed any liability for such fees,
costs and expenses, or any other liability or debt of Lessee whatsoever, arising
out of or relating to the Facility or incurred at its operation, except the
salary of Manager's employees and the expenses and costs incurred at its central
administrative offices in performance of its obligations hereunder. Lessee
agrees to indemnify and hold Manager and its officers, directors, agents and
employees harmless from and against all losses, claims, damages or other
liabilities, including the costs and expenses incurred in connection therewith,
arising out of or relating to the ownership of the Facility (except those
resulting from the wilful misconduct or gross negligence of Manager), including,
without limitation, any liability asserted against Manager or any of its
officers, directors, employees or agents by reason of any action taken by any of
the foregoing while performing the duties of Manager hereunder on behalf of
Lessee.
5.10 Responsibility for Misconduct of Employees and Other Persons. Manager
will have no liability whatsoever for damages suffered on account of the
dishonesty, misconduct or negligence of any employee of the Facility or any
officer, director, partner, stockholder, employee or agent of Lessee. Manager
shall be liable to the Facility in connection with damage or loss directly
sustained by Lessee by reason of the dishonesty, wilful misconduct and gross
negligence of Manager's employees in the operation of the Facility during the
term of the Agreement.
5.11 Advances by Manager. Manager shall have the right, but not the
obligation, to advance to Lessee any and all sums required to maintain all
necessary licenses and permits and to otherwise keep the Facility operating as a
fully insured nursing home in good condition and repair. All such sums advanced
by Manager to Lessee shall be repaid by Lessee, with interest commencing on the
date such sums were advanced at a rate equal to the announced prime rate of
interest of NationsBank, N.A., Atlanta, Georgia, plus two percent (2%) per annum
("Advance Rate"), immediately upon written notice thereof to Lessee, and Manager
shall have the right at any time and from time to time to instruct the
signatories of the Operating Accounts to withdraw and pay to Manager amounts
necessary in order to repay such advances.
5.12 Definition of Affiliate. For purposes of this Agreement, the term
"affiliate" shall mean any person or entity which Manager or Lessee or their
respective stockholders or individual partners, directly or indirectly, through
one or more intermediaries, controls, is in common control with, or is
controlled by.
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<PAGE>
5.13 Authorization of Agreement. Manager and Lessee represent and warrant,
each to the other with respect to itself, that the execution and delivery of
this Agreement has been duly authorized by all respective action, will not
presently or with the passage of time, the giving of notice, or both result in a
default under or violate or conflict with (i) the provisions of the articles of
incorporation and bylaws of Manager or Lessee, or (ii) any other agreement,
mortgage, loan agreement or other contract or instrument by which either party
is bound or to which any of its property or assets are subject, or (iii) any
existing law, regulation, court order or consent decree by which either party is
bound or to which any of its property or assets are subject.
5.14 Waivers. No waiver of any breach or default hereunder shall be
considered valid unless in writing, and no such waiver shall be deemed a waiver
of any subsequent breach or default of the same or similar nature.
5.15 Severability. If any provision of this Agreement shall be held to be
illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carried out as if any such illegal,
invalid or unenforceable provision were not contained therein.
5.16 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[This space intentionally left blank.]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed, sealed and delivered
this Agreement through their duly authorized representatives, as of the day and
year first above written.
TRANSITIONAL HEALTH PARTNERS d/b/a
TRANSITIONAL HEALTH SERVICES,
a Delaware general partnership
Attest: By: THS Partners I, Inc., and
THS Partners II, Inc., General Partners
By: /s/ Kent C. Fosha, Sr.
----------------------------
Name: Kent C. Fosha, Sr.
Its: Vice President By: /s/ Alan C. Dahl
-----------------------------------------
Alan C. Dahl, Vice President
WELCARE INTERNATIONAL MANAGEMENT
CORPORATION
Attest:
By: /s/ Alan C. Dahl
- -------------------------------
Name: Alan C. Dahl By: /s/ Kent C. Fosha, Sr.
Its: Vice President -----------------------------------------
Kent C. Fosha, Sr.
Vice President
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<PAGE>
SCHEDULE 10.32
CHMC has entered into agreements with THP substantially identical to
Exhibit 10.32 as follows:
1. Long Term Care Facility Management Agreement (Amber Manor) dated
January 1, 1996 for Pike County, Indiana facility.
2. Long Term Care Facility Management Agreement (Transitional Health
Services of Lincolnton) dated January 1, 1996 for Lincoln County, North Carolina
facility.
3. Long Term Care Facility Management Agreement (THS of Knightdale) dated
January 1, 1996 for Wake County, North Carolina facility.
4. Long Term Care Facility Management Agreement (Wellington Nursing and
Rehabilitation Center) dated January 1, 1996 for Mecklenburg County, North
Carolina facility.
5. Long Term Care Facility Management Agreement (Brownsboro Hills Nursing
Home and Brownsboro Hills Plaza) dated January 1, 1996 for Jefferson County,
Kentucky facility.
6. Long Term Care Facility Management Agreement (Cary Manor) dated January
1, 1996 for Cary, North Carolina facility.
7. Long Term Care Facility Management Agreement (Lakeland Loving Care
Center) dated January 1, 1996 for Kosciusko County, Indiana facility.
8. Long Term Care Facility Management Agreement (The Lincoln Centers -
East) dated January 1, 1996 for Fayette County, Indiana facility.
9. Long Term Care Facility Management Agreement (The Lincoln Centers -
West) dated January 1, 1996 for Fayette County, Indiana facility.
10. Long Term Care Facility Management Agreement (Lowell Healthcare
Center) dated January 1, 1996 for Lake County, Indiana facility.
11. Long Term Care Facility Management Agreement (New Harmonie Healthcare
Center) dated January 1, 1996 for Posey County, Indiana facility.
12. Long Term Care Facility Management Agreement (Red Oaks Healthcare
Center) dated January 1, 1996 for LaPorte County, Indiana facility.
13. Long Term Care Facility Management Agreement (Riverbend Healthcare
Center) dated January 1, 1996 for Allen County, Indiana facility.
14. Long Term Care Facility Management Agreement (Scenic Hills Care
Center) dated January 1, 1996 for Dubois County, Indiana facility.
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<PAGE>
15. Long Term Care Facility Management Agreement (Sheridan HealthCare
Center) dated January 1, 1996 for Hamilton County, Indiana facility.
16. Long Term Care Facility Management Agreement (Transitional Health
Services of South Bend) dated January 1, 1996 for Saint Joseph County, Indiana
facility.
17. Long Term Care Facility Management Agreement (Parkview Manor) dated
January 1, 1996 for Pikeville, Kentucky facility.
18. Long Term Care Facility Management Agreement (Hurstbourne Care Centre
at Stony Brook) dated January 1, 1996 for Jefferson County, Kentucky facility.
19. Long Term Care Facility Management Agreement (Fenton Extended Care
Center) dated January 1, 1996 for Genessee County, Michigan facility.
20. Long Term Care Facility Management Agreement (Transitional Health
Services of Fremont) dated January 1, 1996 for Newaygo County, Michigan
facility.
21. Long Term Care Facility Management Agreement (Transitional Health
Services of Wayne) dated January 1, 1996 for Wayne County, Michigan facility.
22. Long Term Care Facility Management Agreement (Westgate Healthcare
Center) dated January 1, 1996 for Gratiot County, Michigan facility.
23. Long Term Care Facility Management Agreement (Riverview of Ann Arbor)
dated January 1, 1996 for Ann Arbor, Michigan facility.
24. Long Term Care Facility Management Agreement (Whitehall Convalescent
Homes) dated January 1, 1996 for Washtenaw County, Michigan facility and Oakland
County, Michigan.
25. Long Term Care Facility Management Agreement (Transitional Health
Services of Charlotte) dated January 1, 1996 for Mecklenburg County, North
Carolina facility.
26. Long Term Care Facility Management Agreement (Clay County Care Center)
dated January 1, 1996 for Clay County, North Carolina facility.
27. Long Term Care Facility Management Agreement (Transitional Health
Services of Kannapolis) dated January 1, 1996 for Cabarrus County, North
Carolina facility.
28. Long Term Care Facility Management Agreement (Willowbrook Healthcare
Center) dated January 1, 1996 for Yadkin County, North Carolina facility.
29. Long Term Care Facility Management Agreement (Transitional Health
Services of Danville) dated January 1, 1996 for Hendricks County, Indiana
facility.
30. Long Term Care Facility Management Agreement (Wilora Lake) dated March
1, 1996 for Charlotte, North Carolina facility. A material detail in which this
agreement
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differs from Exhibit 10.32 is that this agreement is subject to termination
without penalty upon written request of the Federal Housing Commissioner (the
"Commissioner") if an event of default occurs under that certain Regulatory
Agreement dated October 26, 1994 between Wilora Lake Health Care Center, Inc.
and the Commissioner.
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EXHIBIT 10.33
<PAGE>
LONG TERM CARE FACILITY
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT (the "Agreement") made as of the 1st day of
December, 1992 between CARDINAL OF KENTUCKY, INC. ("Manager") and HP/NORTH
CAROLINA TV, INC. ("Owner").
W I T N E S S E T H:
WHEREAS, Owner owns an approximately four acre site in Moore County, North
Carolina, on which it has constructed a nursing home facility ("The Facility");
and
WHEREAS, the Owner wishes to retain Manager under the terms of this
Agreement to provide experience, skill and supervision to operate the Facility
on behalf of Owner; and
WHEREAS, Manager wishes to provide management services on behalf of Owner
under and subject to the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants of
the parties contained herein, and for such other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereby agree as follows:
ARTICLE I.
MANAGEMENT DUTIES AND OBLIGATIONS
1.01 Control Retained by Owner. Owner, shall at all times exercise overall
control over the assets and operations of the Facility, and Manager shall
perform the duties herein required to be performed by it as the agent of Owner
and in accordance with the policies and directives from time to time adopted by
Owner. Owner has reviewed the policies and procedures created by Manager and
adopts them for use in the facility.
1.02 Ownership of Manuals. Manager is the sole and only owner of all
policy and procedure manuals.
1.03 Management of Facility. During the term of this Agreement, Manager
shall on behalf of Owner manage all aspects of the operation of the Facility,
including, but not limited to, staffing, accounting, billing, collections,
setting of rates and charges and general administration. In connection
therewith, Manager (either directly or through supervision of employees of the
Facility) shall:
(a) Hire on behalf of manager and retain (to the extent such
personnel are reasonably available in the community in which the Facility is
located) an adequate staff of nurses, technicians, nurse aides, office and other
employees, including and
<PAGE>
administrator (the "Administrator") and shall promote, direct, assign and
discharge all such employees on behalf of Owner at Manager's sole discretion.
All such employees shall be employees of the Manager and carried on the payroll
of the Facility.
(b) Institute and amend from time to time general salary scales,
personnel policies and appropriate employees benefits for all employees on
behalf of Owner. Employee benefits may include pension and profit sharing plans,
insurance benefits, incentive plans for key employees and holiday, vacation,
personal leave and sick leave policies.
(c) Issue appropriate bills for services materials furnished by the
Facility and use its best efforts to collect accounts receivable and monies owed
to the Facility, design and maintain accounting, billing, patient and collection
records; and prepare and file insurance, Medicare, Medicaid and any and all
other necessary or desirable reports and claims related to revenue production.
Owner hereby grants Manager the right to enforce Owner's rights as creditor
under any contract or in connection with rendering any services for purposes of
collecting accounts receivable and monies owed the Facility.
(d) Order, supervise and conduct a program of regular maintenance
and repair, except that any physical improvements costing in the aggregate more
than $10,000 in any given year shall be subject to approval of Owner.
(e) Purchase food, beverage, medical, cleaning and other supplies,
equipment, furniture and furnishings for the account of Owner, except that the
purchase of any single item which costs more than $25,000 shall be subject to
approval of Owner.
(f) Administer, supervise and schedule all patient and other
services of the Facility, including the operation of food, barber/beautician and
other ancillary services.
(g) Provide necessary funds for and pay all of the accounts, payable
indebtedness, taxes, insurance premiums, and all other obligations of the
Facility.
(h) Institute standards and procedures for admitting patients, for
charging patients for services, and for collecting the charges from the patients
or third parties.
(i) Obtain and maintain insurance coverage for the Facility naming
Owner, Manager and such other persons requested by Owner as insured as provided
in Section 4.01 hereof.
(j) Negotiate and enter into in the name of and on behalf of Manager
such agreements, contracts and orders as it may deem necessary or advisable, for
the furnishing of services, concessions and supplies for the operation and
maintenance of the Facility.
2
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(k) Negotiate on behalf of Owner with any labor union lawfully
entitled to,represent employees of Owner who work at the Facility, but any
collective bargaining agreement or labor contract must be submitted to Owner for
its approval and execution. Manager agrees to provide owner with prompt notice
of all labor negotiations.
(l) Maintain all licenses and permits required for the operation of
the facility, its contracts with third party payors and other similar
governmental and nongovernmental agencies and intermediaries.
(m) Make periodic evaluations of the performances of all
departments of the Facility.
(n) Design, establish and maintain a suitable accounting system
using accounts and classifications consistent with those used in similar
facilities.
(o) Designing an adequate and appropriate public relations program.
(p) Acquire at Manager's cost and expense all items required to
properly equip and operate the facility which are not provided for by Owner.
1.04 Reports to Owner.
(a) Manager shall prepare and deliver to Owner within 45 days after
the close of each calendar month unaudited financial statements covering the
prior month and containing a balance sheet and statement of income in reasonable
detail. Manager shall also provide any required assistance to the independent
accountants for the Facility, who may be selected by Manager in the preparation
of unaudited financial statements for the operation of the Facility.
1.05 Bank Accounts, Working Capital.
(a) Manager, in the Facility's name and on behalf of Owner, shall
deposit in a bank account or accounts of the Manager or the Facility (the
"Operating Accounts") established in Manager's name all funds received from the
operations of the Facility. Manager shall provide sufficient working capital for
the start up of the Facility and shall be responsible thereafter for such
working capital, which shall be deposited into the Operating Accounts. Manager
shall specify the signatory or signatories required on all checks or other
documents of withdrawal for the Operating Accounts.
(b) As partial consideration for entering into this Agreement,
Manager hereby agrees that the Owner will not incur any operating or managing
losses as a result of the operation of the Facility. The Manager agrees to
provide sufficient operating capital as needed in order to operate the Facility
and to pay the
3
<PAGE>
debts and obligations for the operation of the Facility as well as the Owner's
Option Fee. The revenue generated by the Facility, together with amounts funded
by the Manager, will at least equal the amount necessary to pay for the
operating costs, owner's option fee, and other costs associated with the
ownership and operation of the Facility. In the event that funds are necessary
in order to operate any deficit, the Manager will as soon as possible and not
less than ten (10) days, deposit such amount into the Operating Accounts.
1.06 Record Requirements. If it is ultimately determined that
Section 952 of the Omnibus Reconciliation Act of 1980 and final regulations
promulgated thereunder apply to this Agreement:
(a) Until the expiration of four years after the furnishings of
services pursuant to this Agreement, Manager shall as provided in said Section
952, make available, upon written request, to the Secretary of Health and Human
Services or upon request, to the Comptroller General of the United States or any
of their duly authorized representatives, this Agreement and all books documents
and records of Manager that are necessary to verify the nature and extent for
the costs of any services furnished pursuant to this Agreement for which payment
may be made under the Medicare program and;
(b) If Manager carries out any of the duties of this Agreement
through a subcontract with an aggregate value or cost of $ 10,000 or more over a
twelve-month period with a related organization, such subcontracts, the related
organization shall as provided in said Section 952 make available, upon written
request, to the Secretary of Health and Human Services or upon request, to the
Comptroller General of the United States or any of their duly authorized
representatives, the subcontract or subcontracts, and all books, documents and
records of such organization that are necessary to verify the nature and extent
of the costs of any services furnished pursuant to such subcontract or
subcontracts for which payment may be made under the Medicare program.
1.07 Licenses.
(a) Manager shall apply for, obtain and maintain all necessary
licenses, permits, consents, and approvals from all governmental agencies which
have jurisdiction over the operation of the Facility, Manager agrees that its
management and operation of the Facility shall materially comply with
representations in the Certificate of Need Application for the Facility on file
with the North Carolina Department of Human Resources, Division of Facility
Services and shall materially comply with all conditions placed upon the
Certificate of Need.
(b) Neither Owner nor Manager shall knowingly take any action or
fail to take any action which may (1) cause any governmental authority having
jurisdiction over the operation of the Facility to institute any proceeding for
the rescission or
4
<PAGE>
revocation of any necessary license, permit, consent or approval or (2)
adversely affect Owner's right to accept and obtain payments under Medicare,
Medicaid, Blue Cross, or any other public or private third-party medical payment
program.
(c) Manager shall with the written approval of Owner, have the right
to contest by appropriate legal proceedings, diligently conducted in good faith
in the name of Owner, the validity or application of any law, ordinance, rule,
ruling, regulation, order or requirement of any governmental agency having
jurisdiction over the operation of the Facility. Owner, shall cooperate with
Manager in regard to any such contest, and pay in accordance with Section
1.05(b) the attorney fees incurred with respect to such contest. Counsel for any
such contest shall be selected by Manager and approved by Owner.
(d) Manager shall have the right, without the written consent of
Owner, to process all third-party payment claims for the services of the
Facility, including, without limitations the full right to contest to exhaustion
all applicable administrative proceedings or procedures, adjustment and denials
by governmental agencies or their fiscal intermediaries as third-party payors.
1.08 Administrator. Manager shall hire for the Facility a qualified
administrator (the "Administrator") of the Facility. The Administrator shall be
an employee of and shall be compensated by the Manager.
1.09 Taxes. Any federal, state or local taxes, assessments or other
governmental charges properly imposed on the Facility are the obligations of the
Facility and shall be paid out of the Operating Accounts of the Facility.
1.10 Use of Manager's Personnel. An authorized representative of Manager
shall visit the Facility as often as Manager deems necessary. The time spent by
such arising from travel and lodging connected with such visitations shall not
be charged separately to Owner, but shall be paid by Manager out of its own
management fees.
1.11 Government Regulations. Manager agrees to operate and maintain the
Facility in substantial compliance with the requirements of any statue,
ordinance, law, rule, regulation or order of any governmental or regulatory body
having jurisdiction over the Facility.
1.12 Quality Controls. Manager shall implement and maintain on a
continuing basis a Quality Assurance Program at the Facility and in connection
therewith shall utilize such techniques as the Manager deems appropriate in
order to fulfill its duties herein.
1.13 Staff Specialist. In addition to the other managerial services
provided for herein, Manager shall make available to the Facility for
consultation and advice, as it deems appropriate, specialist in such fields as
accounting, auditing, budgeting,
5
<PAGE>
dietary services, operations, public procedures, and third-party reimbursement.
1.14 Performance of Services by Manager. In the performance of its
services hereunder, Manager shall exercise the same standards and degree of care
used by reasonable and prudent managers of nursing homes of similar size, nature
and character as the Facility. Notwithstanding anything herein to the contrary,
Manager shall not be deemed in violation of this Agreement, if it is prevented
from performing any of its obligations hereunder for any reason beyond its
reasonable control including, without limitations, strikes, walkouts or other
employee disturbances, acts of God or the promulgation of any statute, rule,
regulation or order by any federal state, or local governmental or judicial
agency or official, nor shall it be deemed in default or gross negligence,
1.15 Extraordinary Services. Owner agrees that any extraordinary or
specialized service recommended by Manager and approved by Owner, even if
provided by Manager, may be performed for a separate fee as agreed upon by
Manager and Owner in advance of the performing of such service.
1.16 Benefits and Burdens. Owner and Manger hereby agree that all of the
benefits and burdens arising out of the operation of the facility shall inure to
and/or be the sole responsibility of the Manager.
ARTICLE II.
TERMS AND TERMINATION
2.01 Term. The term of this Agreement shall commence on the date of
licensure of the Facility ("Commencement Date") and continue for three (3) years
from the Commencement Date (the "Term"), unless earlier terminated by either
part exercise of rights under the Option Agreement of even date herewith.
2.02 Term for Non-Payment. Furthermore, if any payment required to be made
by Manager hereunder, is not made within fifteen days (15) of its due date, then
Owner shall have the right after fifteen days (15) notice to terminate this
Agreement. If Owner does not receive from Manager any monthly Option Fee payment
within fifteen (15) days after such payment is due, Owner, at its option may
charge a late charge equal to five percent (5%) of such amount, which shall be
deemed an additional expense of Manager, and such charge shall be due and
payable by Manager to Owner upon notice to Manager. Further, any Option Fee
payment not received within fifteen (15) days after the due date shall be
considered a default by Manager under this Agreement and Option Agreement.
ARTICLE III.
MANAGEMENT FEE
6
<PAGE>
3.01 Management Fee. Each month during the term hereof, Manager shall
receive from Owner, and Owner shall pay to Manager as the amount due for
services, a management fee equal to the Adjusted Net Income of the Facility.
"Adjusted Net Income" shall mean net income or loss of the Facility determined
in accordance with generally accepted accounting principles plus depreciation
and amortization of deferred expenses less principal payments of the Facility's
mortgage.
3.02 Payment of Management Fees. All managements fees due hereunder shall
be paid to Manager. Any late payments of management fees not made after three
(3) days written notice to Owner shall bear interest from their original due
date equal to the Advance Rate (as defined in Section 5.11 hereof) until fully
paid. Notwithstanding anything herein to the contrary the management fees
provided under this Article III shall be subordinate and subject to the
agreements of Manager provided in Section 1.05(b) above.
ARTICLE IV.
INSURANCE
4.01 Insurance.
(a) Manager shall, at its sole cost and expense, procure and
maintain at all times during the term of this Agreement comprehensive general
liability insurance in standard form with such insurance company or companies as
may be acceptable to Owner, insuring Manager and Owner as additional insured
against liability for damage or injury, including death, to property or to any
person entering upon or using the premises or any of the improvements thereon,
or sidewalks and walkways adjacent thereto. Such insurance as procured by the
Manager shall afford immediate protection, with the limit of not less than One
Millon Dollars ($1,000,000.00) in respect to any one accident or occurrence and
in respect to bodily injury, death and/or property damage with a Two Millon
Dollars ($2,000,000.00) aggregate limit, with not more than Ten Thousand Dollars
($10,000.00). deductible.
Such comprehensive general liability insurance shall include blanket
contractual liability coverage which insures the indemnification of Owner by
Manager as set forth in this Agreement (which coverage or the amount thereof
shall in no way limit such indemnification), Manager shall furnish Owner with a
certificate with respect to such insurance in a form satisfactory to Landlord.
(b) Coverage afforded under the terms of such policy or policies
may, after the expiration of the first (1st) year of this Agreement, be
increased, from time to time during the term, as Owner may, in his reasonable
discretion, require.
(c) If Manager fails to comply with foregoing requirements relating
to insurance, Owner may obtain such insurance and Manager shall pay Owner upon
demand the premium costs thereof
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plus interest at the rate of ten percent (10%) per annum from ten (10) days
after the date of demand by Owner until paid by Manager.
(d) Manager shall at its own cost during the term of this Agreement
insure for benefit of Owner, Manager and other persons having an insurable
interest and designated by Owner, including any mortgagee of Owner's interest in
the premises, all improvements on the premises and all fixtures installed by
Owner and located thereon, in an amount equal to the full replacement value of
such improvements and fixtures (with replacement cost endorsement). Such
policies shall contain coverage against loss, damage or destruction by fire and
such other hazards as are covered and protected against at standard rates under
policies of insurance, referred to and known as "special form including theft,"
as the same may exist, from time to time.
(e) Such "special form including theft" shall be amounts sufficient
to prevent Owner and Manager from becoming co-insurers under the terms of the
applicable policies, but in any event an amount not less than ninety per cent
(90%) of the then "full replacement cost." The term "full replacement cost"
shall mean the actual replacement cost less physical depreciation of the
building, including the foundation and excavation costs. Owner and Manager shall
agree on the initial value of the premises at the commencement of this Agreement
which shall be increased annually by building cost index factors as may be
determined by the Marshall Stevens Valuation Guide or other appraisal source
mutually agreed upon by Owner and Manager.
(f) Manager, at its sole cost and expense, shall also maintain
professional liability insurance in an amount equal to One Million Dollars
($1,000,000.00) per occurrence.
(g) Manager, at its sole cost and expense, shall also maintain
earthquake insurance coverage in an amount equal to the value of the
improvements based on the valuation formula in (e) above subject to such
reasonable deductibles and limitations on coverages as may apply.
(h) Manager, at its sole cost and expense, shall maintain business
interruption insurance in an amount sufficient to cover the requirements of
Section 1.05(b) of this Agreement.
(i) All policies of insurance provided for in this paragraph shall
name Owner and Manager and the holder of any mortgage on the premises as
insured, as their respective interest appear, and shall otherwise comply with
requirements of the mortgage, so long as not inconsistent with the terms of this
Agreement.
(j) All insurance provide for in this paragraph shall be effective
under valid and enforceable policies issued by insurers which have been approved
in writing by Owner, which approval shall not be unreasonably withheld. Upon
execution of this Agreement and
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thereafter not less than thirty (30) days prior to the expiration dates of the
expiring policies furnished pursuant to this paragraph or any other paragraph of
this Agreement, an original of the policies or certificates relating thereto
bearing notations evidencing the payments of premiums or accompanied by other
evidence satisfactory to Owner of such payments shall be delivered by Manager to
Owner.
(k) Each policy provided for in this paragraph shall contain an
agreement by the insurer that such policy shall not be canceled without at least
thirty (30) days prior written notice to Owner and the holder of any mortgage of
the premises and an agreement that any loss otherwise payable thereunder shall
be payable notwithstanding any act of negligence of Owner or Manager which
might, absent agreement, result in the forfeiture in all or part of such
insurance payment.
(l) Manager may provide any insurance required by this Agreement in
the form of a blanket policy, provided that Manager shall furnish satisfactory
proof of such blanket policy complies in all respects with the provisions of
this Agreement, and that the coverage thereunder is at least equal to the
coverage which would have been provided under separate policy covering only the
premises.
(m) Owner shall not be required to prosecute any claim against or
contest any settlement proposed by any insurer provided that Manager may, at his
expense, prosecute any such claim or contest any such settlement. Owner will
join therein at Manager's written request only upon receipt by Owner of any
indemnity from Manager against all costs, liabilities and expenses in connection
with such prosecution or contest.
(n) Insurance claims by reason of damage to or destruction of any
portion of the premises shall be adjusted by Owner. Any such proceeding for
adjustment shall be governed by the provisions of this Agreement.
(o) If Manager shall default in the obtaining or maintaining of any
insurance required hereunder, Owner shall have the right, but not the
obligation, to take whatever action is necessary to pay all appropriate premiums
to obtain or maintain such insurance, in which events any amounts paid for
premiums by Owner shall be deemed additional rent and shall be paid by Manager
to Owner upon demand plus ten percent (10%) per annum interest from ten (10)
days after such demand until payment.
ARTICLE V.
MISCELLANEOUS COVENANTS
5.01 Assignment. Owner shall not assign its rights and/or obligations
under this Agreement without the prior written consent of Manager, which shall
not be unreasonably withheld, except to
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Owner's construction or permanent lender, in the event of foreclosure of such
lender's mortgage against the Facility. Manager shall not assign its rights
and/or obligations under this Agreement, without the prior written consent of
Owner. Neither party shall unreasonably withhold such consents.
5.02 Licensing: Changes and Services. Manager agrees to take or cause to
be taken any and all actions necessary to be taken by it as the overall
supervisor of the assets and operations of the Facility in order to maintain all
required licenses, permits for the operation of the Facility and the Facility's
eligibility to participate in all public or private third-party medical payment
programs, including providing sufficient funds to bring the Facility in
compliance with all applicable fire safety codes and other laws, regulations and
orders, and to correct all structural, maintenance, procedural and staffing
deficiencies as shown on the surveys and reports of governmental agencies having
jurisdiction over the Facility. Manager agrees that it will not through the
exercise of its overall supervisory powers substantially change the services
rendered by the Facility during the term hereof without the prior written
approval of Owner. Nothing contained in this Section 5.02 shall derogate from
Manager's duties under Section 1.07 hereof.
5.03 Damage or Destruction. If the Facility or any portion thereof shall
be damaged or destroyed by fire or other casualty, Owner shall commence to
repair, restore, rebuild or replace any such damage or destruction within sixty
(60) days upon receipt of insurance proceeds sufficient to enable Owner to
rebuild or replace the damage. Upon the commencement of such work Owner shall
proceed with due diligence to complete such work within a reasonable period of
time.
5.04 Binding Agreement. The terms, covenants, conditions, provisions and
agreements herein contained shall be binding upon and inure to the benefit of
the parties hereto, their successors and assigns.
5.05 Relationship of Parties. Nothing contained in this Agreement shall
constitute or be construed to be or to create a partnership, joint venture or
Agreement between Owner and Manager with respect to the Facility.
5.06 Notices. All notices, demands and requests contemplated hereunder by
either party to the other shall be in writing, and shall be deemed given when
delivered by hand, or national recognized overnight courier, transmitted by
cable, telephonic facsimile (fax), telegram, or mailed, postage prepaid,
registered, or certified mail return receipt requested:
(a) to Owner by addressing the same to:
James R. Smith
Smith/Packett Med-Com, Inc.
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1016 2nd Street, S.W.
Roanoke, VA 24016
(b) to Manager, by addressing the same to:
Randall J. Bufford
Cardinal of Kentucky, Inc.
9300 Shelbyville Road
Suite 1300
Louisville, KY 40222
or to such other address or to such other person as may be designated by notice
given from time to time during the term by one party to the other, Any notice
hereunder shall be deemed given five (5) days after mailing, if given by mailing
in the manner provided above, or on the date delivered or transmitted if given
by hand, cable, fax, overnight courier, or telegraph.
5.07 Entire Agreement: Amendments. This Agreement contains the entire
agreement between the parties hereto, and no prior or written, and no
contemporaneous oral representations or agreements between the parties with
respect to the subject matter of this Agreement shall be of any force and
effect. Any additions, amendments or modifications to this Agreement shall be of
no force and effect unless in writing and signed by both Owner and Manager.
5.08 Governing Law. This Agreement has been executed and delivered in the
State of North Carolina, and all the terms and provisions hereof and the rights
and obligations of the parties hereto shall be construed and enforced in
accordance with the laws thereof.
5.09 Captions and Headings. The captions and headings throughout this
Agreement are for convenience and reference only, and the works contained
therein shall in no way by held or deemed to define, limit, describe, explain,
modify, amplify or add to the interpretation, construction or meaning of any
provision of or the scope or intent of this Agreement nor in any way affect this
Agreement.
5.10 Authorization or Agreement. Manager and Owner represent and warrant
each to the other with respect to itself, that the execution and delivery of
this Agreement has been duly authorized by all respective action, will not
presently or with the passage of time, the giving of notice or both result in a
default under or violate or conflict with (i) the provisions of the partnership
agreement or articles of incorporation and bylaws, as the case may be, of
Manager of Owner, or (ii) any other agreement, mortgage, loan agreement or other
contract or instrument to which either party is bound or by which any of their
property or assets is subject, or (iii) any existing law, regulation, court
order or consent decree to which either party is bound or any of their property
or assets are subject.
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5.11 Indemnification. Manager agrees to indemnify, protect and hold
harmless Owner from and against any and all liabilities and damages (a) arising
from or out of any occurrence in, upon or at the Nursing Facility or any part
thereof, or the occupancy or use by Manager of the Nursing Facility, the
Personal Property or any part thereof, or occasioned wholly or in part by any
act or omission of Manager, its agents, contractors, employees or invitees in
connection with the Nursing Facility or the Personal Property during the term of
this Management Agreement, or (b) related to any claims, assessments,
chargebacks or other expenses (whether owed to or assessed by a private or
governmental party) arising in connection with the operation or other use of the
Nursing Facility or the Personal Property during the term of this Management
Agreement. Owner agrees to indemnify, protect and hold harmless Manager from and
against liabilities and damages arising from or occasioned wholly or in part by
any act or omission of Owner, its agents, contractors, employees or invitees in
connection with the Nursing Facility or the Personal Property during the term of
this Management Agreement.
IN WITNESS WHEREOF, the parties hereto have executed, sealed and delivered
this Agreement through their duly authorized representatives, as of the day and
year first above written.
HP/NORTH CAROLINA IV, INC.
By: /s/ James R. Smith
-------------------------------
Vice President
ATTEST:
/s/ Charles E. Trefzger
- -----------------------------
Asst. Secretary
(Corporate Seal)
CARDINAL OF KENTUCKY, INC.
By: /s/ Randall Bufford
----------------------
Vice President
ATTEST:
/s/ John G. Hundley
- -----------------------------
Assistant Secretary
(Corporate Seal)
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EXHIBIT 10.34
<PAGE>
LONG TERM CARE FACILITY
MANAGEMENT AGREEMENT
(Evangeline of King)
THIS LONG TERM CARE FACILITY MANAGEMENT AGREEMENT (the "Agreement") made
as of the 25th day of March, 1996, effective as of March 25, 1996, by and
between NCHC, INC., a Louisiana corporation ("Lessee"), and WelCare
International Management Corporation, a Georgia corporation ("Manager").
W I T N E S S E T H :
WHEREAS, the Lessee presently leases certain real and personal property
comprising a certain 120 bed nursing center located in Stokes County, North
Carolina (the "Facility") pursuant to that certain lease dated November 12, 1993
by and between Health Care Property Investors, Inc. ("HCPI") and Evangeline of
King, Inc. (as amended) and that certain Lease Assignment dated March 25, 1996
by and between Evangeline of King, Inc. and Lessee (collectively the "Lease");
and
WHEREAS, the parent corporation of Manager, WelCare International, Inc.
("WCI") has loaned to Lessee the sum of Three Million Six Hundred Forty Two
Thousand Eight Hundred Forty Six Dollars ($3,642,846.00) (the "WCI Loan") and in
connection therewith and with additional financing needs of Lessee, Manager and
Lessee desire to provide for additional advances by Manager to Lessee and to
provide for the repayment of all such sums, together with interest thereon, and
to secure certain additional rights for Manager with respect to the Facility;
and
WHEREAS, the Lessee and Manager also desire for Manager to provide its
experience, skill and supervision to manage the Facility on behalf of Lessee
under and subject to the terms of this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual promises and
covenants of the parties contained herein and for such other good and valuable
consideration, the receipt, adequacy and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
ARTICLE I
MANAGEMENT DUTIES AND OBLIGATIONS
1.01 Control Retained by Lessee. Lessee shall at all times exercise
overall control over the assets and operations of the Facility, subject to the
terms of this Agreement, and Manager shall perform the duties herein required to
be performed by it as the agent of Lessee and in accordance with the policies
and directives from time to time adopted by Lessee.
1.02 Changes in Method of Operation. Manager shall make substantial
changes in the method of operating the Facility only after timely notification
to Lessee of its intention to do so.
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1.03 Management of Facility. During the term of this Agreement, Manager
shall on behalf of Lessee manage all aspects of the operation of the Facility,
including, but not limited to staffing, accounting, billing, collections,
setting of rates and charges and general administration. In connection
therewith, Manager (either directly or through supervision of employees of the
Facility) shall:
(a) Hire or lease on behalf of Lessee and retain (to the extent such
personnel are reasonably available in the community in which the Facility is
located) an adequate staff of nurses, technicians, nurse aides, office and other
employees, including a qualified administrator (the "Administrator") and shall
promote, direct, assign and discharge all such employees on behalf of Lessee at
Manager's sole discretion; provided, however, that leased employees shall be
subject to the direction and control of the lessor of such leased employees. All
employees shall be employees of or leased by the Lessee and carried on the
payroll of the Facility and shall not be deemed employees or agents of Manager.
(b) Institute and amend, from time to time general salary scales,
personnel policies and appropriate employee benefits for all employees on behalf
of Lessee; provided, however, that leased employees shall be subject to the
general salary scales, personnel policies and employee benefit programs of the
lessor of such leased employees. Employee benefits may include pension and
profit sharing plans, insurance benefits, incentive plans for key employees and
holiday, vacation, personal leave and sick leave policies.
(c) Issue appropriate bills for services and materials furnished by
the Facility and use its reasonable best efforts to collect accounts receivable
and monies owed to the Facility, design and maintain accounting, billing,
patient and collection records; and prepare and file insurance, Medicare,
Medicaid and any and all other necessary or desirable reports and claims related
to revenue production. Lessee hereby grants Manager the right to enforce
Lessee's rights as creditor under any contract or in connection with rendering
any services for purposes of collecting accounts receivable and monies owed the
Facility.
(d) Order, supervise and conduct a program of regular maintenance
and repair.
(e) Purchase food, beverage, medical, cleaning and other supplies,
equipment, furniture and furnishings for the account of Lessee.
(f) Administer, supervise and schedule all patient and other
services of the Facility, including the operation of food, barber/beautician and
other ancillary services.
(g) Provide for the orderly payment (to the extent funds are
available therefor) of accounts payable, employee payroll, amounts due on short
and long-term indebtedness, taxes, insurance premiums, and all other obligations
of the Facility.
(h) Institute standards and procedures for admitting patients, for
charging patients for services, and for collecting the charges from the patients
or third parties.
(i) Obtain and maintain insurance coverage for the Facility naming
Lessee, Manager and such other persons requested by Lessee as insureds as
provided in Section 4.01 hereof.
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(j) Negotiate and enter into, in the name of and on behalf of
Lessee, such agreements, contracts and orders as Manager may deem necessary or
advisable, for the furnishing of services, concessions and supplies for the
operation and maintenance of the Facility.
(k) Negotiate on behalf of Lessee (and in conjunction with Lessee's
counsel) with any labor union lawfully entitled to represent employees of Lessee
who work at the Facility, but any collective bargaining agreement or labor
contract must be submitted to Lessee for its approval and execution.
(1) Assist in maintaining all licenses and permits required for the
operation of the Facility, its contracts with third party payors and other
similar governmental and non-governmental agencies and intermediaries.
(m) Make periodic evaluations of the performances of all departments
of the Facility.
(n) Design, establish and maintain a suitable accounting system
using accounts and classifications consistent with those used in similar
facilities.
(o) Advise and assist Lessee in designing an adequate and
appropriate public relations program.
1.04 Executive Operating Committee. To assure adequate liaison between
Lessee and Manager, Manager shall create an Executive Operating Committee which
shall consist of (1) a member of the Manager's Staff, (2) the Administrator of
the nursing home, and (3) a representative of Lessee to be selected by Lessee.
The Executive Operating Committee shall meet at least quarterly, keep minutes of
its proceedings, and shall have the following duties:
(a) To maintain appropriate medical, ethical and professional
standards within the nursing home.
(b) To see that residents admitted to the nursing home receive the
appropriate patient care.
(c) To see that federal, state and local regulations are met.
(d) To act in an advisory capacity in the overall operation of the
nursing home.
1.05 Reports to Lessee.
(a) Manager shall prepare and deliver to Lessee, within forty-five
(45) days after the close of each calendar month, unaudited financial statements
covering the prior month and containing a balance sheet and statement of income
and expenses in reasonable detail. Manager shall also provide any required
assistance to the independent accountants for the Facility, who shall be
selected by Manager, in the preparation of audited annual financial statements
for the operation of the Facility. Such financial statements shall be prepared
at Lessee's expense in accordance with generally accepted accounting principles
in the health care field consistently applied and delivered to Manager and
Lessee within ninety (90) days
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after the end of each fiscal year of the Facility. Manager shall prepare reports
or provide information to Lessee required by the Lease, any loan documents of
HCPI or any loan documents evidencing or securing the WCI Loan.
(b) Manager shall submit to Lessee each twelve (12) months its
budget for the operation of the Facility setting out anticipated income,
expenses and capital expenditures during the succeeding twelve (12) month
period. Manager shall use its best efforts to operate the Facility in accordance
with the provisions of the budget for the Facility as submitted to Lessee. Such
proposed budget for the Facility shall be delivered to Lessee prior to the
commencement of the operational fiscal year of the Facility.
(c) Manager shall schedule periodic management meetings to be
attended by representatives of both Manager and Lessee no less frequently than
semi-annually and shall furnish to Lessee quarterly written progress reports
concerning the operation of the Facility.
1.06 Bank Accounts and Working Capital.
(a) Manager shall deposit on Lessee's behalf in a bank account or
accounts of the Manager or the Facility established in Manager's name (the
"Operating Accounts") all funds received from the operations of the Facility and
such funds shall be disbursed from the Operating Accounts to and by Manager in
the manner and order of priority described in subsection (b) below. The
Operating Accounts shall be segregated from Manager's other depository and
concentration accounts maintained with NationsBank in Atlanta, Georgia, or such
other banking institution as Manager shall choose. Manager shall specify the
signatory or signatories required on all checks or other documents of withdrawal
for the Operating Accounts. Manager shall also deposit the personal funds of the
Facility residents into a separate trust account established in Manager's name
(the "Trust Account"). Manager shall designate those employees of the Facility
with signature authority for all checks or other documents of withdrawal for the
Trust Account. Manager shall specify the required signatory or signatories with
Lessee' s written approval (such approval not to be unreasonably withheld).
(b) All funds deposited in the Facility Depository Accounts shall be
disbursed in the following order of priority and, in each case, in such amounts
and at such times as required to be made in connection with the payment of:
(i) the Facility's Lease payments;
(ii) the costs and expenses of operating the Facility;
(iii) all accrued and unpaid interest on the WCI Loan;
(iv) the Management Fee payable under Section 3.01 hereof;
(v) principal and all accrued but unpaid interest on
Advances made by Manager pursuant to Section 6.11 of
this Agreement or otherwise;
(vi) funding of reasonable reserves for ordinary and
necessary operating expenses, including, without
limitation, taxes, insurance, working capital needs and
Lease payments, such
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reserves to be held in such subaccounts of the Operating
Accounts as Manager shall in its discretion deem
necessary or desirable;
(vii) such payments and prepayments of principal on the WCI
Loan as Manager shall in its discretion deem necessary
or desirable from funds available;
(viii) funding of a capital improvements reserve; and
(ix) any balance shall be paid to or held on behalf of
Lessee.
1.07 Access to Books, Records and Documents. If it is ultimately
determined that Section 952 of the Omnibus Budget Reconciliation Act of 1980 and
final regulations promulgated thereunder apply to this Agreement:
(a) Until the expiration of four years after the furnishing of
services pursuant to this Agreement, Manager shall, as provided in Section 952,
make available, upon written request, to the Secretary of Health and Human
Services, or upon request, to the Comptroller General of the United States, or
any of their duly authorized representatives, this Agreement, and all books,
documents and records of Manager that are necessary to verify the nature of this
Agreement for which payment may be made under the Medicare program; and
(b) If Manager carries out any of the duties of this Agreement
pursuant to a subcontract or subcontracts with an aggregate value or cost of
$10,000 or more over a twelve (12) month period with a related organization,
such subcontract or subcontracts shall contain a clause to the effect that,
until the expiration of four years after the furnishing of such services
pursuant to such subcontract or subcontracts, the related organization shall, as
provided in Section 952, make available, upon written request, to the Secretary
of Health and Human Services, or upon request, to the Comptroller General of the
Untied States, or any of their duly authorized representatives, the subcontract
or subcontracts, and all books, documents and records of such subcontractors for
which payment may be made under the Medicare program.
1.08 Licenses.
(a) Manager shall, on behalf of Lessee, use its reasonable best
efforts to apply for, obtain and maintain all necessary licenses, permits,
consents, and approvals from all governmental agencies which have jurisdiction
over the operation of the Facility.
(b) Neither Lessee not Manager shall knowingly take any action or
fail to take any action which may (1) cause any governmental authority having
jurisdiction over the operation of the Facility to institute any proceeding for
the rescission or revocation of any necessary license, permit, consent or
approval, or (2) adversely affect Lessee's right to accept and obtain payments
under Medicare, Medicaid, or any other public or private third party medical
payment program.
(c) Manager shall, with the written approval of Lessee, have the
right to contest by appropriate legal proceedings, diligently conducted in good
faith in the name of Lessee, the validity or application of any law, ordinance,
rule, ruling, regulation, order or
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requirement of any governmental agency having jurisdiction over the operation of
the Facility. Lessee, after having given its written approval, shall pay
attorneys' fees incurred with regard to the contest. Counsel for any such
contest shall be selected by Manager. Manager shall have the right, without the
written consent of the Lessee, to process all third-party claims for the
services of the Facility, including, without limitation, the full right to
contest to the exhaustion of all applicable administrative proceedings or
procedures, adjustment and denials by governmental agencies or their fiscal
intermediaries as third-party payors.
1.09 Administrator. Manager shall employ or lease for the Facility an
Administrator to serve as the chief executive officer of such Facility. The
Administrator shall be an employee of and shall be compensated by Lessee and
Manager shall pay on Lessee's behalf out of the Operating Accounts of the
Facility, in advance, on or before the fifth (5th) day of each month, all
compensation, including salary, fringe benefits, bonuses and business expense
reimbursements approved by Manager, to the Administrator. The term "fringe
benefits" shall include, without limitation, employer's F.I.C.A. payments,
unemployment compensation and other employment taxes, bonuses, vacation,
personal and sick leave benefits, workers' compensation, group life, health and
accident insurance premiums and disability and other benefits.
1.10 Taxes. Any federal, state or local taxes, assessments or other
governmental charges properly imposed on the Facility are the obligations of the
Lessee, not of Manager, but all such obligations shall be paid by Manager on
Lessee's behalf out of the Operating Accounts of the Facility. With the Lessee's
prior written consent, Manager may contest the validity or amount of any such
tax or imposition on the Facility in the same manner as described in Section
1.08(c) hereof.
1.11 Use of Manager's Personnel. An authorized representative of Manager
shall visit the Facility as often as Manager deems necessary. The time spent by
such authorized representative of Manager during such visits and all
out-of-pocket expenses arising from travel and lodging connected with such
visitations shall not be charged separately to Lessee.
1.12 Government Regulations. Manager agrees to operate and maintain the
Facility in substantial compliance with the requirements of any material
statute, ordinance, law, rule, regulation or order of any governmental or
regulatory body having jurisdiction over the Facility and to comply with all
orders and requirements of the local board of fire underwriters or any other
body which may exercise similar functions; provided, however, that Manager shall
not be required to expend its separate funds in order to comply with any such
statutes, ordinances, laws, rules, regulations or orders, and to the extent any
funds are so required, it shall fulfill its obligations hereunder by notifying
Lessee of the actions necessary in order to be in compliance therewith and
expending such funds of Lessee as Manager may deem available for such purpose.
1.13 Quality Controls. Manager shall activate and maintain on a continuing
basis a "Quality Assurance Program" in order to provide objective measurements
of the quality of health care provided at the Facility and, in connection
therewith, shall utilize such techniques as patient questionnaires and
interviews, physician questionnaires and interviews, and inspections.
1.14 Staff Specialists. In addition to the other managerial services
provided for herein, Manager shall make available to the Facility, for
consultation and advice, when
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necessary, specialists in such fields as accounting, auditing, budgeting,
dietary services, environmental control, management, maintenance, nursing,
personnel, pharmacy operations, public relations, purchasing, quality assurance,
systems and procedures, and third-party reimbursement.
1.15 Performance of Services by Manager. In the performance of its
services hereunder, Manager shall exercise the same standards and degree of care
used by reasonable and prudent managers of nursing homes of similar size, nature
and character as the Facility. Notwithstanding anything herein to the contrary,
Manager shall not be deemed in violation of this Agreement if Manager is
prevented from performing any of its obligations hereunder for any reason beyond
its reasonable control including, without limitation, strikes, walkouts or other
employee disturbances, acts of God, or the action or promulgation of any
statute, rule, regulation or order by any federal, state, or local governmental
or judicial agency or official, nor shall it be deemed in default hereunder or
otherwise liable for any error of judgment or act or omission in the performance
of its services hereunder, which is made in reasonable good faith, except for
its wilful default or gross negligence.
1.16 Extraordinary Services. Lessee agrees that any extraordinary or
specialized service recommended by Manager may be performed for a separate fee
as agreed upon by Manager in advance of the performance of such service. If
Manager provides such service, such fee shall not be in excess of such amount as
would be charged by a third party, negotiating at arm's length, for the
performance of such service.
1.17 Obligations under WCI Loan. Manager acknowledges the existence and
terms of that certain promissory note of even date herewith executed and
delivered by Lessee in the sum of $3,642,846.00 relating to the WCI Loan, as
more particularly described in Article V. Manager agrees to perform or cause to
be performed, on Lessee's behalf, for so long as the Management Agreement
remains in full force and effect, all covenants therein relating to the
operation of the Facility.
1.18 Maintenance of Facility. Manager agrees to maintain the Facility in a
good and serviceable condition, ordinary wear and tear and damage by fire or
other casualty or resulting from condemnation excepted, to the extent sufficient
revenues of the Facility are available for such purpose.
ARTICLE II
TERM AND TERMINATION
2.01 Term. The term of this Agreement shall commence on the date of this
Agreement and, unless sooner terminated as provided herein, shall end upon
termination of the Lease.
2.02 Option to Extend Term. If Lessee exercises its option to extend under
the Lease, Manager shall have the option to extend the term of this Agreement
for a term equal to the Lease extension by giving written notice to Lessee of
Manager's exercise of such right and option not later than three (3) months
prior to the end of the original term hereof or the term hereof as previously
extended. Each and all of the provisions of this Agreement shall apply during
the extended term(s) of this Agreement.
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2.03 Termination for Cause.
(a) If either party shall apply for or consent to the appointment of
a receiver, trustee or liquidator of such party of all or a substantial part of
its assets, file a voluntary petition in bankruptcy, make a general assignment
for the benefit of creditors, file a petition or an answer seeking
reorganization or arrangement with creditors or take advantage of any insolvency
law, or if an order, judgment or decree shall be entered by any court of
competent jurisdiction, on the application of a creditor, adjudicating such
party bankrupt or insolvent or approving a petition seeking reorganization of
such party or appointing a receiver, trustee or liquidator for such party or all
or a substantial part of its assets, and such order, judgment or decree shall
continue unstayed and in effect for any period of one hundred and twenty (120)
consecutive days, then, in case of any such event, the term of this Agreement
shall expire, at the other party's option, upon five (5) days written notice.
(b) If Lessee shall fail to keep, observe or perform any material
covenant, agreement, term or provision of this Agreement to be kept, observed,
or performed by Lessee, and such default shall continue for a period of thirty
(30) days, (or ten (10) days in the case of a failure to pay any amounts due
Manager under this Agreement) after notice thereof by Manager to Lessee, then,
in case of any such event and upon the expiration of any period of grace
applicable thereto, the term of this Agreement shall expire, at the option of
the Manager, upon five (5) days written notice to the Lessee. Such termination
shall be without prejudice to (i) Manager's right to receive management fees
under Article III hereof through the end of the month in which such termination
becomes effective together with any and all other sums loaned or advanced to
Lessee or on Lessee's behalf by Manager under this Agreement or otherwise; (ii)
the right of WCI to receive repayment of any and all Advances to Lessee pursuant
to Section 6.11 hereof; and (iii) the rights of Manager in, to and under the
Assignment of Certificates of Deposit by and among WCI, Manager, Lessee,
Evangeline Health Care, Inc. ("EHC"), and certain subsidiaries of EHC.
2.04 Optional Termination.
(a) Manager has the option to terminate this Agreement, without
damage or penalty, upon ten (10) days prior written notice to Lessee, upon the
occurrence of either of the following events:
(i) The Facility or any material portion thereof is damaged
or destroyed to the extent that in the written opinion of an independent
architect or engineer reasonably acceptable to both parties (x) it is not
practicable or desirable to rebuild, repair or restore the Facility within
a period of six (6) months to its condition immediately preceding such
damage, or (y) the conducting of normal operations of the Facility would
be prevented for a period of six (6) months or more; or
(ii) Title to or the temporary use of all or substantially all
the Facility is taken under the exercise of the power of eminent domain by
any governmental authority or person, firm or corporation acting under
governmental authority which in the opinion of an independent architect or
engineer reasonably acceptable to both parties prevents or is likely to
prevent the conducting of normal operations at the Facility for a period
of at least six (6) months.
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Provided, however, that in either of such events, Manager shall have the
right to rebuild, restore or otherwise rearrange the Facility and recommence
operations thereof, and thereupon Manager shall continue to manage the Facility
under the same terms, conditions, and fees as provided herein.
(b) Manager shall have the option to terminate this Agreement
without damage or penalty upon ten (10) days prior written notice to the Lessee
following the sale, transfer, assignment, or other disposition, in whole or in
part, by the Lessee of its interest in the Facility. In the event Lessee is a
corporation, any dissolution, merger, consolidation or other transfer of a
substantial portion of the stock of Lessee shall constitute an assignment of the
Facility for all purposes of this Section 2.05(b). The term "substantial
portion" means the ownership of stock possessing, and of the right of exercise,
at least fifty percent (50%) of the total combined voting power of all classes
of stock of such corporation, issued, outstanding and entitled to vote for the
election of directors whether such ownership is direct ownership, or indirect
ownership through ownership of stock possessing, and of the right to exercise,
at least fifty percent (50%) of the total combined voting power of all classes
of stock of another corporation or corporations; provided, however, that this
prohibition on stock transfer shall not apply to a "publicly traded
corporation," which term is hereby defined for all purposes under this Agreement
as a corporation whose shares of stock have been registered pursuant to the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, or the state securities laws pursuant to an exemption from the
aforementioned statutes.
Notwithstanding the foregoing, for so long as (i) the WCI Loan remains
outstanding and unpaid or (ii) this Agreement remains in force or effect, no
sale, transfer, assignment or other disposition, in whole or in part, by Lessee
of its interest in the Facility shall be permitted without Manager's written
consent, which consent may be granted or withheld in Manager's sole and absolute
discretion. The parties acknowledge and agree that any purported sale, transfer,
assignment or other disposition by Lessee in violation of this Section 2.04(b)
shall, at Manager's option, be null, void and of no force or effect, and that
equitable remedies, including the remedy of specific performance (to compel
rescission of any such sale, transfer, assignment or other disposition) and
injunctive relief (to prevent or restrain such prohibited actions) shall be
available to Manager, in addition to its rights and remedies at law and under
this Agreement.
ARTICLE III
MANAGEMENT FEE
3.01 Management Fee. Effective as of the date of this Agreement and for
the remainder of the term hereof, Manager shall receive from Lessee, and Lessee
shall pay to Manager, each month during the term hereof, as the amount due for
services, a management fee equal to six and one-half percent (6.5%) of the Gross
Revenues of the Facility. "Gross Revenues" shall mean, for the Facility, total
revenues of such Facility, including, without limitation, all ancillary fees,
charges, rentals and other revenue derived in any way from the operation of such
Facility, on an accrual basis, after deduction of allowances for contractual
adjustments as they relate to third-party payors and before deduction of any and
all expenses.
3.02 Payment of Management Fees. On or before the tenth (10th) day of each
month during the term hereof, Lessee shall be obligated to pay Manager an
estimated management
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fee, calculated in accordance with Section 3.01 hereof, based on the estimated
Gross Revenues of the Facility during the current month. All management fees due
hereunder shall be withdrawn from the Operating Accounts and paid to Manager.
Any late payments of management fees not made after three (3) days written
notice to Lessee shall bear interest equal to the Advance Rate (as defined in
Section 6.11 hereof) from their original due date until fully paid.
3.03 Adjustment. Within fifteen (15) days after the delivery of the annual
financial statements of the Facility, Lessee shall pay to Manager or Manager
shall credit Lessee such amount as is necessary to make the amount of the
management fees paid with respect to the year to which the financial statements
relate equal to the amount of management fees shown to be due by the annual
audit.
ARTICLE IV
COVENANTS OF LESSEE
4.01 Insurance. Manager shall provide and maintain, on behalf of Lessee
and at Lessee's expense, throughout the term of this Agreement, insurance with
responsible companies naming Lessee and Manager (as their respective interests
may appear) as insureds as required in the Lease.
4.02 Licensing; Changes and Services. Subject to the terms of the Lease,
Lessee agrees to take or cause to be taken any and all actions necessary to be
taken by it as the overall supervisor of the assets and operations of the
Facility in order to maintain all required licenses, permits for the operation
of the Facility and the Facility's eligibility to participate in all public or
private third-party medical payment programs, including providing sufficient
funds to bring the Facility in compliance with all applicable fire safety codes
and other laws, regulations and orders, and to correct all structural,
maintenance, procedural and staffing deficiencies as shown on the surveys and
reports of governmental agencies having jurisdiction over the Facility. Lessee
agrees that it will not, through the exercise of its overall supervisory powers,
substantially change the services rendered by the Facility during the term
hereof without the prior written approval of Manager.
Nothing contained in this Section 4.02 shall affect the duties and
obligations of Manager with regard to the applying for, obtaining and
maintaining all necessary governmental licenses, permits, consents and approvals
set forth in Section 1.08 hereof.
4.03 Transfer of Leasehold. Subject to the requirements of the Lease,
Lessee further acknowledges and agrees that upon the transfer, lease,
assignment, sale or other disposition or conveyance of all or any part of its
leasehold interest in and to the Facility, this Agreement shall remain in full
force and effect unless otherwise terminated as provided in Section 2.04(b).
Subject to the requirements of the Lease, Lessee covenants and agrees that in
the event that it sells, assigns or otherwise transfers its leasehold interest
in and to the Facility at any time while this Agreement is in effect, it will
require the transferee to assume the obligations of the Lessee hereunder. The
provisions of this Section 4.03 are in addition to, and do not modify or
abridge, the prohibitions against sale, transfer, assignment or other
disposition of the Facility, as set forth in Section 2.04(b).
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<PAGE>
4.04 Damage or Destruction. If the Facility or any portions thereof shall
be damaged or destroyed by fire or other casualty, Lessee shall commence to
repair, restore, rebuild or replace any such damage or destruction within sixty
(60) days after such fire or other casualty and shall proceed with due diligence
to complete such work within a reasonable period of time.
ARTICLE V
LOAN FROM WCI
In addition to the agreements set forth herein between Lessee and Manager
relating to management of the Facility, WCI, the parent corporation of Manager,
has provided Lessee with the WCI Loan in the principal sum of $3,642,846.00
evidenced by a promissory note of even date herewith from Lessee payable to the
order of Lessee, and secured by, among other documents and instruments, (a) a
pledge agreement for 100% of the outstanding corporate stock of Lessee; (b) a
security agreement for all of the accounts receivable, intangibles and other
personal property in which Lessee has an interest of any kind; (c) an assignment
of the collateral (or substituted collateral) now or hereafter provided to
secure the reimbursement obligations of Lessee or Manager to such bank or
financial institution (the "Issuer") as shall have issued letters of credit in
favor of Health Care Property Investors, Inc., as beneficiary (which letters of
credit presently aggregate $1,150,000.00) to secure the obligations of Lessee
under the Lease, (d) a leasehold deed of trust and (e) an assignment of rents
and leases. This Management Agreement is a material inducement to the making of
the WCI Loan, and accordingly, is coupled with an interest, is irrevocable by
Lessee and non-cancellable by Lessee unless expressly provided in this Agreement
to the contrary, and then only upon the occurrence of such circumstances as may
be described herein.
ARTICLE VI
MISCELLANEOUS COVENANTS
6.01 Assignment. Lessee shall not assign its rights and/or obligations
under this Agreement without the prior written consent of Manager or pursuant to
the provisions of the Lease. Manager shall not assign its rights and/or
obligations under this Agreement, except to an affiliate of Manager, without
prior written consent of Lessee.
6.02 Binding Agreement. The terms, covenants, conditions, provisions and
agreements herein contained shall be binding upon and inure to the benefit of
the parties hereto, their successors and assigns.
6.03 Relationship of Parties. Nothing contained in this Agreement shall
constitute or be construed to be or to create a partnership, joint venture or
lease between Lessee and Manager with respect to the Facility.
6.04 Notices. All notices, demands and requests contemplated hereunder by
either party to the other shall be in writing, and shall be delivered by hand,
transmitted by cable, telegram or telecopy (receipt confirmed), or mailed,
postage prepaid, registered, or certified mail return receipt requested:
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(a) to Lessee, by addressing the same to:
NCHC, Inc.
3501 N. Causeway Boulevard
Suite 740
Metairie, Louisiana 70002
Attn: Melville F. Borne
(b) to Manager, by addressing the same to:
WelCare International Management Corporation
7000 Central Parkway
Suite 970
Atlanta, Georgia 30328
Attn: Mr. J. Stephen Eaton, President
or to such other address or to such other person as may be designated by notice
given from time to time during the term of this Agreement by one party to the
other. Any notice hereunder shall be deemed given five (5) days after mailing,
if given by mailing in the manner provided above, or on the date delivered or
transmitted if given by hand, cable, telegraph or telecopy (receipt confirmed).
6.05 Entire Agreement; Amendments. The Agreement contains the entire
agreement between the parties hereto, and no prior oral or written, and no
contemporaneous oral representations or agreements between the parties with
respect to the subject matter of this Agreement shall be of any force and
effect. Any additions, amendments or modifications to this Agreement shall be of
no force and effect unless in writing and signed by both Lessee and Manager.
6.06 Governing Law. This Agreement has been executed and delivered in the
State of Georgia, and all the terms and provisions hereof and the rights and
obligations of the parties hereto shall be governed by, and construed and
enforced in accordance with, the laws of the State of Georgia (without regard to
its rules of conflicts of laws).
6.07 Captions and Headings. The captions and headings throughout this
Agreement are for convenience and reference only and do not constitute a part
hereof.
6.08 Disclaimer of Employment of Facility Employees. No person employed in
the operation of the Facility will be an employee of Manager, and Manager will
have no liability for payment of their wages, fringe benefits, payroll taxes and
other expenses of employment.
6.09 Costs and Expenses; Indemnity. All fees, costs and expenses arising
out of, relating to or incurred in the operation of the Facility, including,
without limitation, the fees, costs, and expenses of Manager and outside
consultants and professionals, shall be the sole responsibility of Lessee and
shall be payable as operating expenses of the Facility. Manager, by reason of
the execution of this Agreement or the performance of its services hereunder,
shall not be liable for or deemed to have assumed any liability for such fees,
costs and expenses, or any other liability or debt of Lessee whatsoever, arising
out of or relating to the Facility or incurred at its operation, except the
salary of Manager's employees and the expenses and costs incurred at its central
administrative offices in performance of its
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obligations hereunder. Lessee agrees to indemnify and hold Manager and its
officers, directors, agents and employees harmless from and against all losses,
claims, damages or other liabilities, including the costs and expenses incurred
in connection therewith, arising out of or relating to the ownership of the
Facility (except those resulting from the wilful misconduct or gross negligence
of Manager), including, without limitation, any liability asserted against
Manager or any of its officers, directors, employees or agents by reason of any
action taken by any of the foregoing while performing the duties of Manager
hereunder on behalf of Lessee.
6.10 Responsibility for Misconduct of Employees and Other Persons. Manager
will have no liability whatsoever for damages suffered on account of the
dishonesty, misconduct or negligence of any employee of or employee leased by
the Facility or any officer, director, partner, stockholder, employee or agent
of Lessee. Manager shall be liable to the Facility in connection with damage or
loss directly sustained by Lessee by reason of the dishonesty, wilful misconduct
and gross negligence of Manager's employees in the operation of the Facility
during the term of the Agreement.
6.11 Advances by Manager. Manager shall have the right, but not the
obligation, to advance to Lessee any and all sums required to maintain all
necessary licenses and permits and to otherwise keep the Facility operating as a
fully insured nursing home in good condition and repair. All such sums advanced
by Manager to Lessee shall be repaid by Lessee, with interest commencing on the
date such sums were advanced at a rate equal to the announced prime rate of
interest of NationsBank of Georgia, N.A., Atlanta, Georgia, plus two percent
(2%) per annum ("Advance Rate"), immediately upon written notice thereof to
Lessee, and Manager shall have the right at any time and from time to time to
instruct the signatories of the Operating Accounts to withdraw and pay to
Manager amounts necessary in order to repay such advances.
6.12 Definition of Affiliate. For purposes of this Agreement, the term
"affiliate" shall mean any person or entity which Manager or Lessee or their
respective stockholders or individual partners, directly or indirectly, through
one or more intermediaries, controls, is in common control with, or is
controlled by.
6.13 Authorization of Agreement. Manager and Lessee represent and warrant,
each to the other with respect to itself, that the execution and delivery of
this Agreement has been duly authorized by all respective action, will not
presently or with the passage of time, the giving of notice, or both result in a
default under or violate or conflict with (i) the provisions of the articles of
incorporation and bylaws of Manager or Lessee, or (ii) any other material
agreement, mortgage, loan agreement or other contract or instrument by which
either party is bound or to which any of its property or assets are subject, or
(iii) any existing law, regulation, court order or consent decree by which
either party is bound or to which any of its property or assets are subject.
6.14 Liability. The obligations and duties of Lessee under this Agreement
are solely the obligations and duties of Lessee, a corporation, and not of any
of its officers, directors, employees, affiliates, attorneys or shareholders.
Manager shall look solely to Lessee for performance of the obligations evidenced
by this Management Agreement and Manager shall not assert any claim, action,
right of action or cause of action against the officers, directors, employees,
affiliates, attorneys or shareholders of Lessee for the performance of the
obligations of Lessee under this Agreement, whether such claims, actions, rights
of action or
13
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causes of action are now existing or hereafter arising, accrued or unaccrued,
under any legal or other right or theory, including by a piercing of the
corporate veil of Lessee. Nothing herein shall affect any obligations of
Evangeline Health Care, Inc. ("EHC") or any subsidiaries or affiliates of EHC
for breach of any warranties, representations or covenants contained in that
certain Leasehold Purchase and Sale Agreement dated as of December 21, 1995, as
amended and modified of even date herewith pursuant to that certain Agreement
Regarding Assignment, Loan and Management Agreements.
ARTICLE VII
OPTION TO PURCHASE
Pursuant to the Lease HCPI has granted to Lessee a right of first refusal
and an option to purchase from HCPI the Facility, related tangible and
intangible personal property and all of HCPI's right, title and interest in and
to the license to operate the Facility. Such right of first refusal and option
to purchase are collectively hereinafter referred to as the "Lease Option."
The following grant to Manager of certain rights and options in respect of
the Lease Option shall be so construed as not to apply unless Lessee shall have
a right to exercise the Lease Option. In the event Lessee receives notice of its
right to exercise the Lease Option, Lessee shall provide Manager with a copy of
such notice and shall, if permitted to do so under the terms of the Lease or if
Manager so requests, exercise such option or right of first refusal and
thereafter assign or convey its right, title and interest in, to and under the
Lease Option to Manager. If not permitted under the terms of the Lease Option to
assign or convey the Lease Option to Manager, whether before or after exercise
thereof, then at Manager's request, Lessee shall proceed to acquire the Facility
on Manager's behalf, pursuant to the terms of the Lease Option, and upon
completion of such acquisition, Lessee shall convey the facility to Manager upon
the identical terms and conditions, including purchase price, by which Lessee
acquired the Facility.
Subject to applicable limitations on the right of Lessee to exercise the
Lease Option as may appear in the Lease, Lessee hereby grants unto Manager, its
nominees, assigns, successors or representatives, the exclusive and irrevocable
right and option to acquire, pursuant to the identical terms and conditions
(including purchase price) set forth in the Lease Option for Lessee's purchase
of the Facility, all of HCPI's right, title and interest, now or hereafter owned
or possessed by HCPI, or acquired by Lessee pursuant to the Lease Option, in and
to (i) the real estate on which the Facility is located, together with all
buildings, structures and improvements now or hereafter located thereon,
including without limitation, the Facility, and all rights, tenements,
hereditaments and appurtenances thereunto belonging or in any wise appertaining
thereto, all right, title and interest of HCPI in and to any and all appurtenant
easements and any and all roads, streets, lanes and highways, whether public or
private, adjacent to or adjoining the Facility, and the reversion or reversions,
remainder or remainders, rents, issues or profits thereof, and all tangible
personal property now or hereafter owned by HCPI and now or hereafter located on
or at the Facility or actually or constructively attached thereto or to the
buildings, structures or improvements thereon, and all right, title and interest
of HCPI in and to all licenses required to operate the Facility (to the extent
such licenses can be conveyed or transferred under applicable law), all as more
particularly described in the Lease Option; (ii) the personal property of HCPI
of any nature whatsoever, tangible or intangible, wherever situated, now or
hereafter owned by HCPI and now or
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hereafter located on or about the Premises and/or used in connection with the
operation of the Facility (collectively, the "HCPI Assets").
IN WITNESS WHEREOF, the parties hereto have executed, sealed and delivered
this Agreement through their duly authorized representatives, as of the day and
year first above written.
NCHC, INC.
By: /s/ Nannette C. Alba
--------------------------------------
Nannette C. Alba, Sr. Vice President
WELCARE INTERNATIONAL MANAGEMENT
CORPORATION
By: /s/ Alan C. Dahl
--------------------------------------
Alan C. Dahl, Vice President
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SCHEDULE 10.34
CHMC has entered into agreements with NCHC, Inc. substantially identical
to Exhibit 10.34 as follows:
1. Long Term Care Facility Management Agreement dated March 25, 1996 for
Caldwell County, North Carolina facility.
2. Long Term Care Facility Management Agreement dated March 25, 1996 for
Buncombe County, North Carolina facility.
3. Long Term Care Facility Management Agreement dated July 18, 1996 for
Buncombe County, North Carolina facility. A material detail in which this
agreement differs from Exhibit 10.34 is that the amount of the "WCI Loan" to
NCHC referenced therein is $4,546,926.00 and is evidenced by the Amended and
Restated Promissory Note from NCHC dated as of March 25, 1996.
16
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EXHIBIT 10.35
<PAGE>
LONG TERM CARE FACILITY
MANAGEMENT AGREEMENT
NC HEALTH CARE - ARCHDALE, INC.
THIS MANAGEMENT AGREEMENT (the "Agreement") made as of the 30th day of
June, 1996, by and between NC HEALTH CARE - ARCHDALE, INC., a Georgia
corporation ("Owner") and WELCARE INTERNATIONAL MANAGEMENT CORPORATION
("Manager")
W I T N E S S E T H :
WHEREAS, the Owner presently owns or leases (pursuant to a long term
lease) real and personal property comprising a certain 88 bed nursing home
facility known as Evangeline of Archdale, located in Randolph County, North
Carolina (the "Facility"); and
WHEREAS, the Owner desires to retain Manager under the terms of this
Agreement to provide its experience, skill and supervision to manage the
Facility on behalf of Owner; and
WHEREAS, Manager desires to perform the management services on behalf of
Owner under and subject to the terms of this Agreement.
NOW, THEREFORE, in consideration of ten dollars ($10.00) in hand paid, the
premises and mutual promises and covenants of the parties contained herein and
other good and valuable consideration, the receipt, adequacy and sufficiency of
which is hereby acknowledged, the parties hereby agree as follows:
ARTICLE I
MANAGEMENT DUTIES AND OBLIGATIONS
1.01 Control Retained by Owner. Owner shall at all times exercise overall
control over the assets and operations of the Facility, and Manager shall
perform the duties herein required to be performed by it as the agent of Owner
and in accordance with the policies and directives from time to time adopted by
Owner.
1.02 Changes in Method of Operation. Manager shall make substantial
changes in the method of operating the Facility only after timely notification
to and approval from Owner which approval shall not be unreasonably withheld.
1.03 Management of Facility. During the term of this Agreement, Manager
shall on behalf of Owner manage all aspects of the operation of the Facility,
including, but not limited to staffing, accounting, billing, collections,
setting of rates and charges and general administration. In connection
therewith, Manager (either directly or through supervision of employees of the
Facility) shall:
(a) Hire on behalf of Owner and retain (to the extent such personnel
are reasonably available in the community in which the Facility is located) an
adequate staff of nurses, technicians, nurse aides, office and other employees,
including a qualified administrator (the "Administrator") and shall promote,
direct, assign and discharge all such employees on behalf of Owner at Manager's
sole discretion. All employees shall be employees
<PAGE>
of the Owner and carried on the payroll of the Facility and shall not be deemed
employees or agents of Manager.
(b) Institute and amend, from time to time, general salary scales,
personnel policies and appropriate employee benefits for all employees on behalf
of Owner. Employee benefits may include pension and profit sharing plans,
insurance benefits, incentive plans for key employees and holiday, vacation,
personal leave and sick leave policies.
(c) Issue appropriate bills for services and materials furnished by
the Facility and use its reasonable best efforts to collect accounts receivable
and monies owed to the Facility, design and maintain accounting, billing,
patient and collection records; and prepare and file insurance, Medicare,
Medicaid and any and all other necessary or desirable reports and claims related
to revenue production. Owner hereby grants Manager the right to enforce Owner's
rights as creditor under any contract or in connection with rendering any
services for purposes of collecting accounts receivable and monies owed the
Facility.
(d) Order, supervise and conduct a program of regular maintenance
and repair, except that physical improvements costing more than $10,000 shall be
subject to approval of Owner.
(e) Purchase food, beverage, medical, cleaning and other supplies,
equipment, furniture and furnishings for the account of Owner, except that the
purchase of any single item which costs more than $5,000 shall be subject to
approval by Owner.
(f) Administer, supervise and schedule all patient and other
services of the Facility, including the operation of food, barber/beautician and
other ancillary services.
(g) Provide for the orderly payment (to the extent funds of Owner
are available therefor) of accounts payable, employee payroll, amounts due on
short and long-term indebtedness, taxes, insurance premiums, and all other
obligations of the Facility.
(h) Institute standards and procedures for admitting patients, for
charging patients for services, and for collecting the charges from the patients
or third parties.
(i) Obtain and maintain insurance coverage for the Facility naming
Owner, Manager and such other persons requested by Owner as insureds as provided
in Section 4.01 hereof.
(j) Negotiate and enter into, in the name of and on behalf of Owner,
such agreements, contracts and orders as Manager may deem necessary or
advisable, for the furnishing of services, concessions and supplies for the
operation and maintenance of the Facility.
(k) Negotiate on behalf of Owner (and in conjunction with Owner's
counsel) with any labor union lawfully entitled to represent employees of Owner
who work at the Facility, but any collective bargaining agreement or labor
contract must be submitted to Owner for its approval and execution.
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<PAGE>
(1) Assist in maintaining all licenses and permits required for the
operation of the Facility, its contracts with third party payors and other
similar governmental and non-governmental agencies and intermediaries.
(m) Make periodic evaluations of the performances of all departments
of the Facility.
(n) Design, establish and maintain a suitable accounting system
using accounts and classifications consistent with those used in similar
facilities.
(o) Advise and assist Owner in designing an adequate and appropriate
public relations program.
1.04 Reports to Owner.
(a) Manager shall prepare and deliver to Owner, within forty-five
(45) days after the close of each calendar month, unaudited financial statements
covering such prior month and containing a balance sheet and statement of income
and expenses in reasonable detail. Manager shall also provide any required
assistance to the independent accountants for the Facility, who shall be
selected by Manager and approved by Owner, in the preparation of unaudited (or
audited if so requested by Owner) financial statements for the operation of the
Facility. Such financial statements shall be prepared at Owner's expense in
accordance with generally accepted accounting principles in the health care
field consistently applied and delivered to Manager and Owner promptly after the
end of each fiscal year of the Facility.
(b) Manager shall submit to Owner each twelve (12) months a proposed
budget for the operation of the Facility setting out anticipated income,
expenses and capital expenditures during the succeeding twelve (12) month
period, and shall use reasonable efforts to operate the Facility in accordance
with the provisions of the budget for the Facility submitted to and approved by
Owner. Such proposed budget for the Facility shall be delivered to Owner no
later than thirty (30) days prior to the commencement of the operational fiscal
year of the Facility.
(c) Manager shall schedule periodic management meetings to be
attended by representatives of both Manager and Owner no less frequently than
semi-annually and shall furnish to Owner semi-annual written progress reports
concerning the operation of the Facility.
1.05 Bank Accounts and Working Capital. Manager, in the Facility's name
and on behalf of Owner, shall deposit in a bank account or accounts of the
Facility (the "Operating Accounts") established in Owner's name all funds
received from the operations of the Facility. Owner shall provide sufficient
working capital for the operation of the Facility and shall make deposits in the
Operating Account of such working capital from time to time upon the request of
Manager. All costs and expenses incurred in the operation of the Facility shall
be paid out of the Operating Accounts. Manager shall specify with the approval
of the Owner the signatory or signatories required on all checks or other
documents of withdrawal for the Operating Accounts.
1.06 Access to Books, Records and Documents. If it is ultimately
determined that Section 952 of the Omnibus Reconciliation Act of 1980 and final
regulations promulgated thereunder apply to this Agreement:
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<PAGE>
(a) Until the expiration of four years after the furnishing of
services pursuant to this Agreement, Manager shall, as provided in Section 952,
make available, upon written request, to the Secretary of Health and Human
Services, or upon request, to the Comptroller General of the United States, or
any of their duly authorized representatives, this Agreement, and all books,
documents and records of Manager that are necessary to verify the nature of this
Agreement for which payment may be made under the Medicare program; and
(b) If Manager carries out any of the duties of this Agreement
pursuant to a subcontract or subcontracts with an aggregate value or cost of
$10,000 or more over a twelve (12) month period with a related organization,
such subcontract or subcontracts shall contain a clause to the effect that,
until the expiration of four years after the furnishing of such services
pursuant to such subcontract or subcontracts, the related organization shall, as
provided in Section 952, make available, upon written request, to the Secretary
of Health and Human Services, or upon request, to the Comptroller General of the
Untied States, or any of their duly authorized representatives, the subcontract
or subcontracts, and all books, documents and records of such subcontractors for
which payment may be made under the Medicare program.
1.07 Licenses.
(a) Manager shall, on behalf of Owner, use its reasonable best
efforts to apply for, obtain and maintain all necessary licenses, permits,
consents, and approvals from all governmental agencies which have jurisdiction
over the operation of the Facility.
(b) Neither Owner nor Manager shall knowingly take any action or
fail to take any action which may (1) cause any governmental authority having
jurisdiction over the operation of the Facility to institute any proceeding for
the rescission or revocation of any necessary license, permit, consent or
approval, or (2) adversely affect Owner's right to accept and obtain payments
under Medicare, Medicaid, or any other public or private third party medical
payment program.
(c) Manager shall, with the written approval of Owner, have the
right to contest by appropriate legal proceedings, diligently conducted in good
faith in the name of Owner, the validity or application of any law, ordinance,
rule, ruling, regulation, order or requirement of any governmental agency having
jurisdiction over the operation of the Facility. Owner, after having given its
written approval, shall pay attorneys' fees incurred with regard to the contest.
Counsel for any such contest shall be selected by Manager and approved by Owner.
Manager shall have the right, without the written consent of the Owner, to
process all third-party claims for the services of the Facility, including,
without limitation, the full right to contest to the exhaustion of all
applicable administrative proceedings or procedures, adjustment and denials by
governmental agencies or their fiscal intermediaries as third-party payors.
1.08 Administrator. Manager shall employ for the Facility an Administrator
reasonably acceptable to Owner, to serve as the chief executive officer of such
Facility. The Administrator shall be an employee of and shall be compensated by
Owner and Owner shall pay, in advance, on or before the fifth (5th) day of each
month all compensation, including salary, fringe benefits, bonuses and business
expense reimbursements approved by Manager, payable to the Administrator. The
term "fringe benefits" shall include, without limitation, employer's F.I.C.A.
payments, unemployment compensation and other employment taxes,
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bonuses, vacation, personal and sick leave benefits, workers' compensation,
group life, health and accident insurance premiums and disability and other
benefits.
1.09 Taxes. Any federal, state or local taxes, assessments or other
governmental charges properly imposed on the Facility are the obligations of the
Owner, not of Manager, and shall be paid out of the Operating Accounts of the
Facility. With the Owner's prior written consent, Manager may contest the
validity or amount of any such tax or imposition on the Facility in the same
manner as described in Section 1.07(c) hereof.
1.10 Use of Manager's Personnel. An authorized representative of Manager
shall visit the Facility as often as Manager deems necessary. The time spent by
such authorized representative of Manager during such visits and all
out-of-pocket expenses arising from travel and lodging connected with such
visitations shall not be charged separately to Owner.
1.11 Government Regulations. Manager agrees to operate and maintain the
Facility in substantial compliance with the requirements of any material
statute, ordinance, law, rule, regulation or order of any governmental or
regulatory body having jurisdiction over the Facility and to comply with all
orders and requirements of the local board of fire underwriters or any other
body which may exercise similar functions; provided, however, that Manager shall
not be required to expend any funds in order to comply with any such statutes,
ordinances, laws, rules, regulations or orders, and to the extent any funds are
so required, it shall fulfill its obligations hereunder by notifying Owner of
the actions necessary in order to be in compliance therewith.
1.12 Quality Controls. Manager shall activate and maintain on a continuing
basis a "Quality Assurance Program" to provide objective measurements of the
quality of health care provided at the Facility and, in connection therewith,
shall utilize such techniques as patient questionnaires and interviews,
physician questionnaires and interviews, and inspections.
1.13 Staff Specialists. In addition to the other managerial services
provided for herein, Manager shall make available to the Facility, for
consultation and advice, when necessary, specialists in such fields as
accounting, auditing, budgeting, dietary services, environmental control,
management, maintenance, nursing, personnel, pharmacy operations, public
relations, purchasing, quality assurance, systems and procedures, and
third-party reimbursement.
1.14 Performance of Services by Manager. In the performance of its
services hereunder, Manager shall exercise the same standards and degree of care
used by reasonable and prudent managers of nursing homes of similar size, nature
and character as the Facility. Notwithstanding anything herein to the contrary,
Manager shall not be deemed in violation of this Agreement if Manager is
prevented from performing any of its obligations hereunder for any reason beyond
its reasonable control including, without limitation, strikes, walkouts or other
employee disturbances, acts of God, or the action or promulgation of any
statute, rule, regulation or order by any federal, state, or local governmental
or judicial agency or official, nor shall it be deemed in default hereunder or
otherwise liable for any error of judgment or act or omission in the performance
of its services hereunder, which is made in reasonable good faith, except for
its wilful default or gross negligence.
1.15 Extraordinary Services. Owner agrees that any extraordinary or
specialized service recommended by Manager and approved by Owner, even if
provided by Manager, may
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be performed for a separate fee as agreed upon by Manager and Owner in advance
of the performance of such service.
ARTICLE II
TERM AND TERMINATION
2.01 Term. The term of this Agreement shall commence on the date of this
Agreement and, unless sooner terminated as provided herein, shall end on January
31, 2006. Notwithstanding anything to the contrary herein contained, in the
event of default under the applicable Regulatory Agreement with the Federal
Housing Commissioner this Agreement shall be subject to termination in
accordance with the provisions of such Regulatory Agreement without penalty upon
written request of the Federal Housing Commissioner.
2.02 Option to Extend Term. Manager shall have the option to extend the
term of this Agreement for two (2) additional periods of five (5) years each, by
giving written notice to Owner of Manager's exercise of such right and option
not later than three (3) months prior to the end of the original term hereof or
the term hereof as previously extended. Each and all of the provisions of this
Agreement shall apply during the extended term(s) of this Agreement.
2.03 Termination for Cause.
(a) If either party shall apply for or consent to the appointment of
a receiver, trustee or liquidator of such party of all or a substantial part of
its assets, file a voluntary petition in bankruptcy, make a general assignment
for the benefit of creditors, file a petition or an answer seeking
reorganization or arrangement with creditors or take advantage of any insolvency
law, or if an order, judgment or decree shall be entered by any court of
competent jurisdiction, on the application of a creditor, adjudicating such
party bankrupt or insolvent or approving a petition seeking reorganization of
such party or appointing a receiver, trustee or liquidator for such party or all
or a substantial part of its assets, and such order judgment or decree shall
continue unstayed and in effect for any period of one hundred and twenty (120)
consecutive days, then, in case of any such event, the term of this Agreement
shall expire, at the other party's option, upon five (5) days written notice.
(b) If Owner or Manager shall fail to keep, observe or perform any
material covenant, agreement, term or provision of this Agreement to be kept,
observed, or performed by such party, and such default shall continue for a
period of thirty (30) days, (or ten (10) days in the case of a failure to pay
any amounts due Manager under this Agreement) after notice thereof by one party
to the other, then, in case of any such event and upon the expiration of any
period of grace applicable thereto, the term of this Agreement shall expire, at
the option of the nondefaulting party, upon five (5) days written notice to the
other party. Such termination shall be without prejudice to Manager's right to
receive management fees under Article III hereof through the end of the month in
which such termination becomes effective.
2.04 Optional Termination.
(a) Either party has the option to terminate this Agreement, without
damage or penalty, upon ten (10) days prior written notice to the other, upon
the occurrence of either of the following events:
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(i) The Facility or any material portion thereof is damaged
or destroyed to the extent that in the written opinion of an independent
architect or engineer reasonably acceptable to both parties (x) it is not
practicable or desirable to rebuild, repair or restore the Facility within
a period of six (6) months to its condition immediately preceding such
damage, or (y) the conducting of normal operations of the Facility would
be prevented for a period of six (6) months or more; or
(ii) Title to or the temporary use of all or substantially all
the Facility is taken under the exercise of the power of eminent domain by
any governmental authority or person, firm or corporation acting under
governmental authority which in the opinion of an independent architect or
engineer reasonably acceptable to both parties prevents or is likely to
prevent the conducting of normal operations at the Facility for a period
of at least six (6) months.
Provided, however, that in either of such events, if Owner or any
affiliate thereof rebuilds, restores or otherwise rearranges the Facility and
recommences operations thereof, Owner shall give Manager the first option to
manage the Facility under the same terms, conditions, and fees as provided
herein.
(b) Manager shall have the option to terminate this Agreement
without damage or penalty upon ten (10) days prior written notice to the Owner
following the sale, transfer, assignment, or other disposition, in whole or in
part, by the Owner of its interest in the Facility. In the event Owner is a
corporation, any dissolution, merger, consolidation or other transfer of a
substantial portion of the stock of Owner shall constitute an assignment of the
Facility for all purposes of this Section 2.04(b). The term "substantial
portion" means the ownership of stock possessing, and of the right of exercise,
at least fifty percent (50%) of the total combined voting power of all classes
of stock of such corporation, issued, outstanding and entitled to vote for the
election of directors whether such ownership is direct ownership, or indirect
ownership through ownership of stock possessing, and of the right to exercise,
at least fifty percent (50%) of the total combined voting power of all classes
of stock of another corporation or corporations; provided, however, that this
prohibition on stock transfer shall not apply to a "publicly traded
corporation," which term is hereby defined for all purposes under this Agreement
as a corporation whose shares of stock have been registered pursuant to the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, or the state securities laws pursuant to an exemption from the
aforementioned statutes.
ARTICLE III
MANAGEMENT FEE
3.01 Management Fee. Effective as of the date of this Agreement and for
the remainder of the term, Manager shall receive from Owner, and Owner shall pay
to Manager, each month during the term hereof, as the amount due for services, a
management fee equal to six percent (6%) of the Gross Revenues of the Facility.
"Gross Revenues" shall mean, for the Facility, total revenues of such Facility,
including, without limitation, all ancillary fees, charges, rentals and other
revenue derived in any way from the operation of such Facility, on
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an accrual basis, after deduction of allowances for contractual adjustments as
they relate to third-party payors and before deduction of any and all expenses.
3.02 Payment of Management Fees. On or before the tenth (10th) day of each
month during the term hereof, Owner shall be obligated to pay Manager an
estimated management fee, calculated in accordance with Section 3.01 hereof,
based on the estimated Gross Revenues of the Facility during the current month.
All management fees due hereunder shall be withdrawn from the Operating Accounts
and paid to Manager. Any late payments of management fees not made after three
(3) days written notice to Owner shall bear interest equal to the Advance Rate
(as defined in Section 5.11 hereof) from their original due date until fully
paid.
3.03 Adjustment. Within fifteen (15) days after the delivery of the annual
financial statements of the Facility, Owner shall pay to Manager or Manager
shall pay to Owner such amount as is necessary to make the amount of the
management fees paid with respect to the year to which the financial statements
relate equal to the amount of management fees shown to be due by the annual
audit.
ARTICLE IV
COVENANTS OF OWNER
4.01 Insurance. Manager shall provide and maintain, on behalf of Owner and
at Owner's expense, throughout the term of this Agreement, insurance with
responsible companies naming Owner and Manager (as their respective interests
may appear) as insureds in the minimum amounts and covering the risks described
below:
(a) Comprehensive public liability insurance, including personal
injury or death and property damage in the combined single limit of not less
than $500,000.00;
(b) Workmen's compensation, employers' liability or similar
insurance as may be required by law;
(c) Insurance against loss or damage to the Facility from fire,
lightning and such other risks and casualties now or thereafter covered by the
uniform standard form of extended coverage insurance endorsement then in use in
the State of North Carolina and against loss or damage with respect to all
boilers and pressure vessels and pressure pipes, if any, installed in the
Facility and, if the Facility is located within a 100 year flood plain
designated by the Untied States Army Corps of Engineers, against loss or damage
due to floods to be maintained under the National Flood Insurance Program or
under comparable commercial insurance programs; all such policies being in an
amount not less than ninety percent (90%) of the actual replacement cost of the
Facility as determined every two (2) years by the Owner;
(d) Professional liability insurance against claims for bodily
injury or death or otherwise arising out of the operations of the Facility, such
insurance to afford minimum protection of not less than $500,000.00 with respect
to bodily injury or death to any one person;
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(e) Automobile liability insurance covering owned, hired and
non-owned vehicles, such insurance to afford minimum protection of not less than
$500,000.00 for bodily injury or death to any one person in any one accident
(subject to a maximum recovery by all persons in any one accident of
$500,000.00) and $50,000.00 for damage to property (including loss of the use
thereof) in any one accident;
(f) Business interruption insurance in an amount sufficient to cover
the estimated management fees payable hereunder and all other fixed expenses of
the Facility for a period of not less than six (6) months;
(g) Employee fidelity bond or insurance, including comprehensive
coverage for dishonesty, disappearance and discrepancy for all employees of
Owner; and
(h) Such other insurance or additional insurance as both Manager and
Owner shall reasonably deem necessary for protection against claims, liabilities
and losses arising from the operation or ownership of the Facility.
The insurance specified above for the Facility may be provided by any
combination of underlying and umbrella policies, which policies may also cover
other facilities owned, leased or managed by Manager or its affiliates. No
policy shall have deductible provisions in excess of $10,000.00, plus, if an
umbrella policy, the amount of the underlying policy.
4.02 Licensing; Changes and Services. Owner agrees to take or cause to be
taken any and all actions necessary to be taken by it as the overall supervisor
of the assets and operations of the Facility in order to maintain all required
licenses, permits for the operation of the Facility and the Facility's
eligibility to participate in all public or private third-party medical payment
programs, including providing sufficient funds to bring the Facility in
compliance with all applicable fire safety codes and other laws, regulations and
orders, and to correct all structural, maintenance, procedural and staffing
deficiencies as shown on the surveys and reports of governmental agencies having
jurisdiction over the Facility. Owner agrees that it will not, through the
exercise of its overall supervisory powers, substantially change the services
rendered by the Facility during the term hereof without the prior written
approval of Manager.
Nothing contained in this Section 4.02 shall affect the duties and
obligations of Manager with regard to the applying for, obtaining and
maintaining all necessary governmental licenses, permits, consents and approvals
set forth in Section 1.07 hereof.
4.03 Transfer of Ownership. Owner further acknowledges and agrees that
upon the transfer, lease, assignment, sale or other disposition or conveyance of
all or any part of its ownership of the Facility, this Agreement shall remain in
full force and effect unless otherwise terminated as provided in Section
2.04(b). Owner covenants and agrees that in the event that it sells, assigns or
otherwise transfers its ownership of the Facility at any time while this
Agreement is in effect, it will require the transferee to assume the obligations
of the Owner hereunder.
4.04 Damage or Destruction. If the Facility or any portions thereof shall
be damaged or destroyed by fire or other casualty, Owner shall commence to
repair, restore, rebuild or replace any such damage or destruction within sixty
(60) days after such fire or other casualty
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and shall proceed with due diligence to complete such work within a reasonable
period of time.
ARTICLE V
MISCELLANEOUS COVENANTS
5.01 Assignment. Owner shall not assign its rights and/or obligations
under this Agreement without the prior written consent of Manager, except to
Owner's construction or permanent lender, in the event of foreclosure of such
lender's mortgage against the Facility; provided, however, that such lender or
lenders shall first agree in writing to assume and be bound by Owner's
obligations hereunder. Manager shall not assign its rights and/or obligations
under this Agreement, except to an affiliate of Manager, without prior written
consent of Owner.
5.02 Binding Agreement. The terms, covenants, conditions, provisions and
agreements herein contained shall be binding upon and inure to the benefit of
the parties hereto, their successors and assigns.
5.03 Relationship of Parties. Nothing contained in this Agreement shall
constitute or be construed to be or to create a partnership, joint venture or
lease between Owner and Manager with respect to the Facility.
5.04 Notices. All notices, demands and requests contemplated hereunder by
either party to the other shall be in writing, and shall be delivered by hand,
transmitted by cable, telegram or telecopy (receipt confirmed), or mailed,
postage prepaid, registered, or certified mail return receipt requested:
(a) to Owner, by addressing the same to:
NC Health Care - Archdale, Inc.
7000 Central Parkway
Suite 970
Atlanta, Georgia 30328
Attention: Roland A. Belanger
(b) to Manager, by addressing the same to:
WelCare International Management Corporation
7000 Central Parkway
Suite 970
Atlanta, Georgia 30328
Attn: Mr. J. Stephen Eaton, President
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With a copy to:
Paul A. Quiros, Esquire
Nelson Mullins Riley & Scarborough, L.L.P.
1201 Peachtree Street, 400 Colony Square
Suite 2200
Atlanta, Georgia 30361
or to such other address or to such other person as may be designated by notice
given from time to time during the term of this Agreement by one party to the
other. Any notice hereunder shall be deemed given five (5) days after mailing,
if given by mailing in the manner provided above, or on the date delivered or
transmitted if given by hand, cable, telegraph or telecopy (receipt confirmed).
5.05 Entire Agreement; Amendments. The Agreement contains the entire
agreement between the parties hereto, and no prior oral or written, and no
contemporaneous oral representations or agreements between the parties with
respect to the subject matter of this Agreement shall be of any force and
effect. Any additions, amendments or modifications to this Agreement shall be of
no force and effect unless in writing and signed by both Owner and Manager.
5.06 Governing Law. This Agreement has been executed and delivered in the
State of Georgia, and all the terms and provisions hereof and the rights and
obligations of the parties hereto shall be governed by, and construed and
enforced in accordance with, the laws of the State of Georgia (without regard to
its rules of conflicts of laws).
5.07 Captions and Headings. The captions and headings throughout this
Agreement are for convenience and reference only and do not constitute a part
hereof.
5.08 Disclaimer of Employment of Facility Employees. No person employed in
the operation of the Facility will be an employee of Manager, and Manager will
have no liability for payment of their wages, fringe benefits, payroll taxes and
other expenses of employment.
5.09 Costs and Expenses; Indemnity. All fees, costs and expenses arising
out of, relating to or incurred in the operation of the Facility, including,
without limitation, the fees, costs, and expenses of outside consultants and
professionals, shall be the sole responsibility of Owner. Manager, by reason of
the execution of this Agreement or the performance of its services hereunder,
shall not be liable for or deemed to have assumed any liability for such fees,
costs and expenses, or any other liability or debt of Owner whatsoever, arising
out of or relating to the Facility or incurred at its operation, except the
salary of Manager's employees and the expenses and costs incurred at its central
administrative offices in performance of its obligations hereunder. Owner agrees
to indemnify and hold Manager and its officers, directors, agents and employees
harmless from and against all losses, claims, damages or other liabilities,
including the costs and expenses incurred in connection therewith, arising out
of or relating to the ownership of the Facility (except those resulting from the
wilful misconduct or gross negligence of Manager), including, without
limitation, any liability asserted against Manager or any of its officers,
directors, employees or agents by reason of any action taken by any of the
foregoing while performing the duties of Manager hereunder on behalf of Owner.
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5.10 Responsibility for Misconduct of Employees and Other Persons. Manager
will have no liability whatsoever for damages suffered on account of the
dishonesty, misconduct or negligence of any employee of the Facility or any
officer, director, partner, stockholder, employee or agent of Owner. Manager
shall be liable to the Facility in connection with damage or loss directly
sustained by Owner by reason of the dishonesty, wilful misconduct and gross
negligence of Manager's employees in the operation of the Facility during the
term of the Agreement.
5.11 Advances by Manager. Manager shall have the right, but not the
obligation, to advance to Owner any and all sums required to maintain all
necessary licenses and permits and to otherwise keep the Facility operating as a
fully insured nursing home in good condition and repair. All such sums advanced
by Manager to Owner shall be repaid by Owner, with interest commencing on the
date such sums were advanced at a rate equal to the announced prime rate of
interest of NationsBank, N.A., Atlanta, Georgia, plus two percent (2%) per annum
("Advance Rate"), immediately upon written notice thereof to Owner, and Manager
shall have the right at any time and from time to time to instruct the
signatories of the Operating Accounts to withdraw and pay to Manager amounts
necessary in order to repay such advances.
5.12 Definition of Affiliate. For purposes of this Agreement, the term
"affiliate" shall mean any person or entity which Manager or Owner or their
respective stockholders or individual partners, directly or indirectly, through
one or more intermediaries, controls, is in common control with, or is
controlled by.
5.13 Authorization of Agreement. Manager and Owner represent and warrant,
each to the other with respect to itself, that the execution and delivery of
this Agreement has been duly authorized by all respective action, will not
presently or with the passage of time, the giving of notice, or both result in a
default under or violate or conflict with (i) the provisions of the articles of
incorporation and bylaws of Manager or Owner, or (ii) any other agreement,
mortgage, loan agreement or other contract or instrument by which either party
is bound or to which any of its property or assets are subject, or (iii) any
existing law, regulation, court order or consent decree by which either party is
bound or to which any of its property or assets are subject.
ARTICLE VI
RIGHT OF FIRST REFUSAL
6.01 Owner shall not sell, lease or enter into an agreement for the
provision of management services to the Facility, nor cause or allow the
aforesaid to occur, without first offering the same to Manager in accordance
with the terms and provisions hereof.
6.02 In the event Owner (a) determines to sell or lease the Facility, or
to contract for the provision of management services for the Facility, or (b)
receives from a third party a bona fide offer to purchase, lease or provide
management services to the Facility, which Owner desires to accept, Owner shall,
prior to selling, leasing or contracting for management services, provide
Manager written notice of intention to sell, lease or contract for management
services, or of such offer, as applicable (herein called a "Notice of Offer").
In each event described above, Owner agrees that Manager shall have the primary
right, at its election, to purchase, lease or provide management services, as
the case may be, which option shall be
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exercised by Manager providing written notice of exercise thereof to Owner
within thirty (30) days after Manager's receipt of the Notice of Offer. If,
however, Manager does not elect to exercise such option, then Owner may, at any
time within sixty (60) days after expiration of the offer period, enter into a
contract for the sale or lease of the Facility or the provision of management
services to the Facility with a bona fide third-party service-provider. If Owner
so contracts with such a third party, such third-party shall enter such contract
free and clear of the rights of Manager set forth herein, and in such event,
Manager agrees to execute such release or other instrument as may reasonably be
requested by Owner, but any part of the contract rights which is retained or
reserved by Owner shall remain subject to Manager's right of first refusal as
set forth herein.
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IN WITNESS WHEREOF, the parties hereto have executed, sealed and delivered
this Agreement through their duly authorized representatives, as of the day and
year first above written.
NC HEALTH CARE - ARCHDALE, INC.
By: /s/ Roland A. Belanger
-----------------------------------
Roland A. Belanger
President
WELCARE INTERNATIONAL MANAGEMENT
CORPORATION
By: /s/ Alan C. Dahl
-----------------------------------
Alan C. Dahl
Executive Vice President
and Chief Financial Officer
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SCHEDULE 10.35
CHMC has entered into agreements substantially identical to Exhibit 10.35
as follows:
1. Long Term Care Facility Management Agreement dated June 30, 1996 with
NC Health Care - Albemarle, Inc. for Stanly County, North Carolina facility.
2. Long Term Care Facility Management Agreement dated June 30, 1996 with
NC Health Care - Andrews, Inc. for Cherokee County, North Carolina facility.
3. Long Term Care Facility Management Agreement dated June 30, 1996 with
NC Health Care - Gates, Inc. for Gates County, North Carolina facility.
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EXHIBIT 10.36
<PAGE>
MANAGEMENT AGREEMENT
(Oak Grove Healthcare Center)
This is a MANAGEMENT AGREEMENT ("Agreement") made and effective September
1, 1994 (the "Effective Date"), between TRANSITIONAL HEALTH PARTNERS d/b/a
TRANSITIONAL HEALTH SERVICES, a Delaware general partnership ("Manager"), and
OAK GROVE OF RUTHERFORD LIMITED PARTNERSHIP, a North Carolina limited
partnership ("Owner").
Recitals
A. Owner owns a new, 80-bed healthcare/nursing facility located in
Rutherfordton, North Carolina (mailing address: Route 8, Box 7, Rutherfordton,
NC 28752 (the "Facility").
B. Owner wishes to retain Manager, commencing effective as of the time the
Facility is licensed by the North Carolina Department of Health - Division of
Health Facilities, to manage and operate the Facility on behalf of Owner under
the terms of this Agreement in order to avail itself of Manager's experience and
skill in managing healthcare facilities.
C. Manager wishes to provide such management services on behalf of Owner
pursuant to the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual premises and covenants of
the parties contained herein, and for such other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties agree:
ARTICLE I.
MANAGEMENT DUTIES AND OBLIGATIONS
1.01 Employment; Control Retained by Owner. Owner hereby retains Manager,
and Manager hereby agrees to manage the Facility, subject to the terms and
conditions of this Agreement Owner shall exercise overall control over the
assets and operations of the Facility at all times, and Manager shall perform
the duties herein to be performed by It as the agent of Owner and in accordance
with the policies and directives from time to time adopted by Owner. Owner has
reviewed the policies and procedures created by Manager and hereby authorizes
and directs Manager to implement such policies and procedures at the Facility.
1.02 Ownership of Manuals. Manager is the sole owner of all policy and
procedure manuals.
1.03 Management of Facility. During the term of this Agreement Manager
shall on behalf of Owner supervise, conduct, and manage all aspects of the
day-to-day operation of the Facility, Including, but not limited to, staffing,
accounting, billing, collections, setting of rates and charges and general
administration, In connection the Manager (either directly or thorough
supervision of employees of the Facility) shall:
(a) Establish, maintain, revise and administer an overall pricing
structure for services rendered in the Facility, including. without limitation,
patient room charges, charges for all ancillary services, charges for supplies.
medication and special services.
(b) Hire as Manager's employees and retain an adequate staff of
nurses, technicians, nurse aides, office and other employees, including an
administrator (the "Administrator")
<PAGE>
and promote, direct assign and discharge all such employees at Manager's sole
discretion. All such employees shall be employees of the Manager and carried on
the payroll of the Facility.
(c) Institute and amend from time to time general salary scales,
personnel policies and appropriate employee benefits for all employees. Employee
benefits may include pension and profit sharing plans, insurance benefits,
incentive plans for key employees and holiday, vacation, personal leave and sick
leave policies.
(d) Issue appropriate bills for services and materials furnished by
the Facility and use its best efforts to collect accounts receivable and monies
owed to the Facility, design and maintain accounting, billing, patent and
collection records; and prepare and file insurance, Medicare, Medicaid and any
and all other necessary or incidental reports and claims related to revenue
production. Subject to any rights in favor of Manager's accounts receivable
lender, Owner hereby grants Manager the right to enforce Owner's rights as
creditor under any contract or in connection with rendering any services for
purposes of collecting accounts receivable and monies owed the Facility.
(e) Order, supervise and conduct a program of regular maintenance
and repair, except that any physical improvements costing in the aggregate more
than $10,000 in any given year shall be subject to approval of Owner.
(f) Purchase food, beverage, medical, cleaning and other supplies,
equipment furniture and furnishings for the account of Owner.
(g) Administer, supervise and schedule all patient and other
services of the Facility, including the operation of food, barber/beautician and
other ancillary services.
(h) Provide necessary funds for and pay all of the accounts payable,
Indebtedness (other than Owner's mortgage financing), taxes (other than taxes on
or measurable by Owner's income taxes), insurance premiums, and all other
obligations of the Facility.
(i) Institute standards and procedures for limiting patients,
charging patients for services, and collecting the charges from the patients or
third parties.
(j) Obtain and maintain insurance coverage for the Facility naming
Owner. Manager and such other persons requested by Owner as insured as provided
in Section 5.01 hereof.
(k) Negotiate and enter into such agreements, leases, contracts and
orders as it may deem necessary or advisable, for the furnishing of services
(inducting medical, pharmacy and medical records consulting, dietary, emergency
evacuation, transportation, infectious waste disposal, fire system, etc, and
related services), concessions and supplies for the operation and maintenance of
the Facility.
(l) Negotiate with any labor union lawfully entitled to represent
employees of Manager who work at the Facility, but any collective bargaining
agreement or labor contract must be submitted to Owner for its approval and
execution. Manager agrees to provide Owner with prompt notice of all labor
negotiations.
(m) Maintain all licenses and permits required for the operation of
the facility. its contracts with third party payors and other similar
governmental and nongovernmental agencies and intermediaries.
(n) Make periodic evaluations of the performances of all departments
of the Facility.
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(o) Design, establish and maintain a suitable accounting system
using accounts and classifications consistent with those used in similar
facilities.
(p) Designing an adequate and appropriate public relations program.
(q) Acquire at Manager's expense all items required to property
equip and operate the facility which are not provided by Owner, which items
shall remain the property of Manager regardless of whether or not attached to
Real Property or constitute fixtures.
(r) Engage counsel and cause such legal proceedings to be instituted
as may be necessary in Manager's reasonable determination to enforce payment of
charges, collect accounts receivable, or enforce compliance with other terms of
residency agreements, or to dispossess residents and patients, with full
authority to compromise disputes with residents and patients involving setoffs
or damage claims.
1.04 Reports to Owner. Manager shall prepare and deliver to Owner within
thirty (30) days after the close of each calendar month unaudited financial
statements covering the prior month and containing a balance sheet and statement
of income in reasonable detail. Manager shall also provide any required
assistance to the independent accountants for the Facility, who may be selected
by Manager in the preparation of audited or unaudited financial statements for
the operation of the Facility.
1.05 Bank Accounts, Working Capital.
(a) Manager shall deposit in a bank account or accounts of the
Manager or the Facility (the "Facility Depository Accounts") established in
Manager's name all funds received from the operations of the Facility. Manager
may "sweep" these accounts as often as it deems appropriate and consolidate and
commingle funds from other facilities owned or managed by Manager into its
primary operating account(s) in Louisville, Kentucky, or such other place and
with such financial institutions as Manager may determine (the "Operating
Accounts"). Manager shall also provide sufficient working capital for the
continued operation of the Facility, which shall be deposited into or drawn from
the Operating Accounts. Manager shall specify the signatory or signatories
required on all checks or other documents of withdrawal for the Depository or
Operating Accounts. Manager shall also deposit the personal funds of the
Facility's residents into a separate trust account established in Manager's
name. Manager shall designate those employees of the Facility with signature
authority for all checks or other documents of withdrawal for the Trust Account
(b) As partial consideration for entering into this Agreement
Manager hereby agrees that the Owner will not be gable for any operating or
managing losses as a result of the operation of the Facility. Manager agrees to
provide sufficient operating capital as needed in order to operate the Facility
and to pay the debts and obligations incurred or accrued in connection with the
operation of the Facility after the Effective Date of this Agreement The revenue
generated by the Facility, together with amounts funded by the Manager, will at
least equal the amount necessary to pay for the operating costs and other costs
associated with the ownership and operation of the Facility. In the event that
funds are necessary in order to fund any deficit the Manager will, as soon as
Possible and not less than ten (10) days after notice from Owner, deposit into
the Operating Accounts such amounts as may be necessary to fund any deficit and
to operate the Facility without incurring additional deficits.
1.06 Record Requirements. If it is ultimately determined that Section 952
of the Omnibus Reconciliation Act of 1980 and final regulations promulgated
thereunder apply to this Agreement
(a) Until the expiration of four years after the furnishings of
services pursuant to this Agreement, Manager shall, as provided in said Section
952, make available, upon written request,
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to the Secretary of Health and Human Services or upon request to the Comptroller
General of the United States or any of their duty authorized representatives,
this Agreement, and all books, documents and records Of Manager that are
necessary to verify the nature and extent for the costs of any services
furnished pursuant to this Agreement for which payment may be made under the
Medicare program; and
(b) If Manager carries out any of the duties of this Agreement
through a subcontract with an aggregate value or cost of $ 10,000 or more over a
twelve-month period with a related organization, such subcontracts, the related
organization shall as provided in Section 952 make available, upon written
request to the Secretary of Health and Human Services or upon request to the
Comptroller General of the United States or any of their duly a ed
representatives, the subcontract or subcontracts, and all books. documents and
records of such organization that are necessary to verify the nature and extent
of the costs of any services furnished pursuant to such subcontract or
subcontracts for which payment may be made under the Medicare program.
1.07 Licenses.
(a) Manager shall apply for, obtain and maintain all necessary
licenses, permits, consents, and approvals from all governmental agencies which
have jurisdiction over the operation of the Facility. Manager agrees that its
management and operation of the Facility shall materially and substantially
comply with representations in the Certificate of Need application for the
Facility on file with the North Carolina Department of Human Resources -
Division of Facility Services, and shall materially comply with all conditions
placed upon the Certificate of Need.
(b) Neither Owner nor Manager shall knowingly take any action or fad
to take any action which may (1) cause any governmental authority having
jurisdiction over the operation of the Facility to institute any proceeding for
the rescission or revocation of any necessary license, permit consent or
approval, or (2) adversely affect Owner's right to accept and obtain payments
under Medicare, Medicaid. Blue Cross, or any other public or private third-party
medical payment program.
(c) Manager shall have the right to contest by appropriate legal
proceedings, diligently conducted in good faith in the name of Owner, the
validity or application of any law, ordinance, rule, ruling, regulation, order
or requirement of any governmental agency having jurisdiction over the operation
of the Facility. Counsel for any such contest shall be selected by Manager and
approved by Owner.
(d) Manager shall have the right to process all third-party payment
claims for the services of the Facility, including, without limitation, the full
right to contest to exhaustion all applicable administrative proceedings or
procedures, adjustment and denials by governmental agencies or their fiscal
intermediaries as third-party payors.
1.08 Administrator. Manager shall hire for the Facility a qualified
administrator (the "Administrator") of the Facility. The Administrator shall be
an employee of and be compensated by the Manager.
1.09 Taxes. Any federal, state or local taxes, assessments or other
governmental charges property imposed on the Facility (other than taxes on or
measured by income of Owner) are the obligations of the Facility and shall be
paid out of the Operating Accounts of the Facility.
1.10 Use of Manager's Personnel. An authorized representative of Manager
shall visit the Facility.if and as often as Manager deems necessary. The time
spent by such arising from travel and lodging connected with such visitations
shall not be charged separately to Owner, but shall be paid by Manager out of
its own management fees.
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1.11 Government Regulations. Manager agrees to operate and maintain the
Facility in substantial compliance with the requirements of any statue,
ordinance, law, rule, regulation or order of any governmental or regulatory body
having jurisdiction over the Facility.
1.12 Quality Controls. Manager shall implement and maintain on a
contingency basis a Quality Assurance Program at the Facility and in connection
therewith shall utilize such techniques as Manager deems appropriate in order to
fulfill its duties herein.
1.13 Staff Specialist. In addition to the other managerial services
provided for herein, Manager shall make available to the Facility for
consultation and advice, as it deems appropriate, specialists in such fields as
accounting, auditing. budgeting, dietary services, operations, public relations
and procedures, and third-party reimbursement
1.14 Performance of Services by Manager. In the performance of its
services hereunder, Manager shall exercise the same standards and degree of care
used by reasonable and prudent managers of nursing homes of singular size,
nature and character as the Facility. Notwithstanding anything herein to the
contrary, Manager shall not be deemed In violation of this Agreement, if it is
prevented from performing any of its obligations hereunder for any reason beyond
its reasonable control including, without limitation, strikes, walkouts or other
employee disturbances, acts of God or the promulgation of any statute, rule,
regulation or order by any federal, state, or local governmental or judicial
agency or official, nor shall it be deemed in default or grossly negligent with
respect hereto.
1.15 Extraordinary Services. Owner agrees that any extraordinary or
specialized service recommended by Manager and approved by Owner, even if
provided by Manager, may be performed for a separate fee as agreed upon by
Manager and Owner in advance of the performing of such service.
1.16 Name of Facility. Owner agrees that Manager shall be permitted to
name, and Install such signage for the Facility as Manager deems reasonably
appropriate.
ARTICLE II.
TERM
2.01 Term. The term of Agreement shall commence on the Effective Date and
continue for an term of five (5) years, and thereafter from year to year subject
to (a) the right of either party to terminate this Agreement at the end of the
initial term or the end of any anniversary thereof upon not less than ninety
(90) days prior written notice.
2.02 Default. If Manager fails to make any payment required to made by it
hereunder within fifteen (15) days of its due date, then the Manager shall be in
default and the Owner shall have the right after thirty (30) days notice to
terminate this Agreement and exercise any and all other legal remedies. If Owner
does not receive from Manager any payment within fifteen (15) days after such
payment is due, Owner, at its option may charge a late charge equal to five
percent (5%) of such amount which shall be deemed an additional expense of
Manager, and such charge shall be due and payable by Manager to Owner upon
notice to Manager.
ARTICLE III.
[INTENTIONALLY LEFT BLANK]
ARTICLE IV.
MANAGEMENT FEE
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4.01 Management Fee. Each month during the term hereof, Manager shall
receive from Owner, and Owner shall pay to Manager as the amount due for
services, a management fee equal to the Adjusted Net Income of the Facility for
such month. "Adjusted Net Income" shall mean net Income or loss of the Facility
determined in accordance with generally accepted accounting principles, plus
depreciation, amortization of deferred expenses, and any other noncash charges
or expenses, less the Owner's Draw. As used herein, "Owners Draw means an amount
equal to $2,000 per month plus $11.00 per patient day (based on a 30-day month),
or $28,400 per month, net of the Facility's debt service payments, which Manager
shall make on Owner's behalf.
4.02 Payment of Management Fees. All management fees due hereunder shall
be paid to Manager. Any late payments of management fees not made after three
(3) days written notice to Owner shall bear interest from their original due
date equal to ten percent (10%) per annum until fully paid. Notwithstanding
anything herein to the contrary, the management fees provided under this Article
III shall be subordinate and subject to the agreements of Manager provided in
Section 1.05(b) above.
ARTICLE V.
INSURANCE
5.01 Insurance Indemnity. During the term of this Agreement, Manager shall
at all times keep the Facility Insured with the kinds and amounts of insurance
described below, This Insurance shall be written by companies authorized to do
insurance business In the State of North Carolina. The policies must name Owner
as an additional insured. Losses shall be payable to Owner and Manager as
provided in Section 5.05 below. In addition, the policies shall name as an
additional insured any mortgagee of the Facility by way of a standard form of
mortgagee's loss payable endorsement. Any loss adjustment shall require the
written consent of Owner, Manager, and each mortgagee. Evidence of insurance
shall be deposited with Owner and, if requested, with any mortgagee(s). The
policies on the Facility shall insure against the following risks:
(i) Loss or damage by fire and such other risks as may be included in the
broadest form of extended coverage insurance from time to time available,
including but not limited to loss or damage from leakage of any sprinkler
system now or hereafter installed in the Facility, in amounts sufficient
to prevent Owner or Manager from becoming a co-insurer within the terms of
the applicable policies and in any event in an amount not less than one
hundred percent (100%) of the then full replacement value thereof (as
defined below in Section 5.02);
(ii) Loss or damage by explosion of steam boilers, pressure vessels or similar
apparatus, now or hereafter installed in the Facility, in such limits with
respect to any one accident as may be reasonably agreed by Owner and
Manager from time to times:
(iii) Claims for personal injury or property damage under a policy of general
public liability insurance with amounts not less than One Million and
No/100 Dollars ($1,000,000.00) per occurrence in respect of bodily injury,
Two Million and No/00 Dollars ($2,000,000.00) aggregate per occurrence,
and Three Hundred Thousand and No/100 Dollars ($300,000.00) for property
damage;
(iv) Claims arising out of malpractice in an amount not less than One Million
and No/100 Dollars ($1,000,000.00) for each person and for each
occurrence;
(v) Such other hazards and in such amounts as may be customary for comparable
properties in the area and is available from insurance companies
authorized to do business In the State of North Carolina;
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(vi) Loss of rental under a rental value insurance policy covering a risk of
loss during the first six (6) months of reconstruction resulting from the
occurrence of any of the hazards described in subsections (i) and (ii) of
this Section 5.01 in an amount sufficient to prevent Owner from becoming a
co-insurer, and
(vii) Workers compensation.
5.02 Replacement Cost. The term "full replacement value" of improvements
as used herein, shall mean the actual replacement cost thereof from time to
time, less exclusions provided in the normal fire insurance policy.
5.03 Additional Insurance. In addition to the insurance described above,
Manager shall maintain such additional insurance as may be reasonably required
from time to time by any mortgagee of the Facility.
5.04 Waiver of Subrogation. Any provision in this Agreement to the
contrary notwithstanding, each party, to the extent it is permitted to do so by
the terms and provisions of any of the above policies, hereby waives any and all
rights it may have against the other, its agents, or employees, for any loss or
damage from risks ordinarily insured against under such policies, but only to
the extent that such loss or damage is in fact covered by such insurance and Is
collectible by the insured party. Each party further covenants and agrees that
it will, upon request of the other, request each such insurance company to
attach to such policy or policies Issued by it a waiver of subrogation with
respect to the other party, its agents or employees.
5.05 Insurance Proceeds. All proceeds payable by reason of any casualty
loss or damage to all or any part of the Facility and insured under any policy
of insurance required by Section 5.01 above of this Agreement shall be paid to
Owner and held by Owner in trust (subject to the provisions of Section 5.06
below and the rights of the holders of the Facility mortgages) and shall be made
available for reconstruction or repair, as the case may be, of any damage to or
destruction of the Facility, and shall be paid out by Owner from time to time
for the reasonable costs of such work. Any excess proceeds of insurance
remaining after the completion of the restoration or reconstruction of the
Facility shall be returned, as applicable, to the insurer or Manager as their
interests may appear. All salvage resulting from any such loss covered by
Insurance shall belong to Owner.
5.06 Damage or Destruction. If, during the Term of this Agreement the
Facility is totally or partially destroyed from a risk covered by the insurance
described in Section 5.01 above, Owner shall, as soon as practicable, restore
the Facility to substantially the same condition as existed immediately before
the destruction. Upon the commencement of such work Owner shall proceed with due
diligence to complete such work within a reasonable period of time. If the costs
of the restoration exceed the amount of proceeds received by Owner from the
Insurance required under Section 5, 1. Manager shall have the right but no the
obligation to pay the difference between the amount of insurance proceeds and
such cost of restoration.
5.07 Restoration of Manager's Property. If Owner is required to restore
the Facility as provided Section 5.06, Owner shall not be required to restore
alterations made by Manager, or Manager's improvements, trade fixtures or
personal property, such excluded items being the sole responsibility of Manager
to restore. Owner shall, however, be required to restore the Facility's tangible
personal property owned by Owner.
5.08 Manager's Blanket Policy. Notwithstanding anything to the contrary
contained in this Article V, Manager's obligation to carry the insurance
provided for herein may be brought within the coverage of a so-called blanket
policy, carried and maintained by Manager. provided, however, that the coverage
afforded Owner will not be reduced or diminished or otherwise be different from
that which would exist under a separate policy meeting all other requirements of
this Agreement.
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ARTICLE VI.
MISCELLANEOUS COVENANTS
6.01 Assignment. Owner shall not assign its rights and/or obligations
under this Agreement without the prior written consent of Manager. except to
Owner's construction or permanent lender, in the event of foreclosure of such
lenders mortgage against the Facility. Manager shall not assign its rights
and/or obligations under this Agreement without the prior written consent of
Owner, provided that Manager shall be permitted to grant a security interest in
or collaterally assign its rights hereunder for purposes of obtaining commercial
Indebtedness. Neither party shall unreasonably withhold such consents.
6.02 Licensing: Changes and Services. Manager agrees to take or cause to
be taken any and all actions necessary to be taken by it as the overall
supervisor of the assets and operations of the Facility in order to maintain all
required Licenses, permits for the operation of the Facility and the Facility's
eligibility to participate in all pubic or private third-party medical payment
programs, including providing sufficient funds to being the Facility In
compliance with all applicable fire safety codes and other laws, regulations and
orders, and to correct all maintenance, procedural and staffing deficiencies as
shown on the surveys and reports of governmental agencies having jurisdiction
over the Facility. Manager agrees that it will not through the exercise of its
overall supervisory powers substantially change the services rendered by the
Facility during the term hereof without the prior written approval of Owner,
Nothing contained in this Section 6.02 shall derogate from Manager's duties
under Section 1.07 hereof.
6.03 Binding Agreement. The terms, covenants, conditions, provisions and
agreements herein contained shall be binding upon and inure to the benefit of
the parties hereto, their successors and assigns.
6.04 Relationship of Parties. Nothing contained in this Agreement shall
constitute or be construed to be or to create a partnership, joint venture or
Agreement between Owner and Manager with respect to the Facility.
6.05 Notices. All notices: demands and requests contemplated hereunder by
either party to the other shall be in writing, and shall be deemed given when
delivered by hand, or national recognized overnight courier, transmitted by
cable, telephonic facsimile (fax), telegram, or mailed, postage prepaid,
registered, or certified mail return receipt requested:
(a) to Owner by addressing the same to:
Mr. James R. Smith
Oak Grove of Rutherford Limited Partnership
4656 Brambleton Avenue
Roanoke, VA 24018
Fax: 703-345-1371
(b) to Manager, by addressing the same to:
Mr. Randall J. Bufford
General Manager
Transitional Health Services
9300 Shelbyville Road
Suite 1300
Louisville, KY 40222
Fax: 502-425-3662
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or to such other address or to such other person as may be designated by notice
given from time to time during the term by one party to the other. Any notice
hereunder shall be deemed given five (5) days after mailing. if given by mailing
in the manner provided above, or on the date delivered or transmitted if given
by hand, cable, fax, overnight courier, or telegraph.
6.06 Entire Agreement; Amendments. This Agreement contains the entire
agreement between the parties hereto, and no other or prior written or oral
representations shall apply. Any additions, amendments or modifications to this
Agreement shall be of no force and effect unless In writing and signed by both
Owner and Manager.
6.07 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws (without reference to the conflict of laws rules) of
the State of North Carolina.
6.08 Captions and Headings. The captions and headings throughout this
Agreement are for convenience of reference only, and shall not modify, define,
Omit expand the express provisions of this Agreement.
6.09 Authorization of Agreement. Manager and Owner represent and warrant
each to the other with respect to itself, that the execution and delivery of
this Agreement has been duly authorized by all respective action, will not
presently or with the passage of time, the giving of notice or both result in a
default under or violate or conflict with (i) the provisions of the partnership
agreement or articles of incorporation and bylaws, as the case may be, of
Manager or of Owner, or (it) any other agreement, mortgage, loan agreement or
other contract or instrument to which either party is bound or by which any of
their property or assets is subject, or (iii) any existing law, regulation,
court order or consent decree to which either party is bound or any of their
property or assets are subject:
6.10 Indemnification. Manager agrees to indemnify, protect and hold
harmless Owner from and against any and all liabilities and damages (a) arising
from or out of any occurrence in, upon or at the Facility or any part thereof,
or the occupancy or use by Manager of the Facility, the personal property or any
part thereof, or occasioned wholly or in part by any act or omission of Manager,
its agents, contractors, employees or invitees in connection with the Facility
or the personal property during the term of this Agreement or (b) related to any
claims, assessments, chargebacks or other expenses (whether owed to or assessed
by a private or governmental party) arising in connection with the operation or
other use of the Facility or the personal property during the term of this
Agreement. Owner agrees to indemnify, protect and hold harmless Manager from and
against (y) the liabilities, obligations and debts (whether or not now known or
asserted) of the Facility or Owner, existing on the Effective Date or of Owner
arising during the term hereof, and (z) all liabilities and damages arising from
or occasioned wholly or in part by any act (whether dishonest, willful or
negligent) or omission of Owner, its agents, contractors, employees or invitees
in connection with the Facility during the term of this Agreement The Owner's
indemnity stated in the preceding sentence shall survive the termination or
expiration of this Agreement
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IN WITNESS WHEREOF, the parties hereto have executed, sealed and delivered
this Agreement through their duly authorized representatives, effective as of
the day and year first above written, but actually on the date(s) set forth
below.
Manager: TRANSITIONAL HEALTH PARTNERS
d/b/a TRANSITIONAL HEALTH SERVICES, a
Delaware general partnership
By THS Partners I, Inc., and
THS Partners II, Inc., General Partners
Attest:
/s/ John G. Hundley By: /s/ James J. TerBeest
- ----------------------------- -------------------------------------
(Assistant) Secretary James J. TerBeest
[SEAL] Exec. Vice President/CFO
Owner: OAK GROVE OF RUTHERFORD LIMITED
PARTNERSHIP d/b/a OAK GROVE HEALTHCARE
CENTER, a North Carolina limited partnership
By its General Partners
TRANSITIONAL HEALTH PARTNERS d/b/a
TRANSITIONAL HEALTH SERVICES, a Delaware
general partnership
By: THS Partners I, Inc., and
THS Partners II, Inc., General Partner
Attest:
/s/ John G. Hundley By: /s/ James J. TerBeest
- ----------------------------- -------------------------------------
(Assistant) Secretary James J. TerBeest
[SEAL] Exec. Vice President/CFO
and
Witness:
/s/ Charles E. Trefzger /s/ James R. Smith
- ----------------------------- ------------------------------------------
JAMES R. SMITH
10
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EXHIBIT 10.37
<PAGE>
MANAGEMENT AGREEMENT
Chenal Rehabilitation and Healthcare Center,
Little Rock, Arkansas
This is a MANAGEMENT AGREEMENT ("Agreement") made and effective February
1, 1995 (the "Effective Date"), between TRANSITIONAL HEALTH PARTNERS d/b/a
TRANSITIONAL HEALTH SERVICES, a Delaware general partnership ("Manager"), and
HOLMAN MANAGEMENT SERVICES, INC. d/b/a CHENAL REHABILITATION AND HEALTHCARE
CENTER, an Arkansas corporation and lessee of the hereinafter defined Facility
("Lessee").
RECITALS
A. Lessee has entered into an Agreement to Lease with St. Charles Health
Care, LLC, an Arkansas limited liability company and owner of the Facility (the
"Owner"), pursuant to which Lessee has agreed to lease from owner under the
terms of a Lease Agreement of even date herewith (the "Lease") Chenal
Rehabilitation and Healthcare Center (the "Facility"), a 70-bed skilled nursing
facility currently being constructed on real estate owned by Owner in the City
of Little Rock, Arkansas, as more particularly described in Exhibit A attached
hereto (the "Real Estate").
B. Lessee wishes to retain Manager to manage and operate the Facility on
behalf of Lessee under the terms of this Agreement in order to avail itself of
Manager's experience and skill in managing healthcare facilities comparable to
the Facility, Manager wishes to provide such management services on behalf of
Lessee pursuant to the terms of this Agreement.
C. Manager has separately negotiated an option to purchase the Facility
from Lessee upon the terms and conditions set forth in that certain option to
Purchase of even date herewith, between Manager and Lessee.
NOW, THEREFORE, in consideration of the mutual promises and covenants of
the parties contained herein, and for such other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged the
parties agree as follows:
ARTICLE I
MANAGEMENT DUTIES AND OBLIGATIONS
1.1 Employment; Control Retained by Lessee. Lessee hereby retains Manager,
and Manager hereby agrees to manage the Facility, subject to the terms and
conditions of this Agreement. Lessee shall exercise overall control over the
assets and operations of the Facility at all times, and Manager shall perform
the duties herein required to be performed by it as the agent of Lessee and in
accordance with the policies and directives from time to time adopted by Lessee.
Lessee has reviewed the policies and procedures
<PAGE>
created by Manager and hereby authorizes and directs Manager to implement such
policies and procedures at the Facility. All policies and procedures now or
hereafter created by Manager are strictly proprietary to Manager and, in
furtherance thereof, (a) Lessee hereby disclaims any right, title and interest
in and to all such policies and procedures, (b) Lessee hereby covenants and
agrees to keep all such policies and procedures strictly confidential and not to
disclose any such policies and procedures to any third party other than Lessee's
officers and employees and other than as shall be required to comply with the
rules and regulations of any state or federal agency, and (c) Lessee hereby
covenants and agrees to return all written materials setting forth such policies
and procedures immediately to Manager upon termination of this Management
Agreement for whatever reason.
1.2 Ownership of Manuals. Manager is the sole owner of all policy and
procedure manuals.
1.3 Management of Facility. During the term of this Agreement, Manager
shall on behalf of Lessee supervise, conduct, and manage all aspects of the
day-to-day operation of the Facility, including, but not limited to, staffing,
accounting, billing, collections, setting of rates and charges and general
administration. In connection therewith, Manager (either directly or through
supervision of employees of the Facility) shall:
(a) Establish, maintain, revise and administer an overall pricing
structure for services rendered in the Facility, including, without limitation,
patient room charges, charges for all ancillary services, and charges for
supplies, medication and special services.
(b) Hire as Lessee's employees and retain an adequate staff of
nurses, technicians, nurse aides, office and other employees, excluding an
administrator of the Facility (who will be an employee of the Manager but whose
compensation will be paid out of the revenues of the Facility), and promote,
direct, assign and discharge all such employees at Manager's sole discretion.
All such employees, other than the administrator of the Facility, shall be
employees of the Lessee, and all such employees, including the administrator of
the Facility, shall be carried on the payroll of the Facility.
(c) Institute and amend from time to time general salary scales,
personnel policies and appropriate employee benefits for all employees. Employee
benefits may include pension and profit sharing plans, insurance benefits,
incentive plans for key employees and holiday, vacation, personal leave and sick
leave policies.
(d) Issue appropriate bills for services and materials furnished by
the Facility and use its best efforts to collect accounts receivable and monies
owed to the Facility, design and maintain accounting, billing, patient and
collection records; and
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prepare and file insurance, Medicare, Medicaid and any and all other necessary
or incidental reports and claims related to revenue production. Subject to any
rights in favor of Manager's accounts receivable lender, Lessee hereby grants
Manager the right to enforce Lessee's rights as creditor under any contract or
in connection with rendering any services for purposes of collecting accounts
receivable and monies owed the Facility.
(e) order, supervise and conduct a program of regular maintenance
and repair, except that for any given year any physical improvement costing in
the aggregate more than $5,000 above the approved annual budget per capita
expenditures for such year shall be subject to approval of Lessee (such approval
not to be unreasonably withheld).
(f) Purchase food, beverage, medical, cleaning and other supplies,
equipment, furniture and furnishings for the account of Lessee.
(g) Administer, supervise and schedule all patient and other
services of the Facility, including the operation of food, barber/beautician and
other ancillary services.
(h) Provide necessary funds for and pay all of the accounts payable,
indebtedness, taxes (other than taxes on or measurable by Lessee's income
taxes), insurance premiums, and all other obligations of the Facility.
(i) Institute standards and procedures for admitting patients,
charging patients for services, and collecting the charges from the patients or
third parties.
(j) obtain and maintain insurance coverage for the Facility naming
Lessee, Manager and such other persons requested by Lessee as insured as
provided in Section 5.1 hereof.
(k) Negotiate and enter into such agreements, leases, contacts and
orders as it may deem necessary or advisable, for the furnishing of services
(including medical, pharmacy and medical records consulting, dietary, emergency
evacuation, transportation, infectious waste disposal, fire system, etc., and
related services), concessions and supplies for the operation and maintenance of
the Facility.
(l) Maintain all licenses and permits required for the operation of
the Facility, its contracts with third party payors and other similar
governmental and non-governmental agencies and intermediaries.
(m) Make periodic evaluations of the performances of all departments
of the Facility.
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(n) Design, establish and maintain a suitable accounting system
using accounts and classifications consistent with those used in facilities
similar to the Facility.
(o) Designing an adequate and appropriate public relations program.
(p) Acquire at Manager's expense all items required to properly
equip and operate the Facility which are not provided by Lessee which items
shall remain the property of Manager regardless of whether or not attached to
real property or constituting fixtures.
(q) Engage counsel and cause such legal proceedings to be instituted
as may be necessary in Manager's reasonable determination to enforce payment of
charges, collect accounts receivable, or enforce compliance with other terms of
residency agreements, or to dispossess residents and patients, with full
authority to compromise disputes with residents and patients involving setoffs
or damage claims.
(r) Make available to the Lessee at the Facility, upon reasonable
prior written notice from the Lessee, all books and records relating to the
Facility.
1.4 Reports to Lessee. Manager shall prepare and deliver to Lessee within
thirty (30) days after the close of each calendar month unaudited financial
statements covering the prior month and containing a balance sheet and statement
of income in reasonable detail. Manager shall also provide any required
assistance to the independent accountants for the Facility, who may be selected
by Lessee subject to the approval of the Manager (such approval not to be
unreasonably withheld), in the preparation of audited or unaudited financial
statements for the operation of the Facility.
1.5 Bank Accounts, Working Capital.
(a) Manager shall deposit on Lessee's behalf in a bank account or
accounts of the Manager or the Facility established in Manager's name (the
"Facility Depository Accounts") all funds received from the operations of the
Facility and such funds shall be disbursed from the Facility Depository Accounts
to and by Manager in the manner and order of priority described in subsection
(b) below. The Facility Depository Accounts shall be segregated from Manager's
other depository and concentration accounts maintained with NationsBank, in
Charlotte, North Carolina, Manager shall specify the signatory or signatories
required on all checks or other documents of withdrawal for the Facility
Depository Accounts. Manager shall also deposit the personal funds of the
Facility residents into a separate trust account established in Manager's name.
Manager shall designate those employees of the Facility with signature authority
for all checks or other documents of withdrawal for the Trust Account. Upon pay
down and termination of the Line of Credit (as hereinafter defined), Manager
shall
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specify the required signatory Or signatories with Lessee Is written approval
(such approval not to be unreasonably withheld) .
(b) All funds deposited in the Facility Depository Accounts shall be
disbursed in the following order of priority and, in each case, in such amounts
and at such times as required to be made in connection with the payment of:
(i) the Facility's Debt Service and/or Lease payments (other
than the Line of Credit) ;
(ii) the costs and expenses of operating the Facility,
including, without limitation, the Management Fees;
(iii) all accrued and unpaid interest on the Line of Credit
(as described below);
(iv) a $5, 000 monthly payment to the Lessee to be used at the
sole discretion of Lessee; provided, however, that such payment shall be made to
the Lessee in any given month only if the net amount of funds deposited in the
Facility Depository Accounts after giving effect to the monthly payments to be
made pursuant to subsections (i), (ii) and (iii) above shall exceed $20,000;
(v) all principal then due on the Line of Credit; and
(vi) funding of a working capital reserve in the maximum
principal amount of fifty thousand dollars ($50,000.00), to be funded at the
rate of $5,000 per month, such reserve to be held in such subaccount or
subaccounts of the Facility Depository Accounts as Manager shall in its
discretion deem necessary or desirable.
As used in this Section the following terms shall have the following
meanings:
"Debt Service" means the scheduled payments of principal and interest
payable by Lessee with respect to the Existing Debt and the Line of Credit, as
the case may be, without giving effect to penalties, accelerations, balloon
payments, or default rates of interest, "Debt Service" does not include any
interest amounts that are or become payable in respect of Existing Debt at a
rate in excess of eleven percent (11%) per annum; provided, however, that if any
such interest shall be in excess of thirteen percent (13%) per annum, "Debt
Service, shall also include fifty percent (50%) of the amounts payable in
respect of interest in excess of thirteen percent (13%) per annum.
"Existing Debt" means the Lessee's existing (i) indebtedness for borrowed
money owed to Smith-Packett which is secured by liens on the Facility and has an
aggregate unpaid balance of principal and accrued interest as of the date hereof
of approximately $350,000.00 and (ii) lease financing obligations. "Existing
Debt"
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shall not include any amounts for borrowed money owed by the Facility to the
Lessee or any of the Lessee's affiliates; provided, however, that the Manager
shall have the right and option to refinance the Facility's debt and/or these
financing obligations. As of the date hereof, the Lessee has no existing lease
financing obligations outstanding.
(c) As partial consideration for entering into this Agreement,
Manager hereby agrees that for so long as the Manager shall manage the Facility
pursuant to this Agreement the Lessee shall not be liable for any operating or
managing losses as a result of the operation of the Facility. As further
consideration for entering into this Agreement, Manager hereby agrees to
establish, simultaneously with the execution of this Agreement, a revolving line
of credit in favor of the Lessee in the principal amount of Five Hundred
Thousand Dollars ($500,000. 00) (the "Line of Credit") in order to operate the
Facility and to pay the debts and obligations incurred or accrued in connection
with the operation of the Facility after the Effective Date of this Agreement.
The obligation of the Lessee to repay advances under the Line of Credit together
with accrued interest thereon will be evidenced by that certain Revolving
Promissory Note of even date herewith, made by the Lessee, payable to the order
of the Manager, and in the face principal amount of Five Hundred Thousand
Dollars ($500,000.00) (the "Note"). To secure the payment of the Note, the
Lessee and the Manager have simultaneously herewith executed that certain
Security Agreement of even date herewith (the "Security Agreement") pursuant to
which the Lessee will grant to the Manager a security interest in the Collateral
(as defined in the Security Agreement) . As further security for the repayment
of the Note, (i) the Lessee has executed and delivered that certain Assignment
of Lease of even date herewith, and (ii) Edward V. Holman has executed and
delivered that certain Guaranty Agreement of even date herewith, pursuant to
which Edward V. Holman has guaranteed to the Manager the payment of one Hundred
Thousand Dollars ($100,000,00) of the unpaid principal of and accrued and unpaid
interest on the Note.
(d) The revenue generated by the Facility, together with advances,
if any, from the Line of Credit, will at least equal the amount necessary to pay
for the operating costs and other costs associated with the ownership and
operation of the Facility. In the event that funds are necessary in order to
fund any deficit, the manager will, as soon as possible and not less than ten
(10) days after notice from Lessee, deposit into the Operating Accounts such
amounts as may be necessary to fund any deficit and to operate the Facility
without incurring additional deficits.
1.6 Record Requirements. If it is ultimately determined that Section 952
of the Omnibus Reconciliation Act of 1980 and final regulations promulgated
thereunder apply to this Agreement:
(a) Until the expiration of four years after the furnishings of
services pursuant to this Agreement, Manager shall,
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as provided in said Section 952, make available, upon written request, to the
Secretary of Health and Human Services or upon request, to the Comptroller
General of the United States or any of their duly authorized representatives,
this Agreement, and all books, documents and records of Manager that are
necessary to verify the nature and extent for the costs of any services
furnished pursuant to this Agreement for which payment may be made under the
Medicare Program; and
(b) If Manager carries out any other duties of this Agreement
through a subcontract with an aggregate value or cost of $10,000 or more over a
twelve-month period with a related organization, the related organization shall,
as provided in such Section 952, make available, upon written request, to the
Secretary of Health and Human Services or upon request to the Comptroller
General of the United States or any of the duly authorized representatives, such
subcontract or subcontracts, and all books, documents and records of such
organization that are necessary to verify the nature and extent of the costs of
any services furnished pursuant to such subcontract or subcontracts for which
payment may be made under the Medicare program.
1.7 Licenses.
(a) St. Charles shall apply for, obtain and maintain all necessary
licenses, permits, consents, and approval from all governmental agencies which
have jurisdiction over the operation of the Facility. Manager agrees that its
management and operation of the Facility shall materially and substantially
comply with representations in the Certificate of Need application for the
Facility on file with the Arkansas Department of Human Services, office of Long
term Care and shall materially comply with all conditions placed upon the
Certificate of Need.
(b) Neither Lessee nor Manager shall knowingly take any action or
fail to take any action which may (1) cause any governmental authority having
jurisdiction over the operation of the Facility to institute any proceeding for
the rescission or revocation of any necessary license, permit, consent or
approval, or (2) adversely affect the Facility's right to accept and obtain
payments under Medicare, Medicaid, Blue Cross or any other public or private
third-party medical payment program.
(c) Manager shall have the right to contest by appropriate legal
proceedings, diligently conducted in good faith in the name of Lessee, the
validity or application of any law, ordinance, rule, ruling, regulation, order
or requirement of any governmental agency having jurisdiction over the operation
of the Facility. Counsel for any such contest shall be selected by Manager.
(d) Manager shall have the right, to the fullest extent permitted by
applicable law, to process all third-party payment claims for the services of
the Facility, including, without
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limitation, the full right to contest to exhaustion all applicable
administrative proceedings or procedures, adjustments and denials by
governmental agencies or their fiscal intermediaries as third-party payors. In
furtherance of the provisions of this Section 1.7(d), Lessee hereby assigns to
Manager all rights of Lessee, as the operator of the provider license for the
Facility, to process all third-party payment claims for the services of the
Facility including, without limitation, the full right to contest to exhaustion
all applicable administrative proceedings or procedures, adjustments and denials
by governmental agencies or their fiscal intermediaries as third-party payors
1.8 Administrator. Manager shall hire for the Facility a qualified
administrator (the "Administrator") of the Facility. The Administrator shall be
an employee of the Manager, but the Administrator's salary and fringe benefits
will be paid entirely out of the operating Accounts of the Facility.
1.9 Taxes. Any federal, state or local taxes, assessments or other
governmental charges properly imposed on the Facility (other than taxes on or
measured by income of Lessee) are the obligations of the Facility and shall be
paid out of the Operating Accounts of the Facility.
1.10 Use of Manager's Personnel. An authorized representative of Manager
shall visit the Facility if and as often as Manager deems necessary. The time
spent by such arising from travel and lodging connected with such visitations
shall not be charged separately to Lessee, but shall be paid by Manager out of
the Management Fees (as hereinafter defined) to be received by Manager pursuant
hereto.
1.11 Government Regulations. Manager agrees to operate and maintain the
Facility in substantial compliance with the requirements of any statute,
ordinance, law, rule, regulation or order of any governmental or regulatory body
having jurisdiction over the Facility.
1.12 Quality Controls. Manager shall implement and maintain on a
continuing basis a Quality Assurance Program at the Facility and in connection
therewith shall utilize such techniques as Manager deems appropriate in order to
fulfill its duties herein.
1.13 Staff Specialist. In addition to the other managerial services
provided for herein, Manager shall make available to the Facility for
consultation and advice, as it deems appropriate, specialists in such fields as
accounting, auditing, budgeting, dietary services, operations, public relations
and procedures, and third-party reimbursement.
1.14 Performance of Services by Manager. In the performance of its
services hereunder, Manager shall exercise the same standards and degree of care
used by reasonable and prudent managers of nursing homes of similar size, nature
and character as
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the Facility. Notwithstanding anything herein to the contrary, Manager shall not
be deemed in violation of this Agreement, if it is prevented from performing any
of its obligations hereunder for any reason beyond its reasonable control
including, without limitation, strikes, walkouts or other employee disturbances,
acts of God or the promulgation of any statute, rule, regulation or order by any
federal, state, or local governmental or judicial agency or official, nor shall
it be deemed in default or grossly negligent with respect hereto.
1.15 Extraordinary Services. Lessee agrees that any extraordinary or
specialized service recommended by Manager and approved by Lessee, even if
provided by Manager, may be performed for a separate fee, apart and in addition
to the Management Fees, as agreed upon by Manager and Lessee in advance of the
performance of such service.
1.16 Name of Facility. Lessee agrees that Manager shall be permitted to
install such signage for the Facility as Manager deems reasonably appropriate.
ARTICLE II
TERM
2.1 Term. The term of this Agreement shall commence on the Effective Date
and continue through March 31, 2005, subject to the right of either party to
terminate this Agreement pursuant to the terms hereof, including, without
limitation, pursuant to the provisions contained in Section 3.2 hereof relating
to remedies upon default.
ARTICLE III
DEFAULT AND REMEDIES
3.1 Events of Default. Each of the following shall constitute an event of
default ("Event of Default") under this Agreement:
(a) If Lessee fails (i) to make or cause to be made any payment to
Manager required to be made by Lessee, and such failure shall continue for as
much as 30 days after notice thereof shall have been given by the Manager to
Lessee, (ii) to perform its obligations under this Agreement in any material
respect, and such default shall continue for a period of 30 days after notice
thereof shall have been given by the Manager to Lessee, or (iii) to make
payments, or keep any covenants owing to any third party (the responsibility for
which has not been delegated to Manager hereunder) and which would cause Lessee
to lose possession of the Facility's buildings, equipment or properties;
(b) If Manager fails (i) to make or cause to be made any payment to
or on behalf of Lessee required to be made by Manager, and such failure shall
continue for as much as 30 days after notice thereof shall have been given by
the Lessee to Manager, (ii) to
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perform its obligations under this Agreement in any material respect, and such
failure shall continue for a period of 30 days after notice thereof shall have
been given by the Lessee to Manager, or (iii) to make payments, or keep any
covenants owing to any third party and which would cause Lessee to lose
possession of the Facility's buildings, equipment or properties;
(c) If, through no fault of Manager, the licenses required for the
operation of Facility are at any time suspended, terminated, or revoked, and
such suspension, termination or revocation shall continue unstayed and in effect
for a period of 30 consecutive days;
(d) If either Lessee or Manager shall: (1) be adjudicated bankrupt;
(2) admit in writing its inability to pay its debts generally as they become
due; (3) become insolvent in that its total assets are in the aggregate worth
less than all of its liabilities or it is unable to pay its debts generally as
they become due; (4) make a general assignment for the benefit of creditors; (5)
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; or (6) consent to the
appointment of a receiver, conservator, trustee or liquidator of all or part of
its assets; or
(e) If a petition shall have been filed against Lessee or Manager in
proceedings 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 laws
for the relief of debtors, or for the discharge, arrangement or compromise of
its debts, or an order shall be entered by any court of competent jurisdiction
appointing a receiver, conservator, trustee or liquidator of all or part of
Lessee's or Manager's assets, and such petition or order is not dismissed or
stayed within sixty (60) consecutive days after entry thereof.
3.2 Remedies Upon Default. If any Event of Default by either party shall
occur and be continuing, the other party may in addition to any other remedy
available to it in law or equity on account of such Event of Default, forthwith
terminate this Agreement by giving written notice of such termination, and
neither party shall have any further obligations whatever under this Agreement;
provided, that Manager shall immediately be entitled to receive all payments due
under Article IV.
ARTICLE IV
MANAGEMENT FEE
4.1 Management Fee. For each month from the date hereof until such time as
the Facility shall average a forty percent (40%) occupancy rate for a 30-day
period (the "Required Base Occupancy")
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the Lessee shall pay to the Manager a monthly development management fee of
$2,000. 00 per month (the "Development Fee") . Commencing with the month
immediately following the month in which the Facility obtains the Required Base
occupancy, until the end of the term hereof, the Lessee shall pay to the
Manager, in lieu of the Development Fee, a monthly base management fee equal to
four percent (4%) of the Facility's net revenues, as determined on an accrual
basis (the "Base Fee"), In addition to the Base Fee, commencing with the month
immediately following the month in which the Facility achieves positive Adjusted
Net Income (as hereinafter defined), until the end of the term hereof, the
Lessee shall pay to the Manager, in addition to the Base Fee, an additional
monthly management fee (the "Incentive Feel,) equal to the lesser of (i) fifty
percent (50%) of the Facility's Adjusted Net Income, or (ii) such percentage of
the Adjusted Net Income as when added to the Base Fee payable to the Manager for
such month, will equal eight percent (8%) of the Facility's net revenues. The
Development Fee, the Base Fee and the Incentive Fee shall be collectively
referred to herein as the "Management Fees." As used in this Section, "Adjusted
Net Income, means the net income (or loss) of the Facility determined in
accordance with generally accepted accounting principles, plus depreciation,
amortization of deferred expenses, and any other noncash charges or expenses,
less the interest on the Facility's indebtedness and principal payments on the
Facility's Existing Debt and any lease payments on the Facility.
4.2 Payment of Management Fees. All Management Fees due hereunder shall be
paid to Manager on or before the twelfth business day of each month. Any late
payments of Management Fees not made after three (3) days written notice to
Lessee shall bear interest from their original due date equal to ten percent
(10%) per annum until fully paid. Notwithstanding anything herein to the
contrary, the Management Fees provided under this Article IV shall be
subordinate and subject to the agreements of Manager provided in Section 1.5(b)
above.
ARTICLE V
INSURANCE
5.1 Insurance Indemnity. During the term of this Agreement, Manager shall
at all times keep the Facility insured with the kinds and amounts of insurance
described below. This insurance shall be written by companies authorized to do
insurance business in the State of Arkansas. The policies must name Lessee as an
additional insured. Losses shall be payable to Lessee and Manager as provided in
Section 5.5 below. In addition, the policies shall name as an additional insured
any mortgagee of the Facility by way of a standard form of mortgagee's loss
payee endorsement. Any loss adjustment shall require the written consent of
Lessee, Manager and each mortgagee. Evidence of insurance shall be deposited
with Lessee and, if requested, with any mortgagee(s) . The policies on the
Facility shall insure against the following risks:
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(i) Loss or damage by fire and such other risks as may be
included in the broadest form of extended coverage insurance from time to time
available, including but not limited to loss or damage from leakage of any
sprinkler system now or hereafter installed in the Facility, in amounts
sufficient to prevent Lessee or Manager from becoming a co-insurer within the
terms of the applicable policies and in any event in an amount not less than one
hundred percent (100%) of the then full replacement value thereof (as defined
below in Section 5.2);
(ii) Loss or damage by explosion of steam boilers, pressure
vessels or similar apparatus, now or hereafter installed in the Facility, in
such limits with respect to any one accident as may be reasonably agreed by
Lessee and Manager from time to time;
(iii) Claims for personal injury or property damage under a
policy of general public liability insurance with amounts not less than One
Million and No/100 Dollars ($1,000,000.00) per occurrence in respect of bodily
injury, Three Million and No/100 Dollars ($3,000,000.00) aggregate per
occurrence, and Three Hundred Thousand and No/100 Dollars ($300,000.00) for
property damage;
(iv) Claims arising out of malpractice in an amount not less
than One Million and No/100 Dollars ($1,000,000.00) for each person and for each
occurrence;
(v) Such other hazards and in such amounts as may be customary
for comparable properties in the area and is available from insurance companies
authorized to do business in the State of Arkansas:
(vi) Loss of rental under a rental value insurance policy
covering a risk of loss during the first six (6) months of reconstruction
resulting from the occurrence of any of the hazards described in subsections (i)
and (ii) of this Section 5.1 in an amount sufficient to prevent Lessee from
becoming a co-insurer; and
(vii) Worker's compensation.
5.2 Replacement Cost. The term "full replacement value" of improvements as
used herein, shall mean the actual replacement cost thereof from time to time,
less exclusions provided in the normal fire insurance policy.
5.3 Additional Insurance. In addition to the insurance described above,
Manager shall maintain such additional insurance as any be reasonably required
from time to time by any mortgagee of the Facility.
5.4 Waiver of Subrogation. Any provision in this Agreement to the contrary
notwithstanding, each party hereof, to the extent it is permitted to do so by
the terms and provisions of any of the above policies, hereby waives any and all
rights it may have
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against the other, its agents, or employees, for any loss or damage from risks
ordinarily insured against under such policies, but only to the extent that such
loss or damage is in fact covered by such insurance and is collectible by the
insured party. Each party hereof further covenants and agrees that it will, upon
request of the other, request each such insurance company to attach to such
policy or policies issued by it a waiver of subrogation with respect to the
other party, its agents or employees.
5.5 Insurance Proceeds. All proceeds payable by reason of any casualty
loss or damage to all or any part of the Facility and insured under any policy
of insurance required by Section 5.1 above shall be paid to Lessee and held by
Lessee in trust (subject to the provisions of Section 5.6 below and the rights
of the holders of the Facility mortgages) and shall be made available for
reconstruction or repair, as the case may be, of any damage to or destruction of
the Facility, and shall be paid out by Lessee from time to time for the
reasonable costs of such work. Any excess proceeds of insurance remaining after
the completion of the restoration or reconstruction of the Facility shall be
returned, as applicable, to the insurer or Manager as their interests may
appear. All salvage resulting from any such loss covered by insurance shall
belong to Lessee.
5.6 Damage or Destruction. If, during the Term of this Agreement, the
Facility is totally or partially destroyed from a risk covered by the insurance
described in Section 5.1 above, Lessee shall, as soon as practicable, restore
the Facility to substantially the same condition as existed immediately before
the destruction. Upon the commencement of such work, Lessee shall proceed with
due diligence to complete such work within a reasonable period of time. If the
costs of the restoration exceed the amount of proceeds received by Lessee from
the insurance required under Section 5.1, Manager shall have the right but not
the obligation to pay the difference between the amount of insurance proceeds
and such cost of restoration.
5.7 Restoration of Manager's Property. If Lessee is required to restore
the Facility as provided in Section 5.6 above, Lessee shall not be required to
restore alterations made by Manager, or Manager's improvements, trade fixtures
or personal property, such excluded items being the sole responsibility of
Manager to restore, Lessee shall, however, be required to restore the Facility's
tangible personal property owned by Lessee.
5.8 Manager's Blanket Policy. Notwithstanding anything to the contrary
contained in this Article V, manager's obligation to carry the insurance
provided for herein may be brought within the coverage of a so-called blanket
policy, carried and maintained by Manager; provided, however, that the coverage
afforded Lessee will not be reduced or diminished or otherwise be different from
that which would exist under a separate policy meeting all other requirements of
this Agreement.
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ARTICLE VI
MISCELLANEOUS COVENANTS
6.1 Medical Specialty Units. The Manager shall have the right, but not the
obligation, to make such alterations to the Facility as it deems necessary or
desirable for the purpose of installing or modifying one or more medical
specialty units ("MSUs") in the Facility, provided, however, that such
alterations (i) will not result in a long-term material diminishment in the fair
market value of the Facility, (ii) are not financed with additional mortgage
debt on the Facility, (iii) do not, without the prior written consent of the
Lessee (which consent shall not be unreasonably withheld), result in an increase
in the number of licensed beds of the Facility, and (iv) do not, without the
prior written consent of the Lessee (which consent shall not be unreasonably
withheld), cost in the aggregate more than $10,000 in any given year. Subject to
the consent of the Owner, the Lessee, the appropriate regulatory authorities,
and any mortgagees of the Facility who have the expressed right to so consent
(such consents not to be unreasonably withheld), the Manager shall have the
right (but not the obligation), in connection with the modification or
installation of any MSUs, to pursue an increase in the number of licensed beds
of the Facility and/or to grant leasehold mortgage liens on the Facility in
order to secure the permanent financing for such improvements. The Manager shall
provide capital not to exceed an aggregate amount of $200,000 in order to
implement any such improvements, and as consideration for providing such
capital, the Manager shall receive from the Lessee an equity ownership
percentage (as hereinafter defined) of 1% for every $10,000 in capital provided
pursuant to this Section. As used in this Section "equity ownership percentage"
shall mean the percentage of the Manager's equity ownership in the Lessee's
leasehold interest created pursuant to the Lease.
6.2 Assignment. Lessee shall not assign its rights and/or obligations
under this Agreement without the prior written consent of Manager, which consent
shall not be unreasonably withheld. Manager shall not assign its rights and/or
obligations under this Agreement, without the prior written consent of Lessee.
Neither party shall unreasonably withhold such consents.
6.3 Licensing: Changes and Services. Manager agrees to take or cause to be
taken any and all actions necessary to be taken by it as the overall supervisor
of the assets and operations of the Facility in order to maintain all required
licenses, permits for the operation of the Facility and the Facility's
eligibility to participate in all public or private third-party medical payment
programs, including providing sufficient funds to bring the Facility in
compliance with all applicable fire safety codes and other laws, regulations and
orders, and to correct all maintenance, procedural and staffing deficiencies as
shown on the surveys and reports of governmental agencies having jurisdiction
over the Facility. Manager agrees that it will not through the exercise of its
overall supervisory powers substantially change the services
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rendered by the Facility during the term hereof without the prior written
approval of Lessee. Nothing contained in this Section 6.2 shall derogate from
Manager's duties under Section 1.7 hereof.
6.4 Binding Agreement. The terms, covenants, conditions, provisions and
agreements herein contained shall be binding upon and inure to the benefit of
the parties hereto, their successors and assigns.
6.5 Relationship of Parties. Nothing contained in this Agreement shall
constitute or be construed to be or to create a partnership or joint venture
between Lessee and Manager with respect to the Facility.
6.6 Notices. All notices, demands and requests contemplated hereunder by
either party to the other shall be in writing, and shall be deemed given when
delivered by hand, or national recognized overnight courier, transmitted by
cable, telephonic facsimile (fax), telegram, or mailed, postage prepaid,
registered, or certified mail return receipt requested:
(a) to Lessee by addressing the same to:
Mr. Edward V. Holman
Holman Management Services, Inc.
d/b/a Chenal Rehabilitation and Healthcare Center
9 St. Charles Court
Little Rock, AR 72211
Telephone No.: (501) 227-8709
Telecopier No.: (501) 227-8708
(b) to Manager, by addressing the same to:
Mr. Randall J. Bufford
General Manager
Transitional Health Services
9300 Shelbyville Rd.
Suite 1300
Louisville, KY 40222
Telephone No.: (502) 425-3620
Telecopier No.: (502) 425-3662
or to such other address or to such other person as may be designated by notice
given from time to time during the term by one party to the other. Any notice
hereunder shall be deemed given five (5) days after mailing, if given by mailing
in the manner provided above, or on the date delivered or transmitted if given
by hand, cable, fax, overnight courier, or telegraph.
6.7 Entire Agreement; Amendments. This Agreement contains the entire
agreement between the parties hereto, and no other or prior written or oral
representations shall apply. Any additions, amendments or modifications to this
Agreement shall be of no force and effect unless in writing and signed by both
Lessee and Manager.
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6.8 Captions and Headings. The captions and headings throughout this
Agreement are for convenience of reference only, and shall not modify, define,
limit, expand the express provisions of this Agreement.
6.9 Authorization of Agreement. Manager and Lessee represent and warrants
each to the other with respect to itself, that the execution and delivery of
this Agreement has been duly authorized by all respective action, will not
presently or with the passage of time, the giving of notice or both, result in a
default under or violate or conflict with (i) the provisions of the partnership
agreement or articles of incorporation and bylaws, as the case may be, of
Manager or of Lessee, or (ii) any other agreement, mortgage, loan agreement or
other contract or instrument to which either party is bound or by which any of
the property or assets of either party is subject, or (iii) any existing law,
regulation, court order or consent decree to which either party is bound or any
of the property or assets of either party is subject.
6.10 Indemnification. Manager agrees to indemnify, protect and hold
harmless Lessee from and against any and all liabilities and damages (a) arising
from or out of any occurrence in, upon or at the Facility or any part thereof,
or the occupancy or use by Manager of the Facility, the personal property or any
part thereof, or occasioned wholly or in part by any act or omission of Manager,
its agents, contractors, employees or invitees in connection with the Facility
or the personal property during the term of this Agreement, or (b) related to
any claims, assessments, chargebacks or other expenses (whether owed to or
assessed by a private or governmental party) arising in connection with the
operation or other use of the Facility or the personal property during the term
of this Agreement. Lessee agrees to indemnify, protect and hold harmless Manager
from and against (y) the liabilities, obligations and debt (whether or not now
known or asserted) of the Facility or Lessee, existing on the Effective Date or
of Lessee arising during the term hereof, and (z) all liabilities and damages
arising from or occasioned wholly or in part by any act (whether dishonest,
willful or negligent) or omission of Lessee, its agents, contractors, employees
or invitees in connection with the Facility during the term of this Agreement.
The Lessee's indemnity stated in the preceding sentence shall survive the
termination or expiration of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement through their duly authorized representatives, effective as of the day
and year first above written, but actually on the date(s) set forth below.
LESSEE:
HOLMAN MANAGEMENT SERVICES, INC.
d/b/a CHENAL REHABILITATION AND
HEALTHCARE CENTER
By: /s/ Edward V. Holman
---------------------------------
Title: President
Date: March 31, 1995
MANAGER:
TRANSITIONAL HEALTH PARTNERS
d/b/a TRANSITIONAL HEALTH SERVICES
By THS PARTNERS I, INC. and
THS PARTNERS II, INC.,
General Partners
By: /s/ John G. Hundley
---------------------------------
Title: Vice President
Date: March 31, 1995
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EXHIBIT 10.38
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MANAGEMENT AGREEMENT
Ovid Convalescent Manor
This is a MANAGEMENT AGREEMENT ("Agreement") made and effective November
1, 1993 (the "Effective Date"), between TRANSITIONAL HEALTH PARTNERS d/b/a
TRANSITIONAL HEALTH SERVICES, a Delaware general partnership ("Manager"), and
CARDINAL DEVELOP CO., INC., a Kentucky corporation ("Owner").
Recitals
A. Owner leases the Ovid Convalescent Manor, a 63-bed healthcare/nursing
facility located at 9480 E. M-21, Ovid, Michigan (the "Facility"), pursuant to a
twenty-year Lease Agreement dated June 8, 1993, with Healthcare Realty Trust
Incorporated (the "Lease"). Owner has contracted to assign its Lease on the
Facility to Manager following the relicensing of the Facility in the name of
Manager.
B. Owner wishes to retain Manager to operate the Facility on behalf of
Owner under the terms of this Agreement in order to avail itself of Manager's
experience and skill in managing healthcare facilities comparable to the
Facility until such time as the Facility can be licensed for operation in the
name of Manager. Manager wishes to provide such management services on behalf of
Owner pursuant to the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants of
the parties contained herein, and for such other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties agree:
ARTICLE I.
MANAGEMENT DUTIES AND OBLIGATIONS
1.01 Employment; Control Retained by Owner. Owner hereby retains Manager,
and Manager hereby agrees to manage the Facility, subject to the terms and
conditions of this Agreement. Owner shall exercise overall control over the
assets and operations of the Facility at all times, and Manager shall perform
the duties herein required to be performed by it as the agent of Owner and in
accordance with the reasonable policies and directives from time to time
mutually agreed to by Owner and Manager and adopted by Owner. Owner has reviewed
the policies and procedures created by Manager and hereby authorizes and directs
Manager to implement such policies and procedures at the Facility.
1.02 Ownership of Manuals. Manager is the sole owner of all policy and
procedure manuals.
1.03 Management of Facility. During the term of this Agreement, Manager
shall on behalf of Owner supervise, conduct, and manage all aspects of the
day-to-day operation of the Facility, including, but not limited to, staffing,
accounting, billing, collections, setting of rates
<PAGE>
and charges and general administration. In connection therewith, Manager (either
directly or thorough supervision of employees of the Facility) shall:
(a) Establish, maintain, revise and administer an overall pricing
structure for services rendered in the Facility, including, without limitation,
patient room charges, charges for all ancillary services, charges for supplies,
medication and special services.
(b) Hire as employees of Owner and retain an adequate staff of
nurses, technicians, nurse aides, office and other employees, including an
administrator (the "Administrator") and promote, direct, assign and discharge
all such employees on behalf of Owner at Manager's sole discretion. All such
employees shall be employees of the Owner and carried on the payroll of the
Facility.
(c) Institute and amend from time to time general salary scales,
personnel policies and appropriate employee benefits for all employees on behalf
of Owner. Employee benefits may include pension and profit sharing plans,
insurance benefit.% incentive plans for key employees and holiday, vacation,
personal leave and sick leave policies.
(d) Issue appropriate bills for services and materials furnished by
the Facility and use its best efforts to collect accounts receivable and monies
owed to the Facility on behalf of Owner, design and maintain accounting,
billing, patient and collection records; and prepare and file insurance,
Medicare, Medicaid and any and all other necessary or incidental reports and
claims related to revenue production. Subject to any rights in favor of
Manager's accounts receivable lender, Owner hereby delegates to Manager the
right to enforce Owner's rights as creditor under any contract or in connection
with rendering any services for purposes of collecting accounts receivable and
monies owed the Facility.
(e) Order, supervise and conduct a program of regular maintenance
and repair, (including any extraordinary expenditures or improvement), except
that any physical improvements costing in the aggregate more than $10,000 in any
given year shall be subject to approval of Owner, which approval shall not be
unreasonably withheld.
(f) Purchase food, beverage, medical cleaning and other supplies,
equipment, furniture and furnishings for the account of Owner.
(g) Administer, supervise and schedule all patient and other
services of the Facility, including the operation of food, barber/beautician and
other an services.
(h) Provide necessary funds for and pay all of the accounts payable,
indebtedness (other than Owner's mortgage financing), taxes (other than taxes on
or measurable by Owner's income taxes), insurance premiums, and all other
obligations of the Facility on behalf of Owner.
(i) Institute standards and procedures for admitting patients,
charging patients for services, and collecting the charges from the patients or
third parties.
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(j) Obtain and maintain insurance coverage for the Facility naming
Owner, Manager and such other persons requested by Owner as insured as provided
in Section 5.01 hereof.
(k) Negotiate and enter into such agreements, leases, contracts and
orders on behalf of Owner as it may deem necessary or advisable, for the
furnishing of services (including medical pharmacy and medical records
consulting, dietary, emergency evacuation, transportation, infectious waste
disposal, fire system, etc, and related services), concessions and supplies for
the operation and maintenance of the Facility.
(l) Negotiate with any labor union lawfully entitled to represent
employees of Owner who work at the Facility, but any collective bargaining
agreement or labor contract must be submitted to Owner for its approval and
execution. Manager agrees to provide Owner with prompt notice of all labor
negotiations.
(m) Maintain on behalf of Owner all licenses and permits required
for the operation of the facility, its contracts with third party payors and
other similar governmental and non-governmental agencies and intermediaries.
(n) Make periodic evaluations of the performances of all departments
of the Facility.
(o) Design, establish and maintain a suitable accounting system
using accounts and classifications consistent with those used in similar
facilities.
(p) Designing an adequate and appropriate public relations program.
(q) Acquire at Owner's expense all items required to properly equip
and operate the facility which are not provided by Owner.
(r) Engage counsel and cause such legal proceedings to be instituted
on Owner's behalf as may be needed in Manager's reasonable determination to
enforce payment of charges, collect accounts receivable, or enforce compliance
with other terms of residency agreements, or to dispossess residents and
patients, with full authority to compromise disputes with residents and patients
involving setoffs or damage claims.
1.04 Reports to Owner. Manager shall prepare and deliver to Owner within
thirty (30) days after the close of each calendar month unaudited financial
statements covering the prior month and containing a balance sheet and statement
of income in reasonable detail Manager shall also provide any required
assistance to the independent accountants for the Facility, who may be selected
by Manager in the preparation of audited or unaudited financial statements for
the operation of the Facility.
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1.05 Bank Accounts, Working Capital.
(a) Manager shall deposit in a bank account or accounts of the
Manager or the Facility (the "Facility Depository Accounts) established in
Manager's name all funds received from the operations of the Facility. Manager
may "sweep" these accounts as often as it deems appropriate and consolidate and
commingle funds from other facilities owned or managed by Manager into its
primary operating account(s) in Louisville, Kentucky, or such other place and
with such financial institutions as Manager may determine (the "Operating
Accounts"). Manager and Owner agree that notwithstanding the termination or
expiration of this Agreements, the amount of any accounts receivable, prepaids
and deposits arising from any transactions occurring during the term of this
Agreement shall be for Manager's account and upon collection shall be paid to
Manager and that the amount of any accounts payable arising during the term of
this Agreement shall be paid by Manager when due. Manager shall have the sole
and exclusive right to collect such accounts receivable and the sole and
exclusive obligation to pay such accounts payable. Manager shall also provide
sufficient working capital for the continued operation of the Facility, which
shall be deposited into or drawn from the Operating Accounts. Manager shall
specify the signatory or signatories required on all checks or other documents
of withdrawal for the Depository or Operating Accounts. Manager shall also
deposit the personal funds of the Facility's residents into a separate trust
account established in Manager's name. Manager shall designate those employees
of the Facility with signature authority for all checks or other documents of
withdrawal for the Trust Account.
(b) As partial consideration for entering into this Agreement,
Manager hereby agrees that the Owner will not be liable for any operating or
managing losses as a result of the operation of the Facility. Manager agrees to
provide sufficient operating capital as needed in order to operate the Facility
and to pay the debts and obligations incurred or accrued in connection with the
operation of the Facility after the Effective Date of this Agreement. The
revenue generated by the Facility, together with amounts funded by the Manager,
will at least equal the amount necessary to pay for the operating costs and
other costs associated with the ownership and operation of the Facility, In the
event that funds are necessary in order to fund any deficit, the Manager will,
as soon as possible and not less than ten (10) days after notice from Owner,
deposit into the Operating Accounts such amounts as may be n to fund any deficit
and to operate the Facility without incurring additional deficits.
1.06 Record Requirements. If it is ultimately determined that Section 952
of the Omnibus Reconciliation Act of 1980 and final regulations promulgated
thereunder apply to this Agreement:
(a) Until the expiration of four years after the furnishings of
services pursuant to this Agreement, Manager shall as provided in said Section
952, make available, upon written request, to the Secretary of Health and Human
or upon request, to the Comptroller General of the United States or any of their
duly authorized representatives, this Agreement, and all books, documents and
records of Manager that are necessary to verify the nature and extent for the
costs of any services furnished pursuant to this Agreement for which payment may
be made under the M program; and
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(b) If Manager carries out any of the duties of this Agreement
through a subcontract with an aggregate value or cost of $10,000 or more over a
twelve-month period with a related organization, such subcontract the related
organization shall as provided in Section 952 make available, upon written
request, to the Secretary of Health and Human Services or upon request, to the
Comptroller General of the United States or any of their duly authorized
representatives, the subcontract or subcontracts, and all books, documents and
records of such organization that are necessary to verify the nature and extent
of the costs of any services furnished pursuant to such subcontract or
subcontracts for which payment may be made under the Medicare program.
1.07 Licenses.
(a) Owner shall apply for and obtain, and Manager shall maintain all
necessary licenses (except Manager's nursing license, which shall be Manager's
responsibility), permits, consents, and approvals from all governmental agencies
which have jurisdiction over the operation of the Facility. Manager agrees that
its management and operation of the Facility shall materially and substantially
comply with representations in the Certificate of Need application for the
Facility on file with the Michigan Department of Social Services, and shall
materially comply with all conditions placed upon the Certificate of Need.
(b) Neither Owner nor Manager shall knowingly take any action or
fail to take any action which may (1) cause any governmental authority having
jurisdiction over the operation of the Facility to institute any proceeding for
the rescission or revocation of any necessary license, permit, consent or
approval, or (2) adversely affect Owner's right to accept and obtain payments
under Medicare, Medicaid, Blue Cross, or any other public or private third-party
medical payment program.
(c) Manager shall have the right to contest by appropriate legal
proceedings, diligently conducted in good faith in the name of Owner, the
validity or application of any law, ordinance, rule, regulation, order or
requirement of any governmental agency having jurisdiction over the operation of
the Facility. Counsel for any such contest shall be selected by Manager and
approved by Owner.
(d) Manager shall have the right to process on behalf of Owner all
third-party payment claims for the services of the Facility, including, without
limitation, the full right to contest to exhaustion all applicable
administrative proceedings or procedures, adjustment and denials by governmental
agencies or their fiscal intermediaries as third-party payors.
1.08 Administrator. Manager shall hire for the Facility a qualified
administrator (the "Administrator) of the Facility. The Administrator shall be
an employee of and shall be compensated by the Manager.
1.09 Taxes. Any federal, state or local taxes, assessments or other
governmental charges property imposed on the Facility (other than taxes on or
measured by income of Owner) are the obligations of the Facility and shall be
paid out of the Operating Accounts of the Facility.
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1.10 Use of Manager's Personnel. An authorized representative of Manager
shall visit the Facility if and as often as Manager deems necessary. The time
spent by such arising from travel and lodging connected with such visitations
shall not be charged separately to Owner, but shall be paid by Manager out of
its own management fees.
1.11 Government Regulations. Manager agrees to operate and maintain the
Facility in substantial compliance with the requirements of any statute,
ordinance, law, rule, regulation or order of any governmental or regulatory body
having jurisdiction over the Facility.
1.12 Quality Controls. Manager shall implement and maintain on a
continuing basis a Quality Assurance Program at the Facility and in connection
therewith shall utilize such techniques as Manager deems appropriate in order to
fulfill its duties herein.
1.13 Staff Specialist. In addition to the other managerial services
provided for herein, Manager shall make available to the Facility for
consultation and advice, as it deems appropriate, specialists in such fields as
accounting, auditing, budgeting, dietary services, operations, public relations
and procedures, and third-party reimbursement.
1.14 Performance of Services by Manager. In the performance of its
services hereunder, Manager shall exercise the same standards and degree of care
used by reasonable and prudent managers of nursing homes of similar size, nature
and character as the Facility. Notwithstanding anything herein to the contrary,
Manager shall not be deemed in violation of this Agreement, if it is prevented
from performing any of its obligations hereunder for any reason beyond its
reasonable control including, without limitation, strikes, walkouts or other
employee disturbances, acts of God or the promulgation of any statute, rule,
regulation or order by any federal state, or local governmental or judicial
agency or official, nor shall it be deemed in default or grossly negligent with
respect hereto.
1.15 Extraordinary Services. Owner agrees that any extraordinary or
specialized service recommended by Manager and approved by Owner, even if
provided by Manager, may be performed for a separate fee as agreed upon by
Manager and Owner in advance of the performing of such service.
ARTICLE II.
TERM
2.01 Term. The term of this Agreement shall commence on the Effective Date
and continue until June 6, 2013, subject to the right of the Manager, at its
option, to terminate this Agreement (a) at any time prior to such date upon not
less than ninety (90) days prior written notice to the Owner, or (b) upon the
closing of its acquisition of the Owner's Lease on the Facility, in which cast,
no notice shall be required to be given prior thereto.
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ARTICLE III.
DEFAULT AND REMEDIES
3.01 Events of Default. The following shall constitute events of default
("Event of Default") under this Agreement:
A. If Owner fails (i) to make or cause to be made any payment to
Manager required to be made by Owner, and such failure shall
continue for as much as 30 days after notice thereof shall have been
given to Owner, (ii) to perform its obligations under this Agreement
in any material respect, and such default shall continue for a
period of 30 days after written notice thereof shall have been given
by the Manager to Owner, or (iii) to make payments, or keep any
covenants owing to any third party (the responsibility for which has
not been delegated to Manager hereunder) and which would cause Owner
to lose possession of the Facility's buildings, equipment or
properties;
B. If Manager fails (i) to make or cause to be made any payment to or
on behalf of Owner required to be made by Manager, and such failure
shall continue for as much as 30 days after written notice thereof
shall have been given to Manager, (ii) to perform its obligations
under this Agreement in any material respect, and such failure shall
continue for a period of 30 days after written notice thereof shall
have been given by the Owner to Manager, or (iii) to make payments,
or keep any covenants owing to any third party and which would cause
Owner to lose possession of the Facility's buildings, equipment or
properties;
C. If the licenses required for the operation of Facility are at any
time suspended, terminated, or revoked, and such suspension,
termination or revocation shall continue unstayed and in effect for
a period of 30 consecutive days;
D. If either Owner or Manager shall (1) be adjudicated bankrupt; (2)
admit in writing its inability to pay its debts generally as they
become due; (3) become insolvent in that its total assets are in the
aggregate worth less than all of its liabilities or it is unable to
pay its debts generally as they become due; (4) make a general
assignment for the benefit of creditors; (5) 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; or (6) consent to the appointment of a
receiver, conservator, trustee or liquidator of all or part of its
assets.
E. If a petition shall have been filed against Owner or Manager in
proceedings 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 laws for the relief of debtors, or for the
discharge, arrangement or compromise of its debts, or an order shall
be entered by any court of competent jurisdiction appointing a
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receiver, conservator, trustee or liquidator of all or part of
Owner's or Manager's assets, and such petition or order is not
dismissed or stayed within sixty (60) consecutive days after entry
thereof.
3.02 Remedies Upon Default. If any Event of Default by either party shall
occur and be continuing, the other party may, in addition to any other remedy
available to it in law or equity on account of such Event of Default, forthwith
terminate this Agreement by giving written notice of such termination, provided
that only the Manager may terminate this Agreement upon an Event of Default
under Section 3.01(c) hereof. After such termination of this Agreement, neither
party shall have any further obligations whatever under this Agreement other
than as expressly provided elsewhere in this Agreement and provided that Manager
shall immediately be entitled to receive all payments due under Article IV.
ARTICLE IV.
MANAGEMENT FEE
4.01 Management Fee. For each month during the term hereof, Manager shall
be entitled to receive from Owner, and Owner shall pay to Manager as the amount
due for services, a management fee equal to the Adjusted Net Income of the
Facility for such month. "Adjusted Net Income" shall mean net income (or loss)
of the Facility determined in accordance with generally accepted accounting
principles, plus depreciation, amortization of deferred expenses, and any other
non-cash charges or expenses, less principal payments of the Facility's mortgage
or the Owner's capitalized lease expense, as the case may be.
4.02 Payment of Management Fees. All management fees due hereunder shall
be paid to Manager. Any late payments of management fees not made after three
(3) days written notice to Owner shall bear interest from their original due
date equal to ten percent (10%) per annum until fully paid. Notwithstanding
anything herein to the contrary, the management fees provided under this Article
III shall be subordinate and subject to the agreements of Manager provided in
Section 1.05(b) above.
ARTICLE V.
INSURANCE
5.01 Insurance Indemnity. During the term of this Agreement, Owner shall
at all times keep the Facility insured with the kinds and amounts of insurance
described below. This insurance shall be written by companies authorized to do
insurance business in the State of Michigan. The policies must name Manager as
an additional insured.
Losses shall be payable to Owner and Manager as provided in Section 5.05 below.
In addition, the policies shall name as an additional insured any mortgagee of
the Facility by way of a standard form of mortgagee's loss payable endorsement.
Any loss adjustment shall require the written consent of Owner, Manager, and
each mortgagee. Evidence of insurance shall be deposited with Manager and, if
requested, with any mortgagee(s). The policies on the Facility shall insure
against the following risks:
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(i) Loss or damage by fire and such other risks as may be included in the
broadest form of extended coverage insurance from time to time available,
including but not limited to loss or damage from leakage of any sprinkler system
now or hereafter installed in the Facility, in amounts sufficient to prevent
Owner or Manager from becoming a co-insurer within the terms of the applicable
policies and in any event in an amount not less than one hundred percent (100%)
of the then full replacement value thereof (as defined below in Section 5.02);
(ii) Loss or damage by explosion of steam boilers, pressure vessels or similar
apparatus, now or hereafter installed in the Facility, in such limits with
respect to any one accident as may be reasonably agreed by Owner and Manager
from time to time; (iii) Claims for personal injury or property damage under a
policy of general public liability insurance with amounts not less than One
Million and No/100 Dollars ($1,000,000.00) per occurrence in respect of bodily
injury, Two Million and No/100 Dollars ($2,000,000.00) aggregate per occurrence,
and Three Hundred Thousand and No/100 Dollars ($300,000.00) for property damage;
(iv) Claims arising out of malpractice in an amount not less than One Million
and No/100 Dollars ($1,000,000.00) for each person and for each occurrence; (v)
Such other hazards and in such amounts as may be customary for comparable
properties in the area and is available from insurance companies authorized to
do business in the State of Michigan; (vi) Loss of rental under a rental value
insurance policy covering a risk of loss during the first six (6) months of
reconstruction resulting from the occurrence of any of the hazards described in
subsections (i) and (ii) of this Section 5.01 in an amount sufficient to prevent
Owner from becoming a co-insurer, and (vii) Worker's compensation.
Manager shall have the option, but not the obligation, to carry its own
primary or supplemental malpractice insurance.
5.02 Replacement Cost. The term "full replacement value" of improvements
as used herein, shall mean the actual replacement cost thereof from time to
time, less exclusions provided in the normal fire insurance policy.
5.03 Additional Insurance. In addition to the insurance described above,
Manager shall maintain such additional insurance as may be reasonably required
from time to time by any mortgagee of the Facility.
5.04 Waiver of Subrogation. Any provision in this Agreement to the
contrary notwithstanding, each party, to the extent it is permitted to do so by
the terms and provisions of any of the above policies, hereby waives any and all
rights it may have against the other, its agents, or employees, for any loss or
damage from risks ordinarily insured against under such policies, but only to
the extent that such loss or damage is in fact covered by such insurance and is
collectible by the insured party. Each party further covenants and agrees that
it will, upon request of the other, request each such insurance company to
attach to such policy or policies issued by it a waiver of subrogation with
respect to the other party, its agents or employees.
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5.05 Insurance Proceeds. All proceeds payable by reason of any casualty
loss or damage to all or any part of the Facility and insured under any policy
of insurance required by Section 5.01 above of this Agreement shall be paid to
Owner and held by Owner in trust (subject to the provisions of Section 5.06
below and the rights of the holders of the Facility mortgages) and shall be made
available for reconstruction or repair, as the case may be, of any damage to or
destruction of the Facility, and shall be paid out by Owner from time to time
for the reasonable costs of such work. Any excess proceeds of insurance
remaining after the completion of the restoration or reconstruction of the
Facility shall be returned, as applicable, to the insurer or Manager as their
interests may appear. All salvage resulting from any such loss covered by
insurance shall belong to Owner.
5.06 Damage or Destruction. If, during the Term of this Agreement, the
Facility is totally or partially destroyed from a risk covered by the insurance
described in Section 5.01 above, Owner shall, as soon as practicable, restore
the Facility to substantially the same condition as existed immediately before
the destruction. Upon the commencement of such work, Owner shall proceed with
due diligence to complete such work within a reasonable period of time. If the
costs of the restoration exceed the amount of proceeds received by Owner from
the insurance required under Section 5.1, Manager shall pay the difference
between the amount of insurance proceeds and such cost of restoration to the
extent of Owner's obligation, if any, to make such payments under the lease,
provided, however, Manager may, at its option, pay the amount of such difference
whether or not Owner is so obligated to make such payments under the Lease.
5.07 Restoration of Manager's Property. If Owner is required to restore
the Facility as provided Section 5.06, Owner shall not be required to replace
tangible personal property of Owner or to restore alterations made by Manager,
or Manager's improvements, trade fixtures or personal property, except to the
extent covered by the proceeds of insurance, and the restoration of such items
shall be Manager's responsibility to the extent not so covered by the proceeds
of insurance.
5.08 Owner's Blanket Policy. Notwithstanding anything to the contrary
contained in this Article V, Owner's obligation to carry the insurance provided
for herein may be brought within the coverage of a so-called blanket Policy,
carried and maintained by Owner, provided, however, that the coverage afforded
will not be reduced or diminished or otherwise be different from that which
would exist under a separate policy meeting all other requirements of this
Agreement.
5.09 Subordination of Provisions. The parties hereto acknowledge that the
Lease contains provisions regarding insurance and the use of insurance proceeds
and the provisions of this Article V are subordinated to and subject to all such
provisions contained in the Lease.
ARTICLE VI.
MISCELLANEOUS COVENANTS
6.01 Assignment. Owner shall not assign its rights and/or obligations
under this Agreement without the prior written consent of Manager, which shall
not be unreasonably
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withheld, except to Owner's construction or permanent lender, in the event of
foreclosure of such lender's mortgage against the Facility. Manager shall not
assign its rights and/or obligations under this Agreement, without the prior
written consent of Owner, which consent shall not be unreasonably withheld.
6.02 Licensing Changes and Services. Manager agrees to take or cause to be
taken any and all actions necessary to be taken by it as the supervisor of the
operations of the Facility in order to maintain all required licenses, permits
for the operation of the Facility and the Facility's eligibility to participate
in all public or private third-party medical payment programs, including
providing sufficient funds to bring the Facility in compliance with all
applicable fire safety codes and other laws, regulations and orders, and to
correct all maintenance, procedural and staffing deficiencies as shown on the
surveys and reports of governmental agencies having jurisdiction over the
Facility. Manager agrees that it will not through the exercise of its overall
supervisory powers substantially change the services rendered by the Facility
during the term hereof without the prior written approval of Owner. Nothing
contained in this Section 6.02 shall derogate from Manager's duties under
Section 1.03 hereof.
6.03 Binding Agreement. The terms, covenants, conditions, provisions and
agreements herein contained shall be binding upon and inure to the benefit of
the parties hereto, their successors and assigns.
6.04 Relationship of Parties. Nothing contained in this Agreement shall
constitute or be construed to be or to create a partnership or joint venture
between Owner and Manager with respect to the Facility.
6.05 Notices. All notices, demands and requests contemplated hereunder by
either party to the other shall be in writing, and shall be deemed given when
delivered by hand, or national recognized overnight courier, transmitted by
cable, telephonic facsimile (fax), telegram, or mailed, postage prepaid,
registered, or certified mail return receipt requested:
(a) to Owner by addressing the same to:
David V. Hall, President
c/o Brown, Todd & Heybum
3200 Capital Holding Center
Louisville, KY 40222-3363
Attn: C. Edward Glasscock, Esq.
with a copy to:
Mr. C. Edward Glasscock
Brown, Todd & Heybum
3200 Capital Holding Center
Louisville, KY 40202
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(b) to Manager, by addressing the same to:
Mr. Randall J. Bufford
Transitional Health Services
9300 Shelbyville Rd,
Suite 1300
Louisville, KY 40222
with a copy to:
Mr. Andrew K Paul
Welsh Carson Anderson & Stowe
One World Financial Center,
Suite 3601
New York, NY 10281
or to such other address or to such other person as may be designated by notice
given from time to time during the term by one party to the other. Any notice
hereunder shall be deemed given five (5) days after mailing, if given by mailing
in the manner provided above, or on the date delivered or transmitted if given
by hand, cable, fax, overnight courier, or telegraph.
6.06 Entire Agreement; Amendments. This Agreement contains the entire
agreement between the parties hereto, and no other or prior written or oral
representations shall apply. Any additions, amendments or modifications to this
Agreement shall be of no force and effect unless in writing and signed by both
Owner and Manager.
6.07 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws (without reference to the conflict of laws rules) of
the State of Michigan.
6.08 Captions and Headings. The captions and headings throughout this
Agreement are for convenience of reference only, and shall not modify, define,
limit, expand the express provisions of this Agreement.
6.09 Authorization of Agreement. Manager and Owner represent and warrant,
each to the other with respect to itself, that the execution and delivery of
this Agreement has been duly authorized by all respective action, will not
presently or with the passage of time, the giving of notice or both result in a
default under or violate or conflict with (i) the provisions of the partnership
agreement or articles of incorporation and bylaws, as the case may be, of
Manager or of Owner, or (ii) any other agreement, mortgage, loan agreement or
other contract or instrument to which either party is bound or by which any of
their property or assets is subject, or (iii) any existing law, regulation,
court order or consent decree to which either party is bound or any of their
property or assets are subject.
6.10 Indemnification. Manager agrees to indemnify, protect and hold
harmless Owner from and against any and all liabilities and damages (a) arising
from or out of any occurrence
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in, upon or at the Facility or any part thereof, or the occupancy or use by
Manager of the Facility, the personal property or any part thereof, or
occasioned wholly or in part by any act or omission of Manager, its agents,
contractors, employees or invitees in connection with the Facility or the
personal property during the term of this Agreement, or (b) related to any
claims, assessments, chargebacks or other expenses (whether owed to or assessed
by a private or governmental party) arising in connection with the operation or
other use of the Facility or the personal property during the term of this
Agreement. Owner agrees to indemnify, protect and hold harmless Manager from and
against (y) the liabilities, obligations and debts (whether or not now known or
asserted) of the Facility or Owner, existing on the Effective Date or of Owner
arising during the term hereof, and (z) all liabilities and damages arising from
or occasioned wholly or in part by any act (whether dishonest, willful or
negligent) or omission of Owner, its agents, contractors, employees or invitees
in connection with the Facility during the term of this Agreement. The
respective indemnity obligations of Owner and Manager stated in the preceding
sentence shall survive the termination or expiration of this Agreement.
[This space left intentionally blank]
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IN WITNESS WHEREOF, the parties hereto have executed, sealed and delivered
this Agreement through their duly authorized representatives, effective as of
the day and year first above written, but actually on the date(s) set forth
below.
OWNER CARDINAL DEVELOPMENT CO., INC.
By: /s/ David V. Hall
-------------------------------------
David V. Hall, President
Date: 11-1-93
Attest:
/s/ John G. Hundley
- ------------------------------
Assistant Secretary
[NO CORPORATE SEAL]
MANAGER: TRANSITIONAL HEALTH PARTNERS
d/b/a TRANSITIONAL HEALTH SERVICES
By THS PARTNERS I. INC., General Partner
By /s/ Robert A. Compton
--------------------------------------
Title: Secretary and Treasurer
Date:
Attest:
/s/ Christina Lycoyannis
- -------------------------------
Assistant Secretary
[CORPORATE SEAL]
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EXHIBIT 10.39
<PAGE>
LONG TERM CARE FACILITY
MANAGEMENT AGREEMENT
THIS LONG TERM CARE FACILITY MANAGEMENT AGREEMENT (the "Agreement")
made as of the 1st day of June, 1996, by and between North Florida Health
Facilities II, Ltd., a Florida limited partnership ("Lessee"), WelCare
International Management Corporation, a Georgia corporation ("Manager") and
Blountstown Health Investors, L.C., a Florida limited liability company
("Lessor").
W I T N E S S E T H :
WHEREAS, the Lessee presently leases certain real and personal property
comprising a certain 81 bed nursing center located in Blountstown, Florida (the
"Facility") pursuant to that certain lease dated as of October 4, 1996 (the
"Lease"), by and between Lessee and Lessor;
WHEREAS, the parent corporation of Manager, WelCare International, Inc.
("WCI") has loaned to Lessee the sum of Five Hundred Thousand Dollars
($500,000.00) (the "WCI Loan") and in connection therewith, Manager and Lessee
desire to provide for the repayment of all such sums, together with interest
thereon, and to secure certain additional rights for Manager with respect to the
Facility; and
WHEREAS, the Lessee and Manager also desire for Manager to provide its
experience, skill and supervision to manage the Facility on behalf of Lessee
under and subject to the terms of this Agreement;
NOW, THEREFORE, in consideration of the premises and mutual promises and
covenants of the parties contained herein and for such other good and valuable
consideration, the receipt, adequacy and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
ARTICLE I.
MANAGEMENT DUTIES AND OBLIGATIONS
1.01 Control Retained by Lessee. Lessee shall at all times exercise
overall control over the assets and operations of the Facility, subject to the
terms of this Agreement, and Manager shall perform the duties herein required to
be performed by it as the agent of Lessee and in accordance with the policies
and directives from time to time adopted by Lessee.
1.02 Changes in Method of Operation. Manager shall not make substantial
changes in the method of operating the Facility unless Manager first notifies
Lessee and Lessee has given its approval, which approval shall not be
unreasonably withheld.
1.03 Management of Facility. During the term of this Agreement and subject
to the terms of this Agreement, Manager shall on behalf of Lessee manage all
aspects of the operation of the Facility, including, but not limited to
staffing, accounting, billing, collections, setting of rates and charges and
general administration. In connection therewith, Manager (either directly or
through supervision of employees of the Facility) shall:
<PAGE>
(a) Hire or lease on behalf of Lessee and retain (to the extent such
personnel are reasonably available in the community in which the Facility is
located) an adequate staff of nurses, technicians, nurse aides, office and other
employees, including a qualified administrator (the "Administrator") and shall
promote, direct, assign and discharge all such employees on behalf of Lessee at
Manager's sole discretion; provided, however, that leased employees shall be
subject to the direction and control of the lessor of such leased employees. All
employees shall be employees of or leased by the Lessee and carried on the
payroll of the Facility and shall not be deemed employees or agents of Manager.
(b) Institute and amend, from time to time general salary scales,
personnel policies and appropriate employee benefits for all employees on behalf
of Lessee; provided, however, that leased employees shall be subject to the
general salary scales, personnel policies and employee benefit programs of the
lessor of such leased employees. Employee benefits may include pension and
profit sharing plans, insurance benefits, incentive plans for key employees and
holiday, vacation, personal leave and sick leave policies.
(c) Issue appropriate bills for services and materials furnished by
the Facility and use its reasonable best efforts to diligently collect accounts
receivable and monies owed to the Facility, design and maintain accounting,
billing, patient and collection records; and prepare and file insurance,
Medicare, Medicaid and any and all other necessary or desirable reports and
claims related to revenue production. Lessee hereby grants Manager the right to
enforce Lessee's rights as creditor under any contract or in connection with
rendering any services for purposes of collecting accounts receivable and monies
owed the Facility.
(d) Order, supervise and conduct a program of regular maintenance
and repair.
(e) Purchase food, beverage, medical, cleaning and other supplies,
equipment, furniture and furnishings for the account of Lessee.
(f) Administer, supervise and schedule all patient and other
services of the Facility, including the operation of food, barber/beautician and
other ancillary services.
(g) Provide for the orderly payment (to the extent funds are
available therefor) of accounts payable, employee payroll, amounts due on short
and long-term indebtedness, taxes, insurance premiums, and all other obligations
of the Facility.
(h) Institute standards and procedures for admitting patients, for
charging patients for services, and for collecting the charges from the patients
or third parties.
(i) Obtain and maintain insurance coverage for the Facility naming
Lessee, Manager and such other persons requested by Lessee as insureds as
provided in Section 5.01 hereof.
(j) Negotiate and enter into, in the name of and on behalf of
Lessee, such agreements, contracts and orders as Manager may deem necessary or
advisable, for the furnishing of services, concessions and supplies for the
operation and maintenance of the Facility.
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(k) After notice to Lessee, negotiate on behalf of Lessee (and in
conjunction with Lessee's counsel) with any labor union lawfully entitled to
represent employees of Lessee who work at the Facility, but any collective
bargaining agreement or labor contract must be submitted to Lessee for its
approval and execution.
(l) As provided in Section 1.07(a), assist in maintaining all
licenses and permits required for the operation of the Facility, its contracts
with third party payors and other similar governmental and nongovernmental
agencies and intermediaries.
(m) Make periodic evaluations of the performances of all departments
of the Facility.
(n) Design, establish and maintain a suitable accounting system
using accounts and classifications consistent with those used in similar
facilities.
(o) Advise and assist Lessee in designing an adequate and
appropriate public relations program.
1.04 Reports to Lessee.
(a) Manager shall prepare and deliver to Lessee, within thirty (30)
days after the close of each calendar month, unaudited financial statements
covering the prior month and containing a balance sheet and statement of income
and expenses in reasonable detail. Manager shall also provide any required
assistance to the independent accountants for the Facility, who shall be
selected by Manager, in the preparation of audited annual financial statements
for the operation of the Facility. Such financial statements shall be prepared
at Lessee's expense in accordance with generally accepted accounting principles
in the health care field consistently applied and delivered to Manager and
Lessee within ninety (90) days after the end of each fiscal year of the
Facility. Manager shall prepare reports or provide information to Lessee
required by the Lease, any loan documents of Lessor or any loan documents
evidencing or securing the WCI Loan.
(b) Manager shall submit to Lessee for its approval (which approval
will not be unreasonably withheld) each twelve (12) months its budget for the
operation of the Facility setting out anticipated income, expenses and capital
expenditures during the succeeding twelve (12) month period. Manager shall use
its reasonable best efforts to operate the Facility in accordance with the
provisions of the budget for the Facility as submitted to Lessee. Such proposed
budget for the Facility shall be delivered to Lessee prior to the commencement
of the operational fiscal year of the Facility.
(c) Manager shall schedule periodic management meetings to be
attended by representatives of both Manager and Lessee no less frequently than
semi-annually and shall furnish to Lessee quarterly written progress reports
concerning the operation of the Facility.
1.05 Bank Accounts.
(a) Manager shall deposit in a bank account or accounts of Manager
or Manager's affiliate(s) (collectively referred to in this Section 1.05 as
Manager) established in Manager's name (the "Facility Depository Accounts") all
funds received from the operations of the Facility (the "Facility Funds").
Manager may at its option "sweep" these accounts as
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often as it deems appropriate, and in its discretion either (i) consolidate and
commingle the Facility Funds with funds from other facilities owned, operated or
managed by Manager into Manager's primary concentration/operating account(s) in
NationsBank, Atlanta, Georgia or such other place and with such financial
institutions as Manager may determine (the "Operating Accounts"), or (ii)
segregate such Facility Funds in an account(s) separate and apart from Manager's
Operating Accounts (the "Segregated Facility Accounts"). Manager shall disburse
Facility Funds received from the Facility's operations in the manner and order
of priority described in section 1.06(b) below. Manager shall also deposit and
maintain the personal funds of the Facility's residents into a separate trust
account established in Manager's name (the "Facility Trust Accounts"). Manager
shall designate the signatory or signatories required on all checks or other
documents of withdrawal for the Facility Depository, Operating, Segregated
Facility, and Facility Trust Accounts.
1.06 Flow of Facility Funds. All revenues and cash of the Facility shall
be disbursed by Manager in the following order of priority and, in each case, in
such amounts and at such times as Manager deems is required to be made in
connection with the payment of:
(1) the Facility's Lease payments due from Lessee to the
Lessor;
(2) the costs and expenses of operating the Facility,
including the reimbursable expenses of Manager;
(3) all accrued and unpaid Management Fees (defined in
Section 4.01) to the Manager;
THEN, after retention by Manager of an adequate working
capital reserve (in cash or available credit under the WCI
Loan) (such reserve to be determined by Manager in its
discretion and held in such subaccount of the Facility
Depository, Operating or Segregated Facility Accounts as
Manager shall determine);
(4) all accrued and unpaid interest on the WCI Loan;
(5) any principal balance outstanding under the WCI
Loan whether or not any or all of such balance is then due and
payable; and
(6) the balance, if any, to Lessor.
Lessee, Lessor and Manager intend that Lease payments to Lessor shall be used to
pay the debt service payments due under that certain first priority mortgage
loan from Colonial Bank as lender to Lessor as borrower, in the original
principal sum of $3,600,000. In the event that the Lease is terminated, the flow
of funds of the Facility shall nevertheless continue with the priorities
described above except that, in lieu of Lease payments being paid to Lessor as a
first priority payment, Manager and/or Lessor shall cause debt service payments
to be made to Colonial Bank.
(a) Manager agrees that to the extent the total of items described
in paragraphs 1, 2, 3 and 4 above (collectively the "Base Operating Costs")
exceed the Facility's
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collected net revenues (resulting in an "Operating Deficit"), Manager shall, as
soon as possible and not less than five (5) business days after notice from
Lessee, advance funds under the WCI Loan, if available, as may be necessary to
cover or offset such Operating Deficit.
(b) In consideration of Manager's undertakings in paragraph (b)
above, and to further secure (for as long as any amounts are outstanding under
the WCI Loan) Lessee's obligations under the Loan Agreement, the Note and the
Security Agreement relating to the WCI Loan (the "Loan Documents") (all
capitalized terms in this Paragraph 1.06 not otherwise defined herein shall have
the meanings ascribed to them in the Loan Documents) and as defined in Article
VII of this Agreement and the payment of Management Fees hereunder:
(1) Subject to the Loan Agreement, Lessee agrees, as between
the Lessee and Manager and to the extent it may lawfully do
so, that Manager shall have an "ownership" interest in the
Facility's accounts receivable superior to that of Lessee, and
to that end Lessee hereby assigns to Manager all of Lessee's
rights, title and interest in and to the Facility's accounts
receivable, and further agrees to cooperate with Manager and
its lender in treating Manager as the "provider of record" for
purposes of establishing ownership claims to the Facility's
accounts receivable; and
(2) In the event that Manager is prohibited by any applicable
law, rule or regulation, from obtaining an ownership interest
in any or all of Lessee's accounts receivable, Lessee shall
and does hereby:
A. grant Manager a security interest in such accounts
receivable (to be perfected by the filing of
appropriate UCC-1 financing statements) subject
only to the first priority security interest of
the Lender;
B. acknowledge, agree and consent to Manager's
assignment of such security interest in such
accounts receivable to Manager's working capital
lender; and
C. agree not to pledge, hypothecate, convey to any
third party any interest in, or otherwise
encumber, such accounts receivable.
(c) Any provision of this Agreement, or any Loan Document to the
contrary notwithstanding, Manager, by acceptance hereof, expressly agrees that
(1) Lessee shall be liable upon the obligations under the Loan Documents, or any
of them, to the full extent (but only and limited to the extent) of the
Collateral given to secure the payment of the Loan Documents, (2) if default
occurs in the timely and proper payment of all or any part of such indebtedness,
sums or amounts, any proceeding to foreclose under the Security Agreement or to
exercise any other remedy under any other Loan Document, brought by Lender
against Lessee shall be limited to the Collateral and no attachment, execution,
judgment or other writ
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of process shall be sought, issued or levied upon any assets, properties or
funds of Lessee other than the Collateral, and (3) in the event of a
foreclosure, whether by judicial proceedings or exercise of power of sale, or
otherwise, no judgment for any deficiency upon such obligations shall be sought
or obtained by Lender against Lessee; provided, however, that, notwithstanding
the foregoing provisions of this paragraph, Lessee shall be fully liable (a) for
fraud or misrepresentations, (b) for the misapplication by Lessee of any
proceeds of the Collateral, to the full extent of such proceeds so misapplied,
(c) Collateral received by Lessee or applicable to a period subsequent to the
occurrence of a default under any of the Loan Documents, but prior to any such
foreclosure, or (d) for breach by Lessee of Section 6.15 or 6.16 of the Loan
Agreement; provided, however, that such liability of Lessee for the matters
described in subparagraphs (a), (b), (c) and (d) shall be limited to the sum of
$15,000 plus the Collateral. Nothing contained in this paragraph shall (i) be
deemed to constitute a release or impairment of the indebtedness evidenced by
this Agreement or the validity of the Loan Documents, or (ii) preclude Manager
from foreclosing under this Agreement in case of any default or enforcing any of
the other rights of Manager except as expressly stated in this paragraph.
(d) To the maximum extent permitted under applicable laws,
including, without limitation, the rules, regulations, guidelines, practices and
other governmental requirements applicable to healthcare facilities generally
and nursing homes specifically, Lessee hereby delegates its duties under this
Agreement to Lessor, and Manager shall serve under the supervision and direction
of the Lessor. Wherever this Agreement requires that notice be given to or
consent received from Lessee, Manager shall give such notice to or receive such
consent from Lessor. Lessor hereby accepts such delegation of responsibility and
agrees to act in Lessee's place under this Agreement. Nothing in this paragraph
shall diminish Lessee's ownership of the Collateral or its right to grant a
security interest in such Collateral to the Lender pursuant to the Loan
Documents.
1.07 Access to Books, Records and Documents. If it is ultimately
determined that Section 952 of the Omnibus Budget Reconciliation Act of 1980 and
final regulations promulgated thereunder apply to this Agreement:
(a) Until the expiration of four years after the furnishing of
services pursuant to this Agreement, Manager shall, as provided in Section 952,
make available, upon written request, to the Secretary of Health and Human
Services, or upon request, to the Comptroller General of the United States, or
any of their duly authorized representatives, this Agreement, and all books,
documents and records of Manager that are necessary to verify the nature of this
Agreement for which payment may be made under the Medicare program; and
(b) If Manager carries out any of the duties of this Agreement
pursuant to a subcontract or subcontracts with an aggregate value or cost of
$10,000 or more over a twelve (12) month period with a related organization,
such subcontract or subcontracts shall contain a clause to the effect that,
until the expiration of four years after the furnishing of such services
pursuant to such subcontract or subcontracts, the related organization shall, as
provided in Section 952, make available, upon written request, to the Secretary
of Health and Human Services, or upon request, to the Comptroller General of the
Untied States, or any of their duly authorized representatives, the subcontract
or subcontracts, and all books, documents and records of such subcontractors for
which payment may be made under the Medicare program.
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1.08 Licenses.
(a) Manager, as agent for Lessee and on Lessee's behalf, shall apply
for and seek to obtain and maintain all necessary licenses, permits,
certifications, consents, and approvals from all governmental agencies which
have jurisdiction over the operation of the Facility. Manager agrees that its
management and operation of the Facility shall materially and substantially
comply with any representations made by the Lessor and/or Lessee in the
Certificate of Need application for the Facility with the Florida Agency for
Health Care Administration, to the extent disclosed in writing to Manager, as
well as all conditions placed upon such Certificate of Need and so disclosed in
writing to Manager. Manager, by applying for such licenses, permits, consents,
and approvals, does not in any way guarantee the approval of such applications
and shall have no liability with respect to any failure of the Facility to
receive any such license, permit, consent or approval.
(b) Neither Lessee nor Manager shall knowingly take any action or
fail to take any action which may (1) cause any governmental authority having
jurisdiction over the operation of the Facility to institute any proceeding for
the rescission or revocation of any necessary license, permit, consent or
approval, or (2) adversely affect Lessee's right to accept and obtain payments
under Medicare, Medicaid, or any other public or private third party medical
payment program.
(c) Manager shall, with the written approval of Lessee, have the
right to contest by appropriate legal proceedings, diligently conducted in good
faith in the name of Lessee, the validity or application of any law, ordinance,
rule, ruling, regulation, order or requirement of any governmental agency having
jurisdiction over the operation of the Facility. Lessee, after having given its
written approval, shall pay attorneys' fees incurred with regard to the contest.
Counsel for any such contest shall be selected by Manager, with Lessee's
approval which shall not be unreasonably withheld. Manager shall have the right,
upon notice to Lessee but without the written consent of the Lessee, to process
all third-party claims for the services of the Facility, including, without
limitation, the full right to contest to the exhaustion of all applicable
administrative proceedings or procedures, adjustment and denials by governmental
agencies or their fiscal intermediaries as third-party payors.
1.09 Administrator. Manager shall employ or lease for the Facility an
Administrator to serve as the chief executive officer of such Facility. The
Administrator shall be an employee of and shall be compensated by Lessee and
Manager shall pay on Lessee's behalf out of the Operating Accounts of the
Facility, in advance, on or before the fifth (5th) day of each month, all
compensation, including salary, fringe benefits, bonuses and business expense
reimbursements approved by Manager, to the Administrator. The term "fringe
benefits" shall include, without limitation, employer's F.I.C.A. payments,
unemployment compensation and other employment taxes, bonuses, vacation,
personal and sick leave benefits, workers' compensation, group life, health and
accident insurance premiums and disability and other benefits.
1.010 Taxes. Any federal, state or local taxes, assessments or other
governmental charges properly imposed on the Facility are the obligations of the
Lessee, not of Manager, but all such obligations shall be paid by Manager on
Lessee's behalf out of the Operating Accounts of the Facility. With the Lessee's
prior written consent, Manager may contest the validity or amount of any such
tax or imposition on the Facility in the same manner as described in Section
1.07(c) hereof.
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1.10 Use of Manager's Personnel. An authorized representative of Manager
shall visit the Facility as often as Manager deems necessary. The time spent by
such authorized representative of Manager during such visits and all
out-of-pocket expenses arising from travel and lodging connected with such
visitations shall not be charged separately to Lessee.
1.11 Government Regulations. Manager agrees to operate and maintain the
Facility in substantial compliance with the requirements of any material
statute, ordinance, law, rule, regulation or order of any governmental or
regulatory body having jurisdiction over the Facility and to comply with all
orders and requirements of the local board of fire underwriters or any other
body which may exercise similar functions; provided, however, that Manager shall
not be required to expend its separate funds in order to comply with any such
statutes, ordinances, laws, rules, regulations or orders, and to the extent any
funds are so required, it shall fulfill its obligations hereunder by notifying
Lessee of the actions necessary in order to be in compliance therewith and
expending such funds of Lessee as Lessee may provide or as Manager may deem
available for such purpose.
1.12 Quality Controls. Manager shall activate and maintain on a continuing
basis a "Quality Assurance Program" in order to provide objective measurements
of the quality of health care provided at the Facility and, in connection
therewith, shall utilize such techniques as patient questionnaires and
interviews, physician questionnaires and interviews, and inspections.
1.13 Staff Specialists. In addition to the other managerial services
provided for herein, Manager shall make available to the Facility, for
consultation and advice, when Manager deems necessary or appropriate,
specialists in such fields as accounting, auditing, budgeting, dietary services,
operations, environmental control, management, maintenance, nursing, personnel,
pharmacy operations, public relations, purchasing, quality assurance, systems
and procedures, and third-party reimbursement.
1.14 Performance of Services by Manager. In the performance of its
services hereunder, Manager shall exercise the same standards and degree of care
used by reasonable and prudent managers of nursing homes of similar size, nature
and character as the Facility. Notwithstanding anything herein to the contrary,
Manager shall not be deemed in violation of this Agreement if Manager is
prevented from performing any of its obligations hereunder for reasons beyond
its reasonable control including, without limitation, strikes, walkouts or other
employee disturbances, acts of God, or the action or promulgation of any
statute, rule, regulation or order by any federal, state, or local governmental
or judicial agency or official, nor shall it be deemed in default hereunder or
otherwise liable for any error of judgment or act or omission in the performance
of its services hereunder, which is made in reasonable good faith.
1.15 Additional Services. Lessee agrees that any specialized or additional
services recommended by Manager may be performed for a separate fee as agreed
upon by Lessee in advance of the performance of such service. If Manager
provides such service, such fee shall not be in excess of such amount as would
be charged by a third party, negotiating at arm's length, for the performance of
such service.
1.16 Obligations under WCI Loan. Manager acknowledges the existence and
terms of the Note relating to the WCI Loan, as more particularly described in
Article VII. Manager agrees to perform or cause to be performed, on Lessee's
behalf, for so long as the
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Management Agreement remains in full force and effect, all covenants therein
relating to the manner of operation of the Facility. Manager assumes no
liability or responsibility for repayment of the WCI Loan or for any other
monetary obligation of Lessee (including, without limitation, obligations to pay
rent under the Lease), or for the financial performance of the Facility.
1.17 Maintenance of Facility. Manager agrees to maintain the Facility in a
good and serviceable condition, ordinary wear and tear and damage by fire or
other casualty or resulting from condemnation excepted, to the extent sufficient
revenues of the Facility are available for such purpose.
1.18 Civil Money Damages. Manager agrees that if any civil money penalties
are imposed by HCFA or the State of Florida as a result of the nursing care
and/or treatment provided to residents of the Facility by employees of the
Facility, Manager will reimburse Lessee for the amount of the civil money
penalty imposed; provided, however, that Manager must be notified immediately
upon notice of the civil money penalty and/or any Statement of Deficiencies
issued by HCFA or the State of Florida. Manager reserves the right to appeal or
waive appeal of any civil money penalty imposed by HCFA or the State of Florida.
Manager further reserves the right to retain counsel to represent the Facility
in any appeal or settlement proceedings.
ARTICLE II.
TERM AND TERMINATION
2.01 Term. The term of this Agreement shall commence as of the date hereof
(the "Effective Date"), and shall continue until the earlier of the following
dates: (i) the date which falls on the fifth anniversary thereof (the "Initial
Period"), or (ii) the date on which Manager ceases to furnish management
services to the Facility and this Agreement is terminated for whatever reason;
provided however, that Manager shall have the option to extend the term of this
Agreement for an additional period of three (3) years beyond the Initial Period
(the "Second Period," and together with the Initial Period the "Term") upon
Manager's payment to Lessee of an extension fee of Fifty Thousand Dollars
($50,000) at the time Manager executes this Agreement.
2.02 Optional Termination by Manager.
(a) Manager has the option to terminate this Agreement, without
damage or penalty, upon ten (10) days prior written notice to Lessee, upon the
occurrence of either of the following events:
(i) The Facility or any material portion thereof is damaged
or destroyed to the extent that in the written opinion of an independent
architect or engineer reasonably acceptable to both parties (x) it is not
practicable or desirable to rebuild, repair or restore the Facility within
a period of nine (9) months to its condition immediately preceding such
damage, or (y) the conducting of normal operations of the Facility would
be prevented for a period of nine (9) months or more; or
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(ii) Title to or the temporary use of all or substantially all
the Facility is taken under the exercise of the power of eminent domain by
any governmental authority or person, firm or corporation acting under
governmental authority which in the opinion of an independent architect or
engineer reasonably acceptable to both parties prevents or is likely to
prevent the conducting of normal operations at the Facility for a period
of at least nine (9) months.
Provided, however, that in either of such events, in addition to the rights of
Manager under Article V hereof, Manager shall have the right to rebuild, restore
or otherwise rearrange the Facility and recommence operations thereof, and
thereupon Manager shall continue to manage the Facility under the same terms,
conditions, and fees as provided herein.
(b) Manager shall have the option to terminate this Agreement
without damage or penalty upon ten (10) days prior written notice to the Lessee
following the sale, transfer, assignment, or other disposition, in whole or in
part, by the Lessee of its interest in the Facility. In the event Lessee is a
corporation, limited liability company, or partnership, any dissolution, merger,
consolidation or other transfer of a substantial portion of the stock or
underlying ownership interests (as the case may be) of Lessee shall constitute
an assignment of the Facility for all purposes of this Section 2.02(b). The term
"substantial portion" means the ownership of stock or underlying ownership
interests (as the case may be) possessing, and of the right of exercise, at
least fifty percent (50%) of the total combined voting power of such
corporation, limited liability company, or partnership, provided, however, that
this prohibition on stock transfer shall not apply to a "publicly traded
corporation," which term is hereby defined for all purposes under this Agreement
as a corporation whose shares of stock have been registered pursuant to the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended.
Notwithstanding the foregoing, for so long as (i) the WCI Loan remains
outstanding and unpaid or (ii) this Agreement remains in full force and effect,
no sale, transfer, assignment or other disposition, in whole or in part, by
Lessee of its interest in the Facility shall be permitted without Manager's
prior written consent, which consent may be granted or withheld in Manager's
sole and absolute discretion unless Lessee shall have afforded to Manager a
right of first refusal to purchase its interest in the Facility on the same
terms and conditions, including purchase price, acceptable to Lessee pursuant to
the terms of a bona fide third party offer. Manager shall be furnished with
written notice of the terms of such third party offer and a period of not less
than fifteen (15) business days within which to exercise such right of first
refusal. Upon exercise, Lessee and Manager shall close Manager's acquisition of
the Facility within the greater of (i) thirty (30) days thereafter or (ii) the
time period, if any, specified in the terms of such third party offer. The
parties acknowledge and agree that any purported sale, transfer, assignment or
other disposition by Lessee in violation of this Section 2.02(b) shall, at
Manager's option, be null, void and of no force or effect, and that equitable
remedies, including the remedy of specific performance (to compel rescission of
any such sale, transfer, assignment or other disposition) and injunctive relief
(to prevent or restrain such prohibited actions) shall be available to Manager,
in addition to its rights and remedies at law and under this Agreement.
In the event Manager elects not to exercise its right of first refusal
under this Section 2.02(b) and there shall occur a sale, transfer, assignment or
other disposition of Lessee's interest in the Facility, this Agreement shall
continue in full force and effect and shall bind the
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purchaser (without releasing or otherwise affecting Lessee's primary liability
for its obligations hereunder, which shall thereupon be deemed joint and several
with the liability of such purchaser); provided, further, however, that in the
event of such sale, transfer, assignment or other disposition of Lessee's
interest pursuant to the foregoing after the third (3rd) full year of the term
of this Agreement, Lessee shall have the right and option to terminate this
Agreement upon payment and delivery to Manager of the following, said
termination to become effective on the thirtieth (30th) day following Manager's
receipt of the last of the following:
(1) a termination fee equal to forty percent (40%) of the Facility's
"Average Monthly Fee" multiplied by the number of months remaining
in the Term, calculated from the date of such termination. "Average
Monthly Fee" for the Facility shall mean the average of the monthly
Management Fees payable to Manager under Article IV of this
Agreement for each of the twelve (12) full calendar months prior to
such termination;
(2) all amounts outstanding under the WCI Loan;
(3) all amounts due under Article IV of this Agreement;
(4) any other amounts due Manager under the provisions of this Agreement
or any other agreements between Lessee and Manager or their
affiliates; and
(5) evidence, satisfactory to Manager, that amounts have been escrowed
by Lessee sufficient to pay all pending liabilities of Manager
arising during the term of this Agreement.
ARTICLE III.
DEFAULT AND REMEDIES
3.01 Events of Default. The following shall constitute events of default
("Events of Default" and each individually an "Event of Default") under this
Agreement:
(a) If Lessee fails to do any of the following and the
responsibility and means (including any and all necessary funds) to pay or
perform same has not been delegated to Manager hereunder: (i) make or cause to
be made any payment to Manager required to be made by Lessee, and such failure
shall continue for as much as 30 days after notice thereof shall have been given
to Lessee, (ii) perform its obligations under this Agreement in any material
respect, and such default shall continue for a period of 30 days after notice
thereof shall have been given by the Manager to Lessee, or (iii) make payments,
or keep any covenants owing to any third party and which would cause Lessee to
lose possession of the Facility's buildings, equipment or properties;
(b) If Manager fails (i) to make or cause to be made any payment to
or on behalf of Lessee required to be made by Manager, and such failure shall
continue for as much as 30 days after notice thereof shall have been given to
Manager, (ii) to perform its obligations under this Agreement in any material
respect, and such failure shall continue for a period of 30 days after notice
thereof shall have been given by the Lessee to Manager, or (iii) to make
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<PAGE>
payments, or keep any covenants owing to any third party and which would cause
Lessee to lose possession of the Facility's buildings, equipment or properties;
(c) If, through no fault of Manager, the licenses required for the
operation of Facility are at any time suspended, terminated, or revoked, and
such suspension, termination or revocation shall continue unstayed and in effect
for a period of fourteen (14) consecutive days;
(d) If, due to Manager's failure to maintain the Facility in
material compliance with applicable laws, regulations or rules, the Facility (1)
loses its Medicaid or Medicare certification, (2) loses its license to operate
as a nursing home, or (3) is closed, and such event continues unstayed and in
effect for a period of fourteen (14) consecutive days;
(e) If, due to Manager's failure to maintain the Facility in
material compliance with applicable laws, regulations or rules, patient
admissions are suspended, and such event continues unstayed and in effect for
the later of ninety (90) days or the date on which occupancy decreases more than
ten percent (10%) from the occupancy level at the date of such suspension;
(f) If either Lessee or Manager shall (1) be adjudicated bankrupt;
(2) admit in writing its inability to pay its debts generally as they become
due; (3) become insolvent in that its total assets are in the aggregate worth
less than all of its liabilities or it is unable to pay its debts generally as
they become due; (4) make a general assignment for the benefit of creditors; (5)
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; or (6) consent to the
appointment of a receiver, conservator, trustee or liquidator of all or part of
its assets; or
(g) If a petition shall have been filed against Lessee or Manager in
proceedings 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 laws
for the relief of debtors, or for the discharge, arrangement or compromise of
its debts, or an order shall be entered by any court of competent jurisdiction
appointing a receiver, conservator, trustee or liquidator of all or part of
Lessee's or Manager's assets, and such petition or order is not dismissed or
stayed within sixty (60) consecutive days after entry thereof.
(h) Receipt of a Default Notice (as defined in the Intercreditor
Agreement) or occurrence of any event or condition which with the passage of
time or giving of notice or both would constitute an Event of Default under the
Colonial Loan Documents. No grace or cure periods or notice provisions which may
otherwise be available to Borrower shall apply to this provision. Without
limiting the foregoing, upon the receipt of such Default Notice, Manager shall
immediately thereupon have the right, without incurring any liability whatsoever
to Borrower, to discontinue its performance of duties under this Agreement,
including, without limitation, its obligation to cause the disbursement of any
funds under Section 1.06 hereof.
3.02 Remedies Upon Default. If any Event of Default by either party shall
occur and be continuing, the other party may, in addition to any other remedy
available to it in law or equity on account of such Event of Default, forthwith
terminate this Agreement by giving
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written notice of such termination, and neither party shall have any further
obligations whatever under this Agreement; provided, however, that as a
condition to the effectiveness of Lessee's termination of this Agreement, Lessee
shall pay to Manager all payments due under Article IV, and shall pay to WCI all
amounts outstanding under the WCI Loan.
ARTICLE IV.
MANAGEMENT FEE
4.01 Management Fee. For each month from the date the first resident
occupies the Facility until such time as the Facility shall achieve an occupancy
of 30 residents (the "Required Base Occupancy"), the Lessee shall pay to Manager
as the amount due for services hereunder, a pre-opening/development fee equal to
$5,000.00 per month (the "Development Fee"). Commencing in the month in which
the Facility achieves the Required Base Occupancy, until the end of the Term
hereof, the Lessee shall pay to Manager, in lieu of the Development Fee, a
monthly base management fee equal to six percent (6%) of the Facility's "Gross
Revenues," as determined on an accrual basis (the "Base Fees," and together with
the Development Fee the "Management Fees"). "Gross Revenues" shall mean, for the
Facility, total revenues of such Facility, including, without limitation, all
ancillary fees, charges, rentals and other revenue derived in any way from the
operation of such Facility, on an accrual basis, after deduction of allowances
for contractual adjustments as they relate to third-party payors and before
deduction of any and all expenses.
4.02 Payment of Management Fees. If there is not sufficient cash from the
operation of the Facility to pay Management Fees when due, the Management Fees
shall be paid with an advance under the WCI Loan.
4.03 Adjustment. Within fifteen (15) days after the delivery of the annual
financial statements of the Facility, Lessee shall pay to Manager or Manager
shall credit Lessee such amount as is necessary to make the amount of the
Management Fees paid with respect to the year to which the financial statements
relate equal to the amount of Management Fees shown to be due by the annual
financial statements; provided, however, that amounts exceeding two monthly
Management Fees shall be paid to Lessee in addition to such credit.
ARTICLE V.
INSURANCE
5.01 Insurance/Indemnity. During the term of this Agreement, Manager shall
at all times keep the Facility insured with the kinds and amounts of insurance
described below, which, at a minimum, shall be modified as necessary to satisfy
all requirements of Lessor or any Facility mortgagee. This insurance shall be
written by companies authorized to do insurance business in the State of
Florida. The policies will name Lessee and Lessor as additional insureds, and
name any mortgagee of the Facility by way of standard form of mortgagee's loss
payee endorsement. Losses shall be payable to Lessee, in trust, as provided in
Section 5.05 below. Any loss adjustment shall require the written consent of
Lessee, Manager, Lessor, and each mortgagee. Evidence of insurance shall be
deposited with Lessee and, if requested, with any mortgagee(s). The policies on
the Facility shall insure against the following risks:
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(a) Loss or damage by fire and such other risks as may be included
in the broadest form of extended coverage insurance from time to time available,
including but not limited to loss or damage from leakage of any sprinkler system
now or hereafter installed in the Facility, in amounts sufficient to prevent
Lessee or Manager from becoming a co-insurer within the terms of the applicable
policies and in any event in an amount not less than one hundred percent (100%)
of the then full replacement value thereof (as defined below in Section 5.02);
(b) Loss or damage by explosion of steam boilers, pressure vessels
or similar apparatus, now or hereafter installed in the Facility, in such limits
with respect to any one accident as may be reasonably agreed by Lessee and
Manager from time to time;
(c) Claims for personal injury or property damage under a policy of
general public liability insurance with amounts not less than One Million and
No/100 Dollars ($1,000,000.00) per occurrence in respect of bodily injury, One
Million and No/100 Dollars ($1,000,000.00) aggregate per occurrence, and Three
Hundred Thousand and No/100 Dollars ($300,000.00) for property damage;
(d) Claims arising out of malpractice in an amount not less than One
Million and No/100 Dollars ($1,000,000.00) for each person and for each
occurrence;
(e) Such other hazards and in such amounts as may be customary for
comparable properties in the area and is available from insurance companies
authorized to do business in the State of Florida;
(f) Loss of rental under a rental value insurance policy covering a
risk of loss during the first six (6) months of reconstruction resulting from
the occurrence of any of the hazards described in subsections (i) and (ii) of
this Section 5.01 in an amount sufficient to prevent Lessee from becoming a
co-insurer; and
(g) Worker's compensation.
5.02 Replacement Cost. The term "full replacement value" of improvements
as used herein, shall mean the actual replacement cost thereof from time to
time, less exclusions provided in the normal fire insurance policy.
5.03 Additional Insurance. In addition to the insurance described above,
Manager shall maintain such additional insurance as may be reasonably required
from time to time by any mortgagee of the Facility.
5.04 Waiver of Subrogation. Any provision in this Agreement to the
contrary notwithstanding, each party, to the extent it is permitted to do so by
the terms and provisions of any of the above policies, hereby waives any and all
rights it may have against the other, its agents, or employees, for any loss or
damage from risks ordinarily insured against under such policies, but only to
the extent that such loss or damage is in fact covered by such insurance and is
collectible by the insured party. Each party further covenants and agrees that
it will, upon request of the other, request each such insurance company to
attach to such policy or policies issued by it a waiver of subrogation with
respect to the other party, its agents or employees.
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<PAGE>
5.05 Insurance Proceeds. All proceeds payable by reason of any casualty
loss or damage to all or any part of the Facility and insured under any policy
of insurance required by Section 5.01 above of this Agreement shall be paid to
Lessee and held by Lessee in trust (subject to the provisions of Section 5.06
below and the rights of the holders of the Facility mortgages) and shall be made
available for reconstruction or repair, as the case may be, of any damage to or
destruction of the Facility, and shall be paid out by Lessee from time to time
for the reasonable costs of such work. Any excess proceeds of insurance
remaining after the completion of the restoration or reconstruction of the
Facility shall be returned, as applicable, to the insurer or Manager as their
interests may appear. All salvage resulting from any such loss covered by
insurance shall belong to Lessee.
5.06 Damage or Destruction. If, during the Term of this Agreement, the
Facility is totally or partially destroyed from a risk covered by the insurance
described in Section 5.01 above, Lessee shall, as soon as practicable, and, if
permitted under the Lease, restore the Facility to substantially the same
condition as existed immediately before the destruction. Upon the commencement
of such work, Lessee shall proceed with due diligence to complete such work
within a reasonable period of time. If the costs of the restoration exceed the
amount of proceeds received by Lessee from the insurance required under Section
5.01 Manager shall have the right but not the obligation to pay the difference
between the amount of insurance proceeds and such cost of restoration.
5.07 Restoration of Manager's Property. If Lessee is required to restore
the Facility as provided in Section 5.06, Lessee shall not be required to
restore alterations made by Manager, or Manager's improvements, trade fixtures
or personal property, such excluded items being the sole responsibility of
Manager to restore. Lessee shall, however, be required to restore the Facility's
tangible personal property owned by Lessee.
5.08 Manager's Blanket Policy. Notwithstanding anything to the contrary
contained in this Article V, Manager's obligation to carry the insurance
provided for herein may be brought within the coverage of a so-called blanket
policy, carried and maintained by Manager; provided, however, that the coverage
afforded Lessee will not be reduced or diminished or otherwise be different from
that which would exist under a separate policy meeting all other requirements of
this Agreement.
ARTICLE VI.
COVENANTS OF LESSEE
6.01 Licensing; Changes and Services. Subject to the terms of the Lease
and this Agreement, Lessee agrees to take or cause to be taken any and all
actions necessary to be taken by it as the overall supervisor of the assets and
operations of the Facility in order to maintain all required licenses, permits
for the operation of the Facility and the Facility's eligibility to participate
in all public or private third-party medical payment programs, including
providing sufficient funds to bring the Facility in compliance with all
applicable fire safety codes and other laws, regulations and orders, and to
correct all structural, maintenance, procedural and staffing deficiencies as
shown on the surveys and reports of governmental agencies having jurisdiction
over the Facility. Lessee agrees that it will not, through the exercise of its
overall supervisory powers, substantially change the services rendered by the
Facility during the term hereof without the prior written approval of Manager.
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6.02 Transfer of Leasehold. Subject to the requirements of the Lease,
Lessee further acknowledges and agrees that upon the transfer, lease,
assignment, sale or other disposition or conveyance of all or any part of its
leasehold interest in and to the Facility, this Agreement shall remain in full
force and effect unless otherwise terminated as provided in Section 2.02(b).
Subject to the foregoing and to the requirements of the Lease, Lessee covenants
and agrees that in the event that it sells, assigns or otherwise transfers its
leasehold interest in and to the Facility at any time while this Agreement is in
effect, it will require the transferee to assume the obligations of the Lessee
hereunder. The provisions of this Section 6.02 are in addition to, and do not
modify or abridge, the prohibitions against sale, transfer, assignment or other
disposition of the Facility, as set forth in Section 2.02(b) and elsewhere in
this Agreement.
6.03 Damage or Destruction. If the Facility or any portions thereof shall
be damaged or destroyed by fire or other casualty, Lessee shall commence to
repair, restore, rebuild or replace any such damage or destruction within sixty
(60) days after such fire or other casualty and shall proceed with due diligence
to complete such work within a reasonable period of time.
ARTICLE VII.
LOAN FROM WCI
In addition to the agreements set forth herein between Lessee and Manager
relating to management of the Facility, WCI, the parent corporation of Manager,
has provided Lessee with the WCI Loan in the principal sum of $500,000.00
evidenced by a loan agreement by and between WCI, Lessor and Lessee dated of
even date herewith in the principal sum of $500,000 (the "Loan Agreement"), a
promissory note of even date herewith (the "Note") from Lessor and Lessee
payable to the order of WCI, and secured by, among other documents and
instruments, a security agreement for all of the accounts receivable in which
Lessor or Lessee has an interest of any kind. The WCI Loan is a line of credit
for the purpose of providing funds in order to operate the Facility and to pay
the debts and obligations incurred in connection with the operation of the
Facility after the Effective Date of this Agreement. Principal advances
(including an initial advance on the Effective Date of up to $50,000 to
reimburse Lessee for various Facility development and legal costs) and
repayments of principal under the WCI Loan will be effected by the Manager in
its discretion for purposes described in the preceding sentence. The WCI Loan
will terminate, and be due and payable in full, in accordance with the terms and
conditions of the Loan Agreement.
This Management Agreement is a material inducement to the making of the
WCI Loan, and accordingly, is coupled with an interest, is irrevocable by Lessee
and non-cancelable by Lessee unless expressly provided in this Agreement to the
contrary, and then only upon the occurrence of such circumstances as may be
described herein.
ARTICLE VIII.
MISCELLANEOUS COVENANTS
8.01 Joinder. The within and foregoing Management Agreement constitutes
and memorializes the modification and restatement of certain obligations (the
"Original Obligations") created, established and secured by, among other
instruments, that certain Loan Agreement, Security Agreement, Revolving Credit
Line of Credit Note and Long Term Care
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Facility Management Agreement, each dated as of April 10, 1996 by and between
Lender and (as the original "Lessee") Lessor (collectively, the foregoing
agreements are herein referred to as the "Original Loan Documents"), and, in
addition, this Management Agreement evidences and constitutes the assumption
(subject to the terms and conditions set forth herein and in the other
"Modification Loan Documents", as hereinafter defined) by Lessee of the Original
Obligations, as modified and restated by this Agreement (such modified and
restated obligations are herein referred to as the "Restated Obligations") and
by, among other instruments, the Loan Agreement, the Security Agreement and the
Revolving Line of Credit Note (collectively herein referred to as the
"Modification Loan Documents"). Lessor joins in executing and delivering this
Management Agreement to acknowledge, ratify and confirm its liability to Lender
for payment and performance of the Original Obligations and to acknowledge and
consent to the modification and restatement of same pursuant to the Modification
Loan Documents. Further, Lessor acknowledges and agrees to be bound by, and
liable in all respects for, the Restated Obligations, notwithstanding such
modification, restatement and assumption thereof by Lessee. Lessor shall be
liable as a joint and several obligor with Lessee and not as a guarantor,
surety, accommodation party, or in any other secondary liability capacity. To
the extent that any of the terms and conditions of this Management Agreement or
any of the other Modification Loan Documents conflict with the terms and
conditions of the Original Loan Documents, the terms and conditions of this
Management Agreement and the other Modification Loan Documents shall control.
All of the terms and conditions of the Original Loan Documents are otherwise
hereby ratified and affirmed in all respects and shall remain in full force and
effect, except to the extent that any portion is specifically superseded or
modified by a provision of this Management Agreement or any other of the
Modification Loan Documents. Lessor hereby acknowledges and agrees that its
liability for the Restated Obligations shall not be affected by the limitation
on Lessee's liability provided for under Section 1.06(c) hereof. Nothing
hereunder shall be deemed or construed to be a novation or otherwise to release,
discharge, or otherwise adversely effect the continuing liability of any party
liable under the Original Loan Documents; rather, the Original Obligations
remain in existence and continue and the parties liable on the Original
Obligations shall remain liable thereunder and under the Modification Loan
Documents.
8.02 Binding Agreement. The terms, covenants, conditions, provisions and
agreements herein contained shall be binding upon and inure to the benefit of
the parties hereto, their successors and assigns.
8.03 Relationship of Parties. Nothing contained in this Agreement shall
constitute or be construed to be or to create a partnership, joint venture or
lease between Lessee and Manager with respect to the Facility.
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8.04 Notices. All notices, demands and requests contemplated hereunder by
either party to the other shall be in writing, and shall be delivered by hand,
transmitted by cable, telegram or telecopy (receipt confirmed), or mailed,
postage prepaid, registered, or certified mail return receipt requested:
(a) to Lessee, by addressing the same to:
North Florida Health Investors II, Ltd.
c/o Smith/Packet Med-Com
4656 Brambleton Avenue, S.W.
Roanoke, Virginia 24018
(b) to Manager, by addressing the same to:
WelCare International Management Corporation
400 Perimeter Center Terrace
Suite 690
Atlanta, Georgia 30346
Attn: Alan C. Dahl, Executive Vice President
(c) to Lessor, by addressing the same to:
Blountstown Health Investors, L.C.
56 Third Street
Hickory, North Carolina 28601
or to such other address or to such other person as may be designated by notice
given from time to time during the term of this Agreement by one party to the
other. Any notice hereunder shall be deemed given five (5) days after mailing,
if given by mailing in the manner provided above, or on the date delivered or
transmitted if given by hand, cable, telegraph or telecopy (receipt confirmed).
8.05 Entire Agreement; Amendments. The Agreement contains the entire
agreement between the parties hereto, and no prior oral or written, and no
contemporaneous oral representations or agreements between the parties with
respect to the subject matter of this Agreement shall be of any force and
effect. Any additions, amendments or modifications to this Agreement shall be of
no force and effect unless in writing and signed by both Lessee and Manager.
8.06 Governing Law. All the terms and provisions hereof and the rights and
obligations of the parties hereto shall be governed by, and construed and
enforced in accordance with, the laws of the State of Florida (without regard to
its rules of conflicts of laws).
8.07 Captions and Headings. The captions and headings throughout this
Agreement are for convenience and reference only and do not constitute a part
hereof.
8.08 Disclaimer of Employment of Facility Employees. No person employed in
the operation of the Facility will be an employee of Manager, and Manager will
have no liability for payment of their wages, fringe benefits, payroll taxes and
other expenses of employment.
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8.09 Costs and Expenses; Indemnity. Subject to Section 1.06(c), all fees,
costs and expenses arising out of, relating to or incurred in the operation of
the Facility, including, without limitation, the fees, costs, and expenses of
Manager and outside consultants and professionals, shall be the sole
responsibility of Lessee and shall be payable as operating expenses of the
Facility. Manager, by reason of the execution of this Agreement or the
performance of its services hereunder, shall not be liable for or deemed to have
assumed any liability for such fees, costs and expenses, or any other liability
or debt of Lessee whatsoever, arising out of or relating to the Facility or
incurred at its operation, except the salary of Manager's employees and the
expenses and costs incurred at its central administrative offices in performance
of its obligations hereunder. Lessee agrees to indemnify and hold Manager, WCI
and their officers, directors, agents and employees harmless from and against
all losses, claims, damages or other liabilities, including the costs and
expenses incurred in connection therewith, arising out of or relating to the
ownership of the Facility (except those resulting from the wilful misconduct or
negligence of Manager of WCI), including, without limitation, any liability
asserted against Manager or WCI or any of their officers, directors, employees
or agents by reason of any action taken by any of the foregoing while performing
the duties of Manager hereunder on behalf of Lessee.
8.010 Responsibility for Misconduct of Employees and Other Persons.
Manager will have no liability whatsoever for damages suffered on account of the
dishonesty, misconduct or negligence of any employee of or employee leased by
the Facility or any officer, director, partner, stockholder, employee or agent
of Lessee. Manager shall be liable to the Facility in connection with damage or
loss directly sustained by Lessee by reason of the dishonesty, wilful misconduct
and gross negligence of Manager's employees in the operation of the Facility
during the term of the Agreement.
8.10 Advances by Manager. Manager shall have the right, but not the
obligation, to acquire for the benefit of Lessee, under the WCI Loan, any and
all sums required to maintain all necessary licenses and permits and to
otherwise keep the Facility operating as a fully insured nursing home in good
condition and repair. All such sums advanced under the WCI Loan to Lessee shall
be repaid by Lessee in accordance with the terms of the Loan Agreement and the
Note, and Manager shall have the right at any time and from time to time to
instruct the signatories of the Operating Accounts to withdraw and pay such
amounts as are necessary to repay such advances.
8.11 Definition of Affiliate. For purposes of this Agreement, the term
"affiliate" shall mean any person or entity which Manager or Lessee or their
respective stockholders or individual partners, directly or indirectly, through
one or more intermediaries, controls, is in common control with, or is
controlled by.
8.12 Authorization of Agreement. Manager and Lessee represent and warrant,
each to the other with respect to itself, that the execution and delivery of
this Agreement has been duly authorized by all respective action, will not
presently or with the passage of time, the giving of notice, or both result in a
default under or violate or conflict with (i) the provisions of the articles of
incorporation and bylaws of Manager or Lessee, or (ii) any other material
agreement, mortgage, loan agreement or other contract or instrument by which
either party is bound or to which any of its property or assets are subject, or
(iii) any existing law, regulation, court order or consent decree by which
either party is bound or to which any of its property or assets are subject.
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IN WITNESS WHEREOF, the parties hereto have executed, sealed and delivered
this Management Agreement through their duly authorized representatives, as of
the day and year first above written.
NORTH FLORIDA HEALTH FACILITIES, II, LTD.
By: /s/ James R. Smith
-----------------------------------------
James R. Smith, General Partner
BLOUNTSTOWN HEALTH INVESTORS, L.C.
By: /s/ Charles E. Trefzger
-----------------------------------------
Charles E. Trefzger, Manager
WELCARE INTERNATIONAL MANAGEMENT
CORPORATION
By: /s/ Randall J. Bufford
-----------------------------------------
Its: EVP
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EXHIBIT 10.40
<PAGE>
LONG-TERM CARE FACILITY
MANAGEMENT AGREEMENT
THIS LONG-TERM CARE FACILITY MANAGEMENT AGREEMENT (the "Agreement") is
made as of the 31st day of January, 1997, by and between International
Health Care Properties 72, L.P., a Georgia limited partnership ("Owner"), and
Centennial HealthCare Management Corporation, a Georgia corporation ("Manager").
W I T N E S S E T H :
WHEREAS, Owner presently owns and/or as manages, as or for the certified
and licensed operation thereof, certain real and personal property (both
tangible and intangible) comprising a certain 144-bed nursing center located in
Oakland County, Novi, Michigan (the "Facility"); and
WHEREAS, Owner and Manager desire for Manager to provide its experience,
skill and supervision to manage the Facility on behalf of Owner under and
subject to the terms of this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual promises and
covenants of the parties contained herein and for such other good and valuable
consideration, the receipt, adequacy and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
ARTICLE I.
MANAGEMENT DUTIES AND OBLIGATIONS
1.01 Control Retained by Owner. Owner shall at all times exercise overall
control over the assets and operations of the Facility, subject to the terms of
this Agreement, and Manager shall perform the duties herein required to be
performed by it as the agent of Owner and in accordance with the policies and
directives from time to time adopted by Owner.
1.02 Changes in Method of Operation. Manager shall not make substantial
changes in the method of operating the Facility unless Manager first notifies
Owner and Owner has given its approval, which approval shall not be unreasonably
withheld. Notwithstanding the foregoing, however, Manager shall have the right
to add to, expand, or change the Facility or the services provided at the
Facility without approval by Manager, subject to the requirements of any
Mortgagees of the Facility or any regulatory agencies having jurisdiction over
such addition, expansion, or change. Owner shall join in any certificate of need
or other applications required to effect such addition, expansion or other
change.
1.03 Management of Facility. During the term of this Agreement and subject
to the terms and conditions of this Agreement, Manager shall on behalf of Owner
manage certain aspects of the operation of the Facility. Manager may perform
such services directly, through supervision of Employees of the Facility, or by
subcontracting such performance (including, without limitation, subcontracts
with affiliates or subsidiaries of Centennial HealthCare Corporation, Manager's
parent corporation), as Manager deems fit, and upon such terms and conditions as
Manager shall determine in its sole discretion.
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(a) Hire or lease on behalf of Owner and retain (to the extent such
personnel are reasonably available in the community in which the Facility is
located) an adequate staff of nurses, technicians, nurse aides, office and other
employees, including a qualified administrator (the "Administrator") and shall
promote, direct, assign and discharge all such employees on behalf of Owner at
Manager's sole discretion; provided, however, that leased employees shall be
subject to the direction and control of the lessor of such leased employees. All
employees shall be employees of or leased by Owner and carried on the payroll of
the Facility and shall not be deemed employees or agents of Manager.
(b) Institute and amend, from time to time general salary scales,
personnel policies and appropriate employee benefits for all employees on behalf
of Owner; provided, however, that leased employees shall be subject to the
general salary scales, personnel policies and employee benefit programs of the
lessor of such leased employees. Employee benefits may include pension and
profit sharing plans, insurance benefits, incentive plans for key employees and
holiday, vacation, personal leave and sick leave policies.
(c) Issue appropriate bills for services and materials furnished by
the Facility and use its reasonable best efforts to diligently collect accounts
receivable and monies owed to the Facility, design and maintain accounting,
billing, patient and collection records; and prepare and file insurance,
Medicare, Medicaid and any and all other necessary or desirable claims related
to revenue production. Owner hereby grants Manager the right to enforce Owner's
rights as creditor under any contract or in connection with rendering any
services for purposes of collecting accounts receivable and monies owed the
Facility.
(d) Order, supervise and conduct a program of regular maintenance
and repair.
(e) Purchase food, beverage, medical, cleaning and other supplies,
equipment, furniture and furnishings for the Facility.
(f) Administer, supervise and schedule all patient and other
services of the Facility, including the operation of food, barber/beautician and
other ancillary services.
(g) Provide for the orderly payment (to the extent funds are
available therefor) of accounts payable, employee payroll, amounts due on short
and long-term indebtedness, taxes, insurance premiums, and all other obligations
of the Facility.
(h) Institute standards and procedures for admitting patients, for
charging patients for services, and for collecting the charges from the patients
or third parties.
(i) Obtain and maintain insurance coverage for the Facility naming
Owner, Manager and such other persons requested by Owner and Manager as insureds
as provided in Section 6.01 hereof.
(j) Negotiate and enter into, in the name of and on behalf of Owner,
such agreements, contracts and orders as Manager may deem necessary or
advisable, for the furnishing of services, concessions and supplies for the
operation and maintenance of the Facility.
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(k) After notice to Owner, negotiate on behalf of Owner (and in
conjunction with Owner's counsel) with any labor union lawfully entitled to
represent employees of Owner who work at the Facility, but any collective
bargaining agreement or labor contract must be submitted to Owner for its
approval and execution.
(l) As provided in Section 1.08(a), assist in maintaining all
licenses and permits required for the operation of the Facility, its contracts
with third party payors and other similar governmental and nongovernmental
agencies and intermediaries.
(m) Make periodic evaluations of the performances of all departments
of the Facility.
(n) Negotiate and arrange for the sale or refinancing of the
Facility to Manager or an affiliate of Manager or to a third party, provided any
sale of the Facility shall be for a purchase price equal to or greater than the
Option Price set forth in Section 3.03 of this Agreement.
1.04 Reports to Owner.
(a) Manager shall prepare and deliver to Owner or shall cause to be
prepared and delivered to Owner, within thirty (30) days after the close of each
calendar month, unaudited financial statements covering the prior month and
containing a balance sheet and statement of income and expenses in reasonable
detail.
(b) Manager shall submit to Owner or shall cause to be submitted to
Owner, for Owner's approval (which approval will not be unreasonably withheld)
each twelve (12) months its budget for the operation of the Facility setting out
anticipated income, expenses and capital expenditures during the succeeding
twelve (12) month period. Manager shall use its reasonable best efforts to
operate the Facility in accordance with the provisions of the budget for the
Facility as submitted to Owner. Such proposed budget for the Facility shall be
delivered to Owner prior to the commencement of the operational fiscal year of
the Facility.
(c) Manager shall schedule periodic management meetings to be
attended by representatives of both Manager and Owner no less frequently than
semi-annually and shall furnish to Owner quarterly written progress reports
concerning the operation of the Facility.
1.05 Bank Accounts.
Manager shall deposit in a bank account or accounts of Manager or
Manager's affiliate(s) (collectively referred to in this Section 1.05 as
Manager) established in Manager's name (the "Facility Depository Accounts") all
funds received from the operations of the Facility (the "Facility Funds").
Manager may at its option "sweep" these accounts as often as it deems
appropriate, and in its discretion either (i) consolidate and commingle the
Facility Funds with funds from other facilities owned, operated or managed by
Manager into Manager's primary concentration/operating account(s) in
NationsBank, Atlanta, Georgia or such other place and with such financial
institutions as Manager may determine (the "Operating Accounts"), or (ii)
segregate such Facility Funds in an account(s) separate and apart from Manager's
Operating Accounts (the "Segregated Facility Accounts"). Manager shall disburse
Facility Funds received from the Facility's operations in the manner and order
of priority described in section 1.06(a) below. Manager shall also deposit and
maintain the personal
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funds of the Facility's residents into a separate trust account established in
Manager's name (the "Facility Trust Accounts"). Manager shall designate the
signatory or signatories required on all checks or other documents of withdrawal
for the Facility Depository, Operating, Segregated Facility, and Facility Trust
Accounts.
1.06 Flow of Facility Funds.
(a) All revenues and cash of the Facility shall be disbursed by
Manager in the following order of priority and, in each case, in such amounts
and at such times as Manager deems is required to be made in connection with the
payment of:
(1) the Facility's loan payments, including accrued and
unpaid interest and principal amortization, due from
Owner to Capstone Capital Corporation ("Capstone")
pursuant to that certain Loan Agreement dated as of
January 31, 1997 by and between Capstone and Owner (the
"Capstone Loan") or such other lender as may provide
mortgage financing encumbering the Facility from time to
time;
(2) the costs and expenses of operating the Facility,
including the reimbursable expenses of Manager;
(3) such reserves for capital replacements or other purposes
as shall be required by any lender to Owner or as
Manager shall deem appropriate in its sole discretion;
(4) all accrued and unpaid Fixed Management Fees (defined in
Section 5.01) to Manager;
THEN, after retention by Manager of an adequate working
capital reserve (in cash or available credit under a working
capital loan or line of credit obtained to the operating needs
of the Facility (the "Working Capital Loan") (such reserve to
be determined by Manager in its discretion and held in such
subaccount of the Facility Depository, Operating or Segregated
Facility Accounts as Manager shall determine);
(5) all accrued and unpaid interest on the Working Capital
Loan; and
(6) any principal balance outstanding under the Working
Capital Loan whether or not any or all of such balance
is then due and payable.
(b) Manager agrees that to the extent the total of items described
in paragraphs 1, 2, 3 and 4 above (collectively the "Base Operating Costs")
exceed the Facility's
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collected net revenues (resulting in an "Operating Deficit"), Manager shall, as
soon as possible and not less than five (5) business days after notice from
Owner, advance funds under the Working Capital Loan, if available, as may be
necessary to cover or offset such Operating Deficit.
1.07 Access to Books, Records and Documents. If it is ultimately
determined that Section 952 of the Omnibus Budget Reconciliation Act of 1980 and
final regulations promulgated thereunder apply to this Agreement:
(a) Until the expiration of four (4) years after the furnishing of
services pursuant to this Agreement, Manager shall, as provided in Section 952,
make available, upon written request, to the Secretary of Health and Human
Services, or upon request, to the Comptroller General of the United States, or
any of their duly authorized representatives, this Agreement, and all books,
documents and records of Manager that are necessary to verify the nature of this
Agreement for which payment may be made under the Medicare program; and
(b) If Manager carries out any of the duties of this Agreement
pursuant to a subcontract or subcontracts with an aggregate value or cost of
$10,000 or more over a twelve (12) month period with a related organization,
such subcontract or subcontracts shall contain a clause to the effect that,
until the expiration of four years after the furnishing of such services
pursuant to such subcontract or subcontracts, the related organization shall, as
provided in Section 952, make available, upon written request, to the Secretary
of Health and Human Services, or upon request, to the Comptroller General of the
United States, or any of their duly authorized representatives, the subcontract
or subcontracts, and all books, documents and records of such subcontractors for
which payment may be made under the Medicare program.
1.08 Licenses.
(a) Manager, as agent for Owner and on Owner's behalf, shall apply
for and seek to obtain and maintain all necessary licenses, permits,
certifications, consents, and approvals from all governmental agencies which
have jurisdiction over the operation of the Facility. Manager agrees that its
management and operation of the Facility shall materially and substantially
comply with any representations made by Owner in the Certificate of Need
application for the Facility with the Michigan Agency for Health Care
Administration, to the extent disclosed in writing to Manager, as well as all
conditions placed upon such Certificate of Need and so disclosed in writing to
Manager. Manager, by applying for such licenses, permits, consents, and
approvals, does not in any way guarantee the approval of such applications and
shall have no liability with respect to any failure of the Facility to receive
any such license, permit, consent or approval.
(b) Neither Owner nor Manager shall knowingly take any action or
fail to take any action which may (1) cause any governmental authority having
jurisdiction over the operation of the Facility to institute any proceeding for
the rescission or revocation of any necessary license, permit, consent or
approval, or (2) adversely affect Owner's right to accept and obtain payments
under Medicare, Medicaid, or any other public or private third party medical
payment program.
(c) Manager shall, with the written approval of Owner, have the
right to contest or cause to be contested by appropriate legal proceedings,
diligently conducted in
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good faith in the name of Owner, the validity or application of any law,
ordinance, rule, ruling, regulation, order or requirement of any governmental
agency having jurisdiction over the operation of the Facility. Owner, after
having given its written approval, shall pay attorneys' fees incurred with
regard to the contest. Counsel for any such contest shall be selected by
Manager, with Owner's approval which shall not be unreasonably withheld. Manager
shall have the right, upon notice to Owner but without the written consent of
Owner, to process all third-party claims for the services of the Facility,
including, without limitation, the full right to contest to the exhaustion of
all applicable administrative proceedings or procedures, adjustment and denials
by governmental agencies or their fiscal intermediaries as third-party payors.
1.09 Administrator. Manager shall employ or lease for the Facility an
Administrator to serve as the chief executive officer of such Facility. The
Administrator shall be an employee of and shall be compensated by Owner and
Manager shall pay on Owner's behalf out of the Operating Accounts of the
Facility, in advance, on or before the fifth (5th) day of each month, all
compensation, including salary, fringe benefits, bonuses and business expense
reimbursements approved by Manager, to the Administrator. The term "fringe
benefits" shall include, without limitation, employer's F.I.C.A. payments,
unemployment compensation and other employment taxes, bonuses, vacation,
personal and sick leave benefits, workers' compensation, group life, health and
accident insurance premiums and disability and other benefits.
1.10 Taxes. Any federal, state or local taxes, assessments or other
governmental charges properly imposed on the Facility are the obligations of
Owner, not of Manager, but all such obligations shall be paid by Manager on
Owner's behalf out of the Facility Funds. With Owner's prior written consent,
Manager may contest the validity or amount of any such tax or imposition on the
Facility.
1.11 Use of Manager's Personnel. An authorized representative of Manager
shall visit the Facility as often as Manager deems necessary. The time spent by
such authorized representative of Manager during such visits and all
out-of-pocket expenses arising from travel and lodging connected with such
visitations shall not be charged separately to Owner.
1.12 Government Regulations. Manager agrees to operate and maintain the
Facility in substantial compliance with the requirements of any material
statute, ordinance, law, rule, regulation or order of any governmental or
regulatory body having jurisdiction over the Facility and to comply with all
orders and requirements of the local board of fire underwriters or any other
body which may exercise similar functions; provided, however, that Manager shall
not be required to expend its separate funds in order to comply with any such
statutes, ordinances, laws, rules, regulations or orders, and to the extent any
funds are so required, it shall fulfill its obligations hereunder by notifying
Owner of the actions necessary in order to be in compliance therewith and
expending such funds of Owner as Owner may provide or as Manager may deem
available for such purpose.
1.13 Quality Controls. Manager shall activate and maintain on a continuing
basis a "Quality Assurance Program" in order to provide objective measurements
of the quality of health care provided at the Facility and, in connection
therewith, shall utilize such techniques as patient questionnaires and
interviews, physician questionnaires and interviews, and inspections.
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1.14 Staff Specialists. In addition to the other managerial services
provided for herein, Manager shall provide or cause to be provided to the
Facility, for consultation and advice, staffing services to include, when
Manager deems necessary or appropriate, specialists in such fields as
accounting, auditing, budgeting, dietary services, operations, environmental
control, management, maintenance, nursing, personnel, pharmacy operations,
public relations, purchasing, quality assurance, systems and procedures, and
third-party reimbursement.
1.15 Performance of Services by Manager. In the performance of its
services hereunder, Manager shall exercise the same standards and degree of care
used by reasonable and prudent managers of nursing homes of similar size, nature
and character as the Facility. Notwithstanding anything herein to the contrary,
Manager shall not be deemed in violation of this Agreement if Manager is
prevented from performing any of its obligations hereunder for reasons beyond
its reasonable control including, without limitation, strikes, walkouts or other
employee disturbances, acts of God, or the action or promulgation of any
statute, rule, regulation or order by any federal, state, or local governmental
or judicial agency or official, nor shall it be deemed in default hereunder or
otherwise liable for any error of judgment or act or omission in the performance
of its services hereunder, which is made in reasonable good faith.
1.16 Additional Services. Owner agrees that any specialized or additional
services recommended by Manager, including, without limitation, services
described in Section 1.12, 1.13, and 1.14 of this Agreement may be performed for
a separate fee. Such services may be performed directly by Manager, by employees
of the Facility under the supervision of Manager or by subcontractors
(including, without limitation, subcontracts with affiliates or subsidiaries of
Centennial HealthCare Corporation, Manager's parent corporation), as Manager
deems fit, and upon such terms and conditions as Manager shall determine in its
sole discretion. If Manager provides such service directly, such fee shall not
be in excess of such amount as would be charged by a third party, negotiating at
arm's length, for the performance of such service. Examples of such services
include, without limitation, (a) the preparation of annual financial reports and
tax returns; (b) the preparation of Medicare and Medicaid cost reports; (c)
costs incurred in the maintenance of lending relationships with Owner's
mortgagee and working capital lender; and (d) any other expenses of Manager in
performing services for the benefit of Owner not expressly covered in this
Agreement.
1.17 Maintenance of Facility. Manager agrees to maintain the Facility in a
good and serviceable condition, ordinary wear and tear and damage by fire or
other casualty or resulting from condemnation excepted, to the extent sufficient
revenues of the Facility are available for such purpose.
1.18 Civil Money Damages. Manager agrees that if any civil money penalties
are imposed by HCFA or the State of Michigan as a result of the nursing care
and/or treatment provided to residents of the Facility by employees of the
Facility, Manager will reimburse Owner for the amount of the civil money penalty
imposed; provided, however, that Manager must be notified immediately upon
notice of the civil money penalty and/or any Statement of Deficiencies issued by
HCFA or the State of Michigan. Manager reserves the right to appeal or waive
appeal of any civil money penalty imposed by HCFA or the State of Michigan.
Manager further reserves the right to retain counsel to represent the Facility
in any appeal or settlement proceedings.
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ARTICLE II.
TERM AND TERMINATION
2.01 Term. The term of this Agreement shall commence as of the date hereof
(the "Effective Date"), and shall continue until the earlier of the following
dates: (i) the date which falls on the twentieth (20th) anniversary thereof (the
"Initial Period"), or (ii) the date on which Manager ceases to furnish
management services to the Facility and this Agreement is terminated for
whatever reason; provided however, that Manager shall have the option to extend
the term of this Agreement for two (2) consecutive additional periods of ten
(10) years each beyond the Initial Period (the "Second Period" and "Third
Period," respectively, and together with the Initial Period the "Term") upon
Manager's written notice to Owner and payment to Owner of an extension fee of
Five Hundred Dollars ($500.00) at the time Manager exercises such option, or
upon demand made thereafter by Owner.
2.02 Optional Termination by Manager.
(a) Manager has the option to terminate this Agreement, without
damage or penalty, upon ten (10) days prior written notice to Owner, upon the
occurrence of either of the following events:
(i) The Facility or any material portion thereof is damaged or
destroyed to the extent that in the written opinion of an independent
architect or engineer reasonably acceptable to both parties (x) it is not
practicable or desirable to rebuild, repair or restore the Facility within
a period of nine (9) months to its condition immediately preceding such
damage, or (y) the conducting of normal operations of the Facility would
be prevented for a period of nine (9) months or more; or
(ii) Title to or the temporary use of all or substantially all
the Facility is taken under the exercise of the power of eminent domain by
any governmental authority or person, firm or corporation acting under
governmental authority which in the opinion of an independent architect or
engineer reasonably acceptable to both parties prevents or is likely to
prevent the conducting of normal operations at the Facility for a period
of at least nine (9) months.
Provided, however, that in either of such events, in addition to the rights of
Manager hereunder, Manager shall have the right, but not the obligation to
rebuild, restore or otherwise rearrange the Facility and recommence operations
thereof, and thereupon Manager shall continue to manage the Facility under the
same terms, conditions, and fees as provided herein.
ARTICLE III.
OPTION
3.01 Option to Purchase. Manager shall have the option to purchase the
Facility from Owner subject to the terms and conditions herein (the "Option").
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3.02 Exercise of Option. Manager may exercise the Option at any time
during the Term of this Agreement, or within 180 days after any valid
termination of this Agreement. Manager may exercise the Option by providing
Owner ten (10) days prior written notice of Manager's intention to purchase the
Facility.
3.03 Option Price. If Manager exercises the Option, the purchase price to
be paid by Manager to Owner for the Facility shall be the greater of:
(a) Five times the annual net operating income of the Facility; or
(b) The sum of:
(1) the outstanding principal balance of any and all loans
encumbering the Facility, including, without limitation,
the Capstone Loan and the Working Capital Loan, or any
renewals, replacements, consolidations, or other
extensions of secured credit in respect of the Facility;
and
(2) any prepayment penalties associated with the repayment
of the Capstone Loan and/or the Working Capital Loan;
REDUCED BY the sum of any credits or reserves deposited with
lenders in respect of the Facility.
ARTICLE IV.
DEFAULT AND REMEDIES
4.01 Events of Default. The following shall constitute events of default
("Events of Default" and each individually an "Event of Default") under this
Agreement:
(a) If Owner fails to do any of the following and the responsibility
and means (including any and all necessary funds) to pay or perform same has not
been delegated to Manager hereunder: (i) make or cause to be made any payment to
Manager required to be made by Owner, and such failure shall continue for as
much as thirty (30) days after notice thereof shall have been given to Owner,
(ii) perform its obligations under this Agreement in any material respect, and
such default shall continue for a period of thirty (30) days after notice
thereof shall have been given by Manager to Owner, or (iii) make payments, or
keep any covenants owing to any third party and which would cause Owner to lose
possession of the Facility's buildings, equipment or properties;
(b) If Manager fails (i) to make or cause to be made any payment to
or on behalf of Owner required to be made by Manager, and such failure shall
continue for as much as thirty (30) days after notice thereof shall have been
given to Manager, (ii) to perform its obligations under this Agreement in any
material respect, and such failure shall continue for a period of thirty (30)
days after notice thereof shall have been given by Owner to Manager, or (iii) to
make payments, or keep any covenants owing to any third party and which would
cause Owner to lose possession of the Facility's buildings, equipment or
properties;
(c) If, through no fault of Manager, the licenses required for the
operation of Facility are at any time suspended, terminated, or revoked, and
such suspension,
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termination or revocation shall continue unstayed and in effect for a period of
fourteen (14) consecutive days;
(d) If, due to Manager's failure to maintain the Facility in
material compliance with applicable laws, regulations or rules, the Facility (1)
loses its Medicaid or Medicare certification, (2) loses its license to operate
as a nursing home, or (3) is closed, and such event continues unstayed and in
effect for a period of fourteen (14) consecutive days;
(e) If, due to Manager's failure to maintain the Facility in
material compliance with applicable laws, regulations or rules, patient
admissions are suspended, and such event continues unstayed and in effect for
the later of ninety (90) days or the date on which occupancy decreases more than
ten percent (10%) from the occupancy level at the date of such suspension;
(f) If either Owner or Manager shall (1) be adjudicated bankrupt;
(2) admit in writing its inability to pay its debts generally as they become
due; (3) become insolvent in that its total assets are in the aggregate worth
less than all of its liabilities or it is unable to pay its debts generally as
they become due; (4) make a general assignment for the benefit of creditors; (5)
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; or (6) consent to the
appointment of a receiver, conservator, trustee or liquidator of all or part of
its assets; or
(g) If a petition shall have been filed against Owner or Manager in
proceedings 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 laws
for the relief of debtors, or for the discharge, arrangement or compromise of
its debts, or an order shall be entered by any court of competent jurisdiction
appointing a receiver, conservator, trustee or liquidator of all or part of
Owner's or Manager's assets, and such petition or order is not dismissed or
stayed within sixty (60) consecutive days after entry thereof.
4.02 Remedies Upon Default. If any Event of Default by either party shall
occur and be continuing, the other party may, in addition to any other remedy
available to it in law or equity on account of such Event of Default, forthwith
terminate this Agreement by giving written notice of such termination, and
neither party shall have any further obligations whatever under this Agreement,
except Manager shall retain the Option for 180 days after termination of this
Agreement.
ARTICLE V
MANAGEMENT FEE
5.01 Management Fee. Commencing from the effective date of this Agreement
and continuing until the end of the Term hereof, Owner shall pay to Manager a
monthly fee of seven percent (7.0%) of the "Gross Revenues" generated by the
Facility, as determined on an accrual basis (the "Management Fee"). "Gross
Revenues" shall mean, for the Facility, total revenues of such Facility,
including, without limitation, all ancillary fees, charges, rentals and other
revenue derived in any way from the operation of such Facility, on an accrual
basis, after
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deduction of allowances for contractual adjustments as they relate to
third-party payors and before deduction of any and all expenses.
5.02 Payment of Management Fee. On or before the tenth (10th) day of each
month during the Term hereof, Owner shall pay Manager an estimated Management
Fee based on the estimated Gross Revenues of the Facility during the current
month. The Management Fee due hereunder shall be paid from the Facility Funds.
If there is insufficient cash from the operation of the Facility to pay the
Management Fee when due, the Management Fee shall be paid with an advance under
the Working Capital Loan.
5.03 Fees for Additional Services. Any additional fees charged to Owner
pursuant to Section 1.16 hereof shall be paid by Owner to Manager from time to
time at Manager's sole discretion.
5.04 Adjustment. Within fifteen (15) days after the delivery of the annual
financial statements of the Facility, Owner shall pay to Manager or Manager
shall credit Owner such amount as is necessary to make the amount of the
Management Fees paid with respect to the year to which the financial statements
relate equal to the amount of the Management Fees shown to be due by the annual
financial statements.
ARTICLE VI
INSURANCE
6.01 Insurance/Indemnity. During the term of this Agreement, Manager shall
at all times keep the Facility insured with the kinds and amounts of insurance
described below, which, at a minimum, shall be modified as necessary to satisfy
all requirements of any Facility mortgagee. This insurance shall be written by
companies authorized to do insurance business in the State of Michigan. The
policies will name Owner as additional insured, and name any mortgagee of the
Facility by way of standard form of mortgagee's loss payee endorsement. Losses
shall be payable to Owner, in trust, as provided in Section 6.05 below. Any loss
adjustment shall require the written consent of Owner, Manager and each
mortgagee. Evidence of insurance shall be deposited with Owner and, if
requested, with any mortgagee(s). The policies on the Facility shall insure
against the following risks:
(a) Loss or damage by fire and such other risks as may be included
in the broadest form of extended coverage insurance from time to time available,
including but not limited to loss or damage from leakage of any sprinkler system
now or hereafter installed in the Facility, in amounts sufficient to prevent
Owner or Manager from becoming a co-insurer within the terms of the applicable
policies and in any event in an amount not less than one hundred percent (100%)
of the then full replacement value thereof (as defined below in Section 6.02);
(b) Loss or damage by explosion of steam boilers, pressure vessels
or similar apparatus, now or hereafter installed in the Facility, in such limits
with respect to any one accident as may be reasonably agreed by Owner and
Manager from time to time;
(c) Claims for personal injury or property damage under a policy of
general public liability insurance with amounts not less than One Million and
No/100 Dollars ($1,000,000.00) per occurrence in respect of bodily injury, One
Million and No/100 Dollars
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($1,000,000.00) aggregate per occurrence, and Three Hundred Thousand and No/100
Dollars ($300,000.00) for property damage;
(d) Claims arising out of malpractice in an amount not less than One
Million and No/100 Dollars ($1,000,000.00) for each person and for each
occurrence;
(e) Such other hazards and in such amounts as may be customary for
comparable properties in the area and is available from insurance companies
authorized to do business in the State of Michigan; and
(f) Workers' compensation.
6.02 Replacement Cost. The term "full replacement value" of improvements
as used herein, shall mean the actual replacement cost thereof from time to
time, less exclusions provided in the normal fire insurance policy.
6.03 Additional Insurance. In addition to the insurance described above,
Manager shall maintain such additional insurance as may be reasonably required
from time to time by any mortgagee of the Facility.
6.04 Waiver of Subrogation. Any provision in this Agreement to the
contrary notwithstanding, each party, to the extent it is permitted to do so by
the terms and provisions of any of the above policies, hereby waives any and all
rights it may have against the other, its agents, or employees, for any loss or
damage from risks ordinarily insured against under such policies, but only to
the extent that such loss or damage is in fact covered by such insurance and is
collectible by the insured party. Each party further covenants and agrees that
it will, upon request of the other, request each such insurance company to
attach to such policy or policies issued by it a waiver of subrogation with
respect to the other party, its agents or employees.
6.05 Insurance Proceeds. All proceeds payable by reason of any casualty
loss or damage to all or any part of the Facility and insured under any policy
of insurance required by Section 6.01 above of this Agreement shall be paid to
Owner and held by Owner in trust (subject to the provisions of Section 6.06
below and the rights of the holders of the Facility mortgages) and shall be made
available for reconstruction or repair, as the case may be, of any damage to or
destruction of the Facility, and shall be paid out by Owner from time to time
for the reasonable costs of such work. Any excess proceeds of insurance
remaining after the completion of the restoration or reconstruction of the
Facility shall be returned, as applicable, to the insurer or Manager as their
interests may appear.
6.06 Damage or Destruction. If, during the Term of this Agreement, the
Facility is totally or partially destroyed from a risk covered by the insurance
described in Section 6.01 above, Owner shall, as soon as practicable, restore
the Facility to substantially the same condition as existed immediately before
the destruction. Upon the commencement of such work, Owner shall proceed with
due diligence to complete such work within a reasonable period of time. If the
costs of the restoration exceed the amount of proceeds received by Owner from
the insurance required under Section 6.01 Manager shall have the right but not
the obligation to pay the difference between the amount of insurance proceeds
and such cost of restoration.
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6.07 Restoration of Manager's Property. If Owner is required to restore
the Facility as provided in Section 6.06, Owner shall not be required to restore
alterations made by Manager, or Manager's improvements, trade fixtures or
personal property, such excluded items being the sole responsibility of Manager
to restore. Owner shall, however, be required to restore the Facility's tangible
personal property owned by Owner.
6.08 Manager's Blanket Policy. Notwithstanding anything to the contrary
contained in this Article VI, Manager's obligation to carry the insurance
provided for herein may be brought within the coverage of a so-called blanket
policy, carried and maintained by Manager; provided, however, that the coverage
afforded Owner will not be reduced or diminished or otherwise be different from
that which would exist under a separate policy meeting all other requirements of
this Agreement.
ARTICLE VII.
COVENANTS OF OWNER
7.01 Licensing; Changes and Services. Subject to the terms of this
Agreement, Owner agrees to take or cause to be taken any and all actions
necessary to be taken by it as the overall supervisor of the assets and
operations of the Facility in order to maintain all required licenses, permits
for the operation of the Facility and the Facility's eligibility to participate
in all public or private third-party medical payment programs, including
providing sufficient funds to bring the Facility in compliance with all
applicable fire safety codes and other laws, regulations and orders, and to
correct all structural, maintenance, procedural and staffing deficiencies as
shown on the surveys and reports of governmental agencies having jurisdiction
over the Facility. Owner agrees that it will not, through the exercise of its
overall supervisory powers, substantially change the services rendered by the
Facility during the term hereof without the prior written approval of Manager.
7.02 Damage or Destruction. If the Facility or any portions thereof shall
be damaged or destroyed by fire or other casualty, Owner shall commence to
repair, restore, rebuild or replace any such damage or destruction within sixty
(60) days after such fire or other casualty and shall proceed with due diligence
to complete such work within a reasonable period of time.
ARTICLE VIII.
MISCELLANEOUS COVENANTS
8.01 Binding Agreement. The terms, covenants, conditions, provisions and
agreements herein contained shall be binding upon and inure to the benefit of
the parties hereto, their successors and assigns.
8.02 Relationship of Parties. Nothing contained in this Agreement shall
constitute or be construed to be or to create a partnership, joint venture or
lease between Owner and Manager with respect to the Facility.
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8.03 Notices. All notices, demands and requests contemplated hereunder by
either party to the other shall be in writing, and shall be delivered by hand,
transmitted by cable, telegram or telecopy (receipt confirmed), or mailed,
postage prepaid, registered, or certified mail return receipt requested:
(a) to Owner, by addressing the same to:
International Health Care Properties 72, L.P.
404 BNA Drive
Suite 404
Nashville, Tennessee 37217
(b) to Manager, by addressing the same to:
Centennial HealthCare Management Corporation
400 Perimeter Center Terrace
Suite 650
Atlanta, Georgia 30346
Attn: Alan C. Dahl, Executive Vice President
or to such other address or to such other person as may be designated by notice
given from time to time during the term of this Agreement by one party to the
other. Any notice hereunder shall be deemed given five (5) days after mailing,
if given by mailing in the manner provided above, or on the date delivered or
transmitted if given by hand, cable, telegraph or telecopy (receipt confirmed).
8.04 Entire Agreement; Amendments. The Agreement contains the entire
agreement between the parties hereto, and no prior oral or written, and no
contemporaneous oral representations or agreements between the parties with
respect to the subject matter of this Agreement shall be of any force and
effect. Any additions, amendments or modifications to this Agreement shall be of
no force and effect unless in writing and signed by both Owner and Manager.
8.05 Governing Law. All the terms and provisions hereof and the rights and
obligations of the parties hereto shall be governed by, and construed and
enforced in accordance with, the laws of the State of Georgia (without regard to
its rules of conflicts of laws).
8.06 Captions and Headings. The captions and headings throughout this
Agreement are for convenience and reference only and do not constitute a part
hereof.
8.07 Disclaimer of Employment of Facility Employees. No person employed in
the operation of the Facility will be an employee of Manager, and Manager will
have no liability for payment of their wages, fringe benefits, payroll taxes and
other expenses of employment.
8.08 Responsibility for Misconduct of Employees and Other Persons. Manager
shall be liable to the Facility in connection with damage or loss directly
sustained by Owner by reason of the dishonesty, wilful misconduct and gross
negligence of Manager's employees in the operation of the Facility during the
term of the Agreement.
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8.09 Authorization of Agreement. Manager and Owner represent and warrant,
each to the other with respect to itself, that the execution and delivery of
this Agreement has been duly authorized by all respective action, will not
presently or with the passage of time, the giving of notice, or both result in a
default under or violate or conflict with (i) the provisions of the articles of
incorporation and bylaws of Manager or Owner, or (ii) any other material
agreement, mortgage, loan agreement or other contract or instrument by which
either party is bound or to which any of its property or assets are subject, or
(iii) any existing law, regulation, court order or consent decree by which
either party is bound or to which any of its property or assets are subject.
IN WITNESS WHEREOF, the parties hereto have executed, sealed and delivered
this Agreement through their duly authorized representatives, as of the day and
year first above written.
OWNER:
INTERNATIONAL HEALTH CARE PROPERTIES 72,
L.P.
By: International Health Care
Associates 72, Inc., as General Partner
By: /s/ Jere M. Ervin
------------------------------------
Name: Jere M. Ervin
Its: Executive Vice President
MANAGER:
CENTENNIAL HEALTHCARE MANAGEMENT
CORPORATION
By: /s/ Randall J. Bufford
------------------------------------
Name: Randall J. Bufford
Its: Executive Vice President
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SCHEDULE 10.40
CHMC has entered into an agreement with International Health Care
Properties 72, L.P. substantially identical to Exhibit 10.40 as follows:
1. Long Term Care Facility Management Agreement dated January 31, 1997 for
Farmington Hills, Michigan facility.
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EXHIBIT 10.41
<PAGE>
CONTRACT FOR THERAPY PROGRAM SERVICES
THIS AGREEMENT is made and entered into by and between Paragon, Inc. as
independent contractor, a Tennessee corporation (hereinafter referred to as
"Paragon"), and Americare Corporation a Florida corporation (hereinafter
referred to as "Owner").
WHEREAS, Paragon is in the business of providing rehabilitative therapy services
in health care facilities in the United States; and
WHEREAS, Owner is the owner of a nursing care facility located at Cedar Hills
Nursing Center, 2061 Hyde Park Road, Jacksonville, FL 32210 (such facility being
referred to herein as the "Treatment Facility"); and
WHEREAS, Owner desires to establish a coordinated, comprehensive, totally
integrated therapy rehabilitation program (hereinafter referred to as the
"Program") at the Treatment Facility; and
WHEREAS, Owner, having limited expertise, personnel or experience in the
operation of such a Program, desires to have Paragon provide therapists and the
appropriate Program personnel (non-therapists) for the Program under authority
vested in the Owner; and
WHEREAS, Paragon has agreed to provide therapists and Program nontherapist
personnel 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 terms shall have the
meanings assigned below:
(a) "Agreement" means this Contract For Therapy Program Services.
(b) "Commencement Date" means that date established as the beginning of
the term of this Agreement pursuant to paragraph 6 hereof.
(c) "Owner" means Americare Corporation, a Florida corporation.
(d) "Paragon" means Paragon, Inc., a Tennessee corporation.
(e) "Program" means a comprehensive rehabilitation therapy program
consisting of the three disciplines of physical therapy,
speech-language pathology and occupational therapy and the
integration of those services to achieve
<PAGE>
the maximum potential for which each rehabilitation patient is
capable of achieving.
(f) "Treatment Facility" means the Cedar Hills Nursing Center.
2. Nature of Commitment. Paragon shall make qualified Program 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 Paragon
(a) Services from Therapists
Paragon shall provide Services to the Owner's patients who request
that Services be provided by Paragon, 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 Paragon 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 Paragon will also participate in the
Treatment Facility's inservice educational training programs as
reasonably requested.
(c) Specialized Equipment or Supplies
In addition to the provision of therapists as provided for herein,
Paragon shall assume responsibility for the furnishing and the
maintenance in good repair of any special equipment or supplies
(general rehabilitation department equipment and supplies that can
and/or will be used for the benefit of the department, versus those
used specifically for an individual patient) which it determines to
be appropriate to its physical, occupational, and speech-language
therapy treatments rendered pursuant to this Agreement and any such
specialized equipment or supplies shall remain the property of
Paragon, The special equipment and supplies described in this
paragraph are not to be confused with
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standard equipment for delivery of physical therapy as outlined in
paragraph 4.(b) of this Agreement, All consumable/disposable
supplies necessary for the delivery of Services pursuant to Schedule
A attached hereto shall be the responsibility of Paragon,
Consumable/disposable supplies do not include specialized equipment
and/or prosthesis specifically fitted or designed for an individual
patient. Items so described above for individual patients will be
the responsibility of the Owner.
(d) Statement of Qualifications
Paragon shall submit to Owner a copy of each therapist's license who
is to provide Services to Owner's patients on behalf of Paragon,
Owner shall have the right to disapprove of any individual who is to
render Services to Owner on behalf of Paragon pursuant to this
Agreement, and to request that Paragon use its best efforts in
responding to such requests.
(e) Record Maintenance
Paragon's 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) Services from Non-Therapist Personnel
Paragon shall provide personnel necessary to support the operation
of the Program as further described below:
(i) General Program Responsibilities
Paragon's personnel shall assist the Owner in the direction of
the Program in a manner which will fulfill the objectives
established for the Program by the Owner and provide the
Treatment Facility the necessary resources to comply with both
federal and state guidelines for documentation and achievement
of goals for patients of the Program. The job descriptions
outlined in this Agreement for each position depict the duties
approved by the Owner as a guideline for achievement of the
objectives for the Program.
(ii) Specific Program Responsibilities
Paragon's responsibility is to provide the following personnel
who will perform the job duties as outlined below for the
Program:
3
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A. Program Personnel
Paragon shall provide a Program Rehabilitation
Coordinator and a Program Transcriptionist on-site at
the Treatment Facility. Additionally, Paragon will
engage the services of a physician to function as
Program Medical Coordinator and he/she will function in
this role under the rules and regulations of the
Program. Paragon anticipates that the time requirements
of these personnel will vary in proportion to the level
of therapy activity conducted for the Treatment
Facility's patients. Paragon agrees to provide these
personnel in sufficient time components to fulfill
Paragon's responsibilities under this Agreement. The
responsibilities outlined in this Agreement for each
level of personnel represent a job description for each
position in conformity with the needs and direction of
Owner.
Paragon agrees to support these Paragon personnel with
ongoing training, personnel, and employee benefit
programs that are necessary in Paragon's determination
to achieve the job description components, Also, Paragon
agrees to provide the related personal computer,
software, fax and telephone assets that these Paragon
personnel need to perform their related job
requirements. The determination of these capital assets
requirements is solely that of Paragon management.
It is expressly understood that Paragon personnel will
not provide any services or be responsible for any
services outside of the Program and will not be
responsible for other normal administrative and medical
record functions related to the applicable patients'
routine nursing care, nursing and rehabilitation medical
records, nursing and rehabilitation billing and other
administrative functions at the Treatment Facility level
related to the Program.
B. Program Services which Paragon will Provide through the
Program Rehabilitation Coordinator:
(1) The Program Rehabilitation Coordinator will
function as the coordinator of the Program at the
Treatment Facility in
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order to assist the therapists and Treatment
Facility Administrator in formulation of policies
and in the implementation and evaluation of these
policies relating to the Program.
(2) The Program Rehabilitation Coordinator will attend
any meetings related to rehabilitative services
requested and maintain an open and direct line of
communication with the therapists and Treatment
Facility Administrator regarding Program
rehabilitation activities.
(3) The Program Rehabilitation Coordinator will review
the potential rehabilitation requirements of a new
patient prior to admission to the Treatment
Facility and review the rehabilitation plan of
care with the Treatment Facility Administrator,
Treatment Facility Director of Nursing, attending
physician and therapists.
(4) Paragon, through the Program Rehabilitation
Coordinator, will assist in the preparation of and
distribute such descriptive booklets, brochures or
pamphlets as may be necessary to properly inform
health care professionals and members of the
public of the services provided by the
rehabilitation Program at the Treatment Facility.
The design, layout and production cost of such
material shall be a cost to the Treatment
Facility.
(5) The Program Rehabilitation Coordinator will assist
in obtaining appropriate signatures from
physicians and therapists related to Program
orders and notes.
(6) The Program Rehabilitation Coordinator will attend
interdisciplinary care planning meetings held at
the Treatment Facility for Program patients.
(7) The Program Rehabilitation Coordinator will have
the following job duties relating to Program
personnel services:
5
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i. The recruiting, hiring, training,
promoting, assigning and discharging
of non-therapist Program personnel.
ii. Developing job descriptions for each
category of non-therapist Program
personnel.
iii. Providing a program for the
orientation and continuing education
of all nontherapist Program
personnel.
iv. Providing for necessary employee
communications within the Program.
v. The conducting of monthly, or more
often as required, staff meetings
with all Program personnel.
(8) The Program Rehabilitation Coordinator will be
responsible for reviewing Program Standards of
Practice and Outcomes:
i. Initiation, review and dissemination of
quality control standards designed to
provide for quality rehabilitation patient
care in accordance with COBRA standards.
ii. Development and implementation of Program
policies and procedures and standards of
rehabilitative care (subject to review and
approval by Owner) and evaluation of their
effectiveness through a Paragon Program
Evaluation.
iii. Development and maintenance of an
effective system of Program clinical
records and reports.
The Program Rehabilitation Coordinator will not have any
responsibilities normally included in the professional
responsibilities of therapists, such as executing
physician orders, maintaining equipment, medical
certifications, therapy training and direct therapy
care, or normally included in the responsibilities of
routine nursing care or Treatment Facility
administration.
C. Program Physician Services Provided by Paragon:
6
<PAGE>
Paragon will provide a licensed physician who will
function as the Program Medical Coordinator. The Program
Medical Coordinator is to provide a structured means
whereby a doctor of medicine will share his/her
knowledge of rehabilitation care with the rehabilitation
team, the Director of Nursing and the Medical Director
at the Treatment Facility to create a more therapeutic
milieu and to provide increased encouragement and
support to the patients, relatives and staff. The duties
and responsibilities of the Program Medical Coordinator
are outlined below:
(1) Report to the Treatment Facility Medical Director
sufficient detail regarding the general medical
components of the Program and the rehabilitation
potential and status of any individual
rehabilitation patients as requested to enable the
Treatment Facility Medical Director to fulfill
his/her overall administrative and clinical
responsibilities for all patients of the Treatment
Facility.
(2) Give medical issues guidance and direction to the
Physical Therapist, Occupational Therapist and
SpeechLanguage Pathologist as needed.
(3) Attend interdisciplinary care plan meetings held
at the Treatment Facility for patients receiving
therapy.
(4) Participate in appropriate sessions of Paragon's
in-service education programs.
(5) Provide overall physician coordination of
rehabilitation care for the Program to further
ensure the adequacy and appropriateness of the
rehabilitation services provided to patients, All
of the duties and functions ascribed to the
Program Medical Coordinator are institutional
Program responsibilities as distinct from
physician services for direct patient care.
(6) Serve as medical representative liaison between
the rehabilitation Program and the organized
medical community of the area.
7
<PAGE>
(7) Assist in the development of a monitoring
surveillance mechanism which will assure that the
rehabilitation regimen of each patient is
incorporated appropriately into the patient care
plan for that patient.
(8) Respond to any official medical review performed
by the various official surveyors and inspectors
related to rehabilitation services.
(9) Participate, with the collaboration of the other
rehabilitation professionals and administration of
the Treatment Facility, in the development of
formal rehabilitation policies and procedures for
the Treatment Facility.
D. Transcriptionist Services Provided by Paragon: Paragon,
through the services of the Program transcriptionist,
agrees:
(1) To prepare monthly clinical summaries for the
Treatment Facility administrative staff necessary
for the Treatment Facility staff to prepare all
billings of Program services to third party
payors.
(2) To maintain daily and monthly Program patient
census reports and furnish such information to the
Treatment Facility staff as requested.
(3) To maintain therapy service logs for each patient
by day and by discipline for billing and control
purposes, and report such information to the
Treatment Facility staff for further processing.
(4) To transcribe therapists notes for delivery to the
Treatment Facility's medical records department
and for the Treatment Facility staff's use for
billing to third party payors and others.
(5) To maintain an admission and discharge record of
all patients admitted to and discharged from the
rehabilitation Program and report such information
to the Treatment Facility staff as required.
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<PAGE>
(6) To maintain various Program records required by
licensing agencies and other information requested
by the Treatment Facility's staff.
(g) Invoices
Paragon shall submit to the Owner on a monthly basis an invoice for
all Services rendered during the month. Additionally, Paragon 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 Paragon 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 Paragon are set forth on Schedules B. C, D, E
and F 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 Paragon 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 Paragon's
therapy Services. These areas shall be located on the Treatment
Facility's premises and shall be adequate for Paragon'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 and totally integrated
therapy rehabilitation program.
(c) Record Maintenance
Owner shall have primary responsibility for maintaining
all patient records. Owner shall make available to
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Paragon 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 Paragon to any and all federal, state, and
local regulations pertaining to the confidentiality of patient
records. Paragon agrees to be bound by such regulations.
5. Compensation
(a) Payments
Paragon 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, E and F. Owner shall remit to Paragon payment in full for
each invoice submitted by Paragon within thirty (30) 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 in 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 five percent (5%) 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
Paragon, Owner and Paragon 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 resolutions No notice of this
late charge is required of Paragon (other than inclusion on
Paragon's invoice) and the late charge will be automatically
assessed if payment is not received by Paragon on or before the
thirty fifth (35th) day following submission date of invoice. Late
charges are not subject to the 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, E and F represent market rates
f or such Services and such market rates are consistent with Owners
investigation of market services and rates.
(b) Support for Payments by Reimbursement Sources
Paragon, at its own time and expense, shall be responsible for
defending third party payor source denials or disallowances of
reimbursement f or units of therapy services rendered by Paragon
which are based upon improper or incomplete medical records
documentation of the Service provided or a determination by a third
party payor that the units of therapy services were medically
unnecessary. Paragon must provide the necessary clinical therapy
documentation to show that the units were rendered. In the event
Owner is denied units of therapy
10
<PAGE>
charges due to the foregoing reasons, then Paragon shall initiate
action to correct the cause for the denial as outlined in paragraphs
5(c) and 5(d) of this Agreement.
(c) Notification
In the event a third party payor source notifies Owner that a unit
of therapy rendered by Paragon was not medically necessary or did
not meet the applicable conditions of coverage (the "Denial Notice")
or, if Owner is requested to supply additional therapy clinical
documentation by a third party payor source before a claim is
processed for payment ("Inquiry Letters"), Owner shall provide
Paragon with a copy of the Denial Notice and/or Inquiry Letter
within (14) business days of receipt of the Denial Notice or Inquiry
Letter. In the event Owner does not notify Paragon as outlined in
this paragraph, Owner's rights set out under paragraphs 5(b) and
5(d) will have been waived and Owner shall be responsible for
compensating Paragon for it's charges.
(d) Appeal Rights
If particular units of therapy charges are disallowed by an
insurance carrier or other agency for improper documentation or
action or inaction of Paragon as set forth in paragraph 5(b) of this
Agreement, Paragon shall be responsible for defending such
disallowance on its own time and at its own expense and shall, to
the extent authorized by law and as directed by Owner, undertake the
appeal of the disallowance on behalf of Owner, In the event Owner
loses an administrative appeal and otherwise exhausts its
administrative appeal rights, Owner shall deduct from future
payments due Paragon the underlying Paragon charges for such
services related to the denied Treatment Facility charges on a per
unit basis. However, if Owner denies Paragon the opportunity to
undertake or assist in the appeal of the disallowance as outlined in
this Agreement, Owner's rights set out in this paragraph will have
been waived.
6. Term. The term of this Agreement shall commence as of August 1, 1993
("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 ninety (90) 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
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event this contract shall terminate pursuant to such notice, but such
termination shall not impair the rights of Paragon 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 Paragon all sums
required to be paid or reimbursed to Paragon 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 its 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
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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 of 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, Paragon 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 Paragon may terminate this
Agreement, but such termination shall not be deemed a waiver of Paragon's
right to enforce the payment of sums due hereunder or to seek other
relief, either at law or in equity.
11. Insurance. Paragon agrees, during the term of this Agreement, to maintain
and provide Owner with copies of the following insurance coverages:
(a) Commercial General Liability with limits of not less than $1,000,000
per occurrence, $1,000,000 aggregate;
(b) Professional Malpractice Liability Insurance providing coverage of
all Paragon personnel provided pursuant to the terms of this
Agreement with limits of not less than $1,000,000 per occurrence and
$1,000,000 aggregate;
(c) Worker's Compensation Insurance as regulated by the laws of the
State providing coverage of all Paragon 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.
12. Indemnification: Hold Harmless
(a) Owner shall indemnify and hold Paragon harmless from and against all
claims, demands, costs, expenses, liabilities and losses (including
reasonable attorneys' fees) which may result against Paragon 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) Paragon shall indemnify and hold Owner harmless from and against all
claims, demands, costs, expenses, liabilities and losses (including
reasonable attorneys' fees) which
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may result against Owner as a consequence of any alleged
malfeasance, neglect or medical malpractice caused or alleged to be
caused by Paragon, its employees, agents, or contractors in
connection with the performance of Services pursuant to this
Agreement outlined in Schedule A.
13. Independent Contracting Parties. This Agreement is an independent contract
between Owner and Paragon. 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 a contract of employment, agency or joint
venture. It is further expressly understood that all personnel provided by
Paragon in support of the Program shall not in any manner be construed to
be employees of or contractors to the Owner, but shall be employees of or
contractors to Paragon, 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, Paragon 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 Paragon that are necessary to verify the
Services received by Owner under this Agreement.
15. Compliance with Title VI of the Civil Rights Act of 1964. Owner and
Paragon agree to be in full compliance with Title VI of the Civil Rights
Act of 1964 (P.L. 8B-352) and all requirements imposed by and pursuant to
the regulations of the United States Department of Health and Human
Services issued pursuant to that Title, so that no person in the United
States of America shall, on the grounds of race, color handicap, or
national origin, be excluded from participation in, be denied the benefits
of, or be otherwise subjected to discrimination under any program or
activity provided by Owner or Paragon.
16. Restrictive Covenant
(a) Owner Restrictive Covenant.
(i) During the term of this Agreement and f or a period of twelve
(12) months after the termination of this Agreement for any
reason whatsoever, Owner shall not, without the written
consent of Paragon, (A) employ or contract with, for services
to be delivered at the Treatment Facility or other facilities
in which Owner or principals of Owner has an interest, (a) any
individual who is currently providing or who has provided
Services to Owner on behalf of Paragon, or (b) any entity in
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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 or contractor of Paragon to terminate
his relationship with Paragon, 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 Paragon 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 Paragon is engaged, are reasonable and
necessary to protect the legitimate interests of Paragon, and
that any violation thereof would result in irreparable
injuries to Paragon, and Owner therefore acknowledges that, in
the event of violation of any of these restrictions, Paragon
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 Paragon may be entitled.
(b) Paragon 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, Paragon shall not, without the written
consent of Owner, (A) employ 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, Paragon shall not be prohibited
from rehiring any employee or independent contractor who is in
the employment of Paragon at the commencement of the term of
this Agreement, but whose employment is transferred to Owner
during the term hereof.
(ii) Paragon 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
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<PAGE>
violation thereof would result in irreparable injuries to
Owner, and Paragon 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.
17. 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 other Right, nor shall any waiver of any Right
with respect to 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,
interpretation, 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, addressed as set forth
below:
(i) If to Paragon:
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Paragon, Inc.
ATTN: Chairman
Woodmont Centre
102 Woodmont Boulevard
Suite 350
Nashville, TN 37205
(ii) If to Cedar Hills Nursing Center:
2061 Hyde Park Road
Jacksonville, Florida 32210
ATTN: Administrator
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, E and F 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, E and F 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
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<PAGE>
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 Paragon
have been duly authorized by all necessary laws, resolutions, or
corporate action, and this Agreement constitutes the valid and
enforceable obligations of Owner and Paragon in accordance with its
terms.
(j) Exclusive Forum
The parties agree that the courts of general jurisdiction in the
State of Florida and the appropriate appellate courts shall have
exclusive jurisdiction for the resolution of any and all disputes
arising under or relating to this Agreement or instruments and
documents executed and delivered pursuant to this Agreement.
(k) 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
fee.
(l) Enforceability
Should any provisions of this Agreement be unenforceable as between
the parties, such unenforceability shall not affect the
enforceability of other provisions of the Agreement.
(m) Assignment
All the 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
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(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, 1993.
PARAGON, INC.
By: /s/ Lawrence W. Lepley, Jr.
--------------------------------
Title: President
CEDAR HILLS NURSING CENTER
By: /s/ Billy Miles
--------------------------------
Title: Administrator
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SCHEDULE A
SERVICES TO BE PROVIDED
Paragon, Inc. , agrees to furnish qualified personnel as required
for the provision of the following Services:
Occupational Therapy
Speech-Language Pathology
Physical Therapy
Non-Therapist Personnel Services
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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 $22.00 per unit.
A unit of Service equals fifteen (15) minutes and represents the therapist's
time, including patient therapy, preparation of and planning for treatment 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 Paragon at any time upon
not less than thirty (30) days notice to Owner.
In the event, guidelines for the maximum reimbursement of Speech Therapy are
imposed by the Fiscal Intermediary, this contract will be void, upon notice of
denial of payment, for that reason, by the Owner to Paragon, and shall be
renegotiated based upon those guidelines.
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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 $22.00 per unit.
A unit of Service equals fifteen (15) minutes and represents the therapist's
time, including patient therapy, preparation of and planning for treatments 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 Paragon at any time upon
not less than thirty (30) days notice to Owner.
In the event, guidelines for the maximum reimbursement of occupational Therapy
are imposed by the Fiscal Intermediary, this contract will be void, upon notice
of denial of payment, for that reason, by the Owner to Paragon, and shall be
renegotiated based upon those guidelines.
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SCHEDULE D
FEE SCHEDULE - PHYSICAL THERAPY
(MEDICARE PATIENTS)
Owner agrees to pay for physical therapy performed for patients at Treatment
Facility and such fees shall be based on units of Service as set forth below:
(A) Current published Medicare approved adjusted hourly salary
equivalency physical therapy rates (as applicable for all classes of
physical therapy personnel) delivered on a unit of time basis; plus
(B) Current published Medicare approved per day travel allowance and
expense.
A unit of Service is comprised of fifteen (15) minute segments and represents
the therapist's time, including patient therapy, preparation of and planning for
treatments and preparation of reports, but exclusive of personal time for which
no charge is made. Travel allowance and expense fees are shown separate under
(B).
Additionally, actual depreciated equipment costs and, actual costs of supplies
incurred in furnishing direct services to patients will be billed to Owner as
outlined under Medicare guidelines for such items.
The schedule of Medicare fees set forth above may be changed by Paragon at any
time in accordance with Federally mandated Salary Equivalency Guidelines as
published in the Federal Register.
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SCHEDULE E
FEE SCHEDULE - PHYSICAL THERAPY
(NON-MEDICARE PATIENTS)
Owner agrees to pay for physical therapy performed for patients at Treatment
Facility and such fees shall be based on units of Service as set forth below:
Each unit of physical therapy at $22.00 per unit.
A unit of Service equals fifteen (15) minutes and represents the therapist's
time, including patient therapy, preparation of and planning for treatments 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 Paragon at any time upon
not less than thirty (30) days notice to Owner.
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<PAGE>
SCHEDULE F
FEE SCHEDULE - NON-THERAPIST PERSONNEL SERVICES
Owner agrees to pay Paragon a monthly fee equal to 4 dollars ($4) per therapy
treatment unit of service up to a maximum number of treatment units of 2900 per
month. A unit of service is comprised of fifteen (15) minute segments for
therapy by any of the three disciplines, occupational, speech and/or physical
therapy.
In the event that the scope of services required under this Agreement is changed
or there is an increase in the use of nontherapist personnel beyond what is
outlined in this Agreement, Paragon shall be entitled to increase the
compensation set forth in this Schedule F. Notice of such increases will be
submitted to Owner, along with an explanation for the change in compensation,
thirty (30) days before the scheduled effective date. However, unless Owner
agrees to increases resulting from changes in the scope of services or increased
personnel beyond what is outlined in this Agreement, no increase in charges for
such changes will be made.
In addition, on each anniversary of the date of this Agreement, the fee per
therapy treatment unit payable under this Agreement shall be increased on each
such anniversary to an amount obtained by multiplying the fee per treatment unit
(for the previous year) by a fraction, the numerator of which is the "Index" (as
hereinafter defined) for the calendar year immediately preceding such
anniversary and the denominator of which is the "Index", for the calendar year
preceding the year used for the numerator. In no event shall the fraction be
less than 1.0. For purposes of this paragraph, the "Index" shall mean the
Medical Care component of the Consumer Price Index for All Urban Consumers
(CPI-U) (1982-4 = 100) as reported by the Bureau of Labor Statistics of the
United States Department of Labor for the Jacksonville metropolitan area,
Paragon shall, following each anniversary of the date of this Agreement, submit
documentation to Owner supporting this annual increase, and such increase shall
become effective on each anniversary date.
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SCHEDULE 10.41
Paragon Rehabilitation, Inc. f/k/a Paragon, Inc. ("Paragon") has entered
into agreements substantially identical to Exhibit 10.41 as follows:
1. Contract for Therapy Program Services effective as of May 1, 1996 with
Americare Corporation for St. Petersburg, Florida facility.
2. Contract for Therapy Program Services effective as of September 7, 1994
with Americare Corporation for St. Petersburg, Florida facility.
3. Contract for Therapy Program Services effective as of February 15, 1996
with Diversicare Management Services for Sheridan, Arkansas facility.
4. Contract for Therapy Program Services effective as of February 1, 1996
with Diversicare Management Services for Hot Springs, Arkansas facility.
5. Contract for Therapy Program Services effective as of February 1, 1991
with HBA Corporation for New Smyrna Beach, Florida facility. A material detail
in which this agreement differs from Exhibit 10.41 is that non-therapist
personnel services are billed at $5.00 per unit.
6. Contract for Therapy Program Services effective as of August 1, 1993
with Waters Edge Convalescent Center for Trenton, New Jersey facility. Material
details in which this agreement differs from Exhibit 10.41 are that
non-therapist personnel services are billed at $5.00 per unit and Paragon waived
it right to the 5% late fee until the facility receives its initial Medicare per
diem adjustment.
7. Contract for Therapy Program Services effective as of October 1, 1993
with Meadowview East Geriatrics, Inc. for Whiting, New Jersey facility. Material
details in which this agreement differs from Exhibit 10.41 are that
non-therapist personnel services are billed at $9000 per month, and Paragon
waived it right to the 5% late fee until the facility receives its initial
Medicare per diem adjustment.
8. Contract for Therapy Program Services effective as of April 1, 1993
with Eden Park Management, Inc. for Stuart, Florida facility.
9. Contract for Therapy Program Services effective as of February 26, 1996
with Diversicare Management Services for Malvern, Arkansas facility.
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10. Contract for Therapy Program Services effective as of February 1, 1996
with Diversicare Management Services for Mena, Arkansas facility.
11. Contract for Therapy Program Services effective as of February 22,
1996 with Diversicare Management Services for Camden, Arkansas facility.
12. Contract for Therapy Program Services effective as of February 3, 1993
with Mease Manor, Inc. for Dunedin, Florida facility.
13. Contract for Therapy Program Services effective as of February 1, 1996
with Diversicare Management Services for Hot Springs, Arkansas facility.
14. Contract for Therapy Program Services effective as of June 1, 1995
with Senior Care Properties, as manager, for Lake Park of Madison, Florida
facility. A material detail in which this agreement differs from Exhibit 10.41
is that the maximum number of treatment units for non-therapist personnel
services is 3000 per month.
15. Contract for Therapy Program Services effective as of February 1, 1995
with THP for Knightdale, North Carolina facility. Material details in which this
agreement differs from Exhibit 10.41 are that speech-language pathology,
occupational therapy and nonMedicare patient physical therapy services are
billed at $23.00 per unit, and non-therapist personnel services are billed at
$5.00 per unit not to exceed 3000 units per month.
16. Contract for Therapy Program Services effective as of March 1, 1995
with Morris View Nursing Home for Morris Plains, New Jersey facility. Material
details in which this agreement differs from Exhibit 10.41 are that
speech-language pathology, occupational therapy and non-Medicare patient
physical therapy services are billed at $23.00 per unit and non-therapist
personnel services are billed at $5.00 per unit not to exceed 3000 units per
month.
17. Contract for Therapy Program Services effective as of July 22, 1996
with Blountstown Health Investors, L.L.C. for Blountstown, Florida facility.
Material details in which this agreement differs from Exhibit 10.41 are that
speech-language pathology and occupational therapy services are billed at $23.75
per unit, and non-therapist personnel services are billed at $5.00 per unit not
to exceed 3000 units per month.
18. Contract for Therapy Program Services effective as of February 1, 1995
with THP for Charlotte, North Carolina facility. Material details in which this
agreement differs from Exhibit 10.41 are that speech-language pathology and
occupational therapy services are billed at $23.75 per unit, and non-therapist
personnel services are billed at $15,000 per month.
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19. Contract for Therapy Program Services effective as of May 1, 1995 with
THP for Jeffersonville, Indiana facility. Material details in which this
agreement differs from Exhibit 10.41 are that speech-language pathology and
occupational therapy services are billed at $23.75 per unit, and non-therapist
personnel services are billed at $15,000 per month.
20. Contract for Therapy Program Services effective as of July 12, 1995
with THP for Carthage, North Carolina facility. Material details in which this
agreement differs from Exhibit 10.41 are that speech-language pathology and
occupational therapy services are billed at $23.75 per unit, and non-therapist
personnel services are billed at $15,000 per month.
21. Contract for Therapy Program Services effective as of August 1, 1995
with THP for Rutherfordton, North Carolina facility. Material details in which
this agreement differs from Exhibit 10.41 are that speech-language pathology and
occupational therapy services are billed at $23.75 per unit, and non-therapist
personnel services are billed at $15,000 per month.
22. Contract for Therapy Program Services effective as of May 1, 1995 with
THP for Louisville, Kentucky facility. Material details in which this agreement
differs from Exhibit 10.41 are that speech-language pathology and occupational
therapy services are billed at $23.75 per unit, and non-therapist personnel
services are billed at $15,000 per month.
23. Contract for Therapy Program Services effective as of March 13, 1992
with Cana II Corporation for Port Charlotte, Florida facility. Material details
in which this agreement differs from Exhibit 10.41 are that speech-language
pathology and occupational therapy services are billed at $26.00 per unit, and
no nontherapist personnel services are to be provided by Paragon to the
facility.
24. Contract for Therapy Program Services effective as of February 1, 1995
with Americare Corporation for Hollywood, Florida facility. Material details in
which this Agreement differs from Exhibit 10.41 are that speech-language
pathology and occupational therapy services are billed at $23.00 per unit.
25. Contract for Therapy Program Services effective as of May 15, 1995
with Holman Management for Little Rock, Arkansas facility. Material details in
which this Agreement differs from Exhibit 10.41 are that speech-language
pathology and occupational therapy services are billed at $23.75 per unit, and
non-therapist personnel services are billed at $15,000 per month.
26. Contract for Therapy Program Services effective as of October 1, 1995
with THP for Louisville, Kentucky facility. Material details in which this
Agreement differs from Exhibit 10.41 are that speech-language pathology and
occupational therapy
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services are billed at $23.75 per unit, and non-therapist personnel services are
billed at $15,000 per month.
27. Contract for Therapy Program Services effective as of February 1, 1994
with Kenbrook Associates, L.P. d/b/a Brookhaven Health Care Center for East
Orange, New Jersey facility. Material details in which this Agreement differs
from Exhibit 10.41 are that speech-language pathology, non-Medicare patient
physical therapy and occupational therapy services are billed at $24.00 per
unit, and non-therapist personnel services are billed at $5.00 per unit. In
addition, Paragon has waived its right to the 5% late fee until the facility
receives its initial Medicare per diem adjustment.
28. Contract for Therapy Program Services effective as of September 1,
1996 with NHC Limited Partnerships, Inc. for Crystal River, Florida facility.
Material details in which this agreement differs from Exhibit 10.41 are that
speech-language pathology and occupational therapy services are billed at $23.00
per unit, and the maximum number of units of non-therapist personnel services
allowed per month is 3000.
29. Contract for Therapy Program Services effective as of August 1, 1995
with THP for Hayesville, North Carolina facility. Material details in which this
agreement differs from Exhibit 10.41 are that speech-language pathology and
occupational therapy services are billed at $23.75 per unit, and non-therapist
personnel services are billed at $15,000 per month.
30. Contract for Therapy Program Services effective as of February 3, 1997
with Vencor Hospital North Florida, Inc. for Green Cove Springs, Florida
facility. Material details in which this agreement differs from Exhibit 10.41
are that this agreement is solely for non-therapy services, and the
non-therapist personnel services are billed at $15,000 per month.
31. Contract for Therapy Program Services effective as of February 3, 1997
with Vencor Hospital of Tampa for Tampa, Florida facility. Material details in
which this agreement differs from Exhibit 10.41 are that this agreement is
solely for non-therapy services, and the non-therapist personnel services are
billed at $15,000 per month.
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EXHIBIT 10.42
<PAGE>
AGREEMENT FOR REHAB PROGRAM MANAGEMENT SERVICES
THIS AGREEMENT ("Agreement") is made as of this 9th day of April, 1996 by and
between Paragon Rehabilitation, Inc., a provider of rehab program management
services, contractor (hereinafter referred to as "CONTRACTOR"), and Wilora Lake
Healthcare Center (hereinafter referred to as "FACILITY").
DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
assigned below:
(a) "Agreement" means this Agreement For Rehab Program Management Services
(b) "Direct Therapy Services Agreement" means the agreement for the provision
of therapy services consisting of the disciplines of occupational therapy,
physical therapy, speech-language pathology, and/or audiology
(b) "Commencement Date" means that date established as the beginning of the
term of this Agreement.
(c) "Rehab Program Management Services" means the coordination and integration
of those direct therapy services to achieve the maximum potential benefit
for each rehabilitation patient. This includes Rehab Program Management
and Program Support Services.
ARTICLE I
OBLIGATIONS OF CONTRACTOR
01 Services By Contractor
(a) All services shall be furnished in accordance with applicable
requirements of federal and state laws, and the applicable policies
of the FACILITY, any third-party payors and CONTRACTOR.
(b) All services shall be rendered in a competent, efficient and
satisfactory manner, in compliance with professional standards.
(c) CONTRACTOR shall maintain adequate personnel to perform the services
required to be performed by it under this Agreement, and shall
provide FACILITY with copy of current license and/or registration
and renewal and upon request, provide FACILITY with the
qualifications of a particular employee.
02 Access to Books, Records, and Documents
Until the expiration of four (4) years after the furnishing of services
pursuant to this Agreement, CONTRACTOR agrees to make available to the Secretary
of Health and Human Services and the U-S- Comptroller General or to any of their
duly authorized representatives, this Agreement and all books, documents, and
records necessary to certify the nature and extent of the costs of those
services.
03 Exclusivity
CONTRACTOR shall be the exclusive agent under this Agreement to provide
Rehab Program Management Services under the terms and conditions of this
Agreement.
<PAGE>
04 Services from Rehabilitation Program Management
(a) CONTRACTOR shall provide a Rehab Program Manager and Rehab Program
Support services to coordinate the provision of rehabilitative
services at the FACILITY. CONTRACTOR anticipates that the time
requirements to deliver the stated service will vary in proportion
to the level of rehabilitation conducted for the FACILITY's
patients. CONTRACTOR agrees to provide these services in sufficient
time components to fulfill CONTRACTOR's responsibilities under this
Agreement.
(b) The Rehab Program Manager shall function as the coordinator of the
program and has responsibilities in the following areas:
(i) attending meetings related to the rehabilitative services,
(ii) reviewing the potential rehabilitation requirements of a
prospective patient prior to admission,
(iii) coordinating and implementing quality standards, outcome
measurement and program evaluation for the rehabilitative
services provided,
(iv) assuring conformance with applicable federal, state and
accrediting body standards and requirements, and
(v) consulting and training in documentation supporting
rehabilitation, clinical review and/or accreditations.
(c) The Rehab Program Support services include the following:
(i) Rehab Physician consultations
(ii) recruiting, hiring and retaining therapy staff
(iii) quality control and patient care criteria for rehab services
(iv) quarterly written progress reports to the FACILITY on the
effectiveness of its rehab program
(v) quarterly outcome reports
(vi) restorative nursing and rehab nursing training and inservices
(vii) CONTRACTOR supervisory staff services
(viii) rehab office equipment such as facsimile machine, computer and
modem connection, telephone service, copy service, etc.
(d) It is expressly understood that CONTRACTOR's personnel will not
provide any services or be responsible for any services outside of
the rehabilitation program and will not be responsible for other
normal administrative and medical record functions related to the
applicable patients' routine nursing care, nursing and
rehabilitation medical records, nursing and rehabilitation billing
and other administrative functions at the FACILITY level related to
the rehabilitative services program.
05 Equipment and Supplies
CONTRACTOR agrees to supply, consumable disposable office supplies
necessary to coordinate the rehabilitative services program.
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ARTICLE II
OBLIGATIONS OF FACILITY
06 Control and Direction
FACILITY, acting by and through its duly authorized officers and
employees, shall at all times be responsible for and exercise overall control
and direction of the rehabilitative services program.
07 Patient Information
FACILITY shall furnish CONTRACTOR with information, assistance,
documentation and cooperation which may be required or appropriate for
CONTRACTOR to fulfill its respective duties and responsibilities under this
Agreement and any applicable federal and state laws.
08 Control and Responsibilities
FACILITY is the provider of services and as such, shall exercise
supervision and control over all services furnished which shall include
accepting rehabilitation patients for treatment in accordance with admission
policies established by the FACILITY for such services.
ARTICLE III
TERM OF AGREEMENT
09 Term
This Agreement shall begin on the 1st day of May, 1996 ("Commencement
Date") and shall continue to be in effect in conjunction with the Direct Therapy
Services Agreement.
ARTICLE IV
OBLIGATIONS OF BOTH PARTIES
010 Indemnification and Limitations
(a) Indemnification: Hold Harmless
(i) CONTRACTOR shall be responsible for the rehabilitative
services furnished to the patients of FACILITY. In the event
FACILITY shall suffer any loss as a result of the actions of
CONTRACTOR's personnel in the provision of rehabilitative
services, CONTRACTOR shall indemnify and hold FACILITY
harmless from that loss.
(ii) FACILITY shall be responsible for the actions of its personnel
and patients/residents and shall indemnify and hold CONTRACTOR
harmless from any loss it might suffer as a result of the
actions or failure to act by the personnel or
patients/residents of FACILITY.
(b) Limitations
Notwithstanding anything in this paragraph or any other provision of
this Agreement to the contrary, the aggregate amount of any damages,
fees, expenses. losses, claims, liabilities and costs for which
CONTRACTOR shall be liable pursuant to these indemnification
provisions or otherwise as a result of its breach of or default
under this Agreement shall be limited to the total amount of the
consideration actually paid to CONTRACTOR pursuant to the terms of
this Agreement.
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011 Independent Contracting Parties
This Agreement establishes an independent contract or relationship between
FACILITY and CONTRACTOR. 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 a contract of employment, agency or joint venture. It is further
expressly understood that all personnel provided by CONTRACTOR in support of the
Rehabilitation Program shall not in any manner be construed to be employees of
or contractors to the FACILITY, but shall be employees of or contractors to
CONTRACTOR, 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
subcontractors.
012 Compliance with Title VI of the Civil Rights Act of 1964
FACILITY and CONTRACTOR agree to be in full compliance with Title VI of
the Civil Rights Act of 1964 and all requirements imposed by and pursuant to the
regulations of the United States Department of Health and Human Services issued
pursuant to that Title, so that no person in the United states of America shall,
on the grounds of race, color, disability, or national origin, be excluded from
participation in, be denied the benefits of, or be otherwise subjected to
discrimination under any program or activity provided by FACILITY or CONTRACTOR.
ARTICLE V
PAYMENTS
013 Fee schedule
(a) Monthly Fee
CONTRACTOR shall be paid a monthly fee of $15,000.00 by FACILITY for
the services identified in this Agreement. This fee is based on the
equivalent to the average Salary for a Rehab Program Manager which
includes recruiting and placement fees, training, supervision,
employee compensation, and benefits package and Program Support
Services.
The schedule of fees set forth above may be changed by CONTRACTOR at
any time upon not less than thirty (30) days written notice to
FACILITY. Notice of such changes will be submitted to FACILITY with
an explanation for the change, at least thirty (30) days prior to
the scheduled effective date. The changes will be implemented on the
scheduled effective date unless the FACILITY objects to the change
in writing before the scheduled effective date.
(b) Payment Documentation
CONTRACTOR shall submit an invoice for services rendered during the
month to the FACILITY on a monthly basis.
(c) Payment Terms
FACILITY shall pay CONTRACTOR for all services rendered by
CONTRACTOR, within thirty (30) days from the date of invoice.
(d) Disallowed Payments
CONTRACTOR will indemnify FACILITY for any portion that is
disallowed by Medicare.
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ARTICLE VI
INSURANCE
014 Insurance
CONTRACTOR 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 and $3,000,000 aggregate;
(b) Professional Malpractice Liability Insurance providing coverage of
all CONTRACTOR personnel provided pursuant to the terms of this
Agreement with limits of not less than $1,000,000 per occurrence and
3,000,000 aggregate; and
(c) Workers Compensation Insurance as regulated by the laws of the State
providing coverage of all CONTRACTOR personnel provided pursuant to
the terms of this Agreement.
ARTICLE VII
NON-DISCLOSURE AND CONFIDENTIALLY
015 Non-Disclosure and Confidentiality
(a) FACILITY hereby acknowledges that CONTRACTOR in the future may make
disclosures to FACILITY of certain confidential and proprietary
information and materials related to, or in connection with
CONTRACTOR and its business and operations. The contents of all such
disclosures, explanations and any writings and materials related
thereto whether or not prepared by CONTRACTOR, are deemed
CONTRACTOR's proprietary information.
(b) In addition to all other remedies available to CONTRACTOR at law or
in equity, CONTRACTOR shall have the right to enforce the provisions
of this Article VIII by injunctive relief against the party
wrongfully disclosing such information or against any other third
party to whom the information is disclosed.
ARTICLE VIII
MISCELLANEOUS COVENANTS
016 Assignment
Except as otherwise provided in this Agreement, neither party shall assign
their respective rights, duties and/or obligations under this Agreement without
the prior written consent of the other party. Subcontractors may be used by
CONTRACTOR as it deems appropriate or necessary.
017 Binding Agreement
The terms, covenants, conditions, provisions and agreements herein
contained shall be binding upon and inure to the benefit of the parties hereto,
and their successors and permitted assigns. Except as provided in this
Agreement, no other part may be contracted with by FACILITY to furnish
rehabilitation services during the term of this Agreement.
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018 Notices
All notices, demands and requests contemplated or required to be given
hereunder by either party to the other shall be in writing, and shall be
delivered by certified mail, postage prepaid, return receipt requested, or by
personal delivery or courier, with acknowledgment of delivery:
(a) If to CONTRACTOR:
Paragon Rehabilitation, Inc.
3100 West End Ave, Suite 470
Nashville, TN 37203
ATTN: President/CEO
(b) If to FACILITY:
Wilora Lake Healthcare Center
6001 Wilora Lake Road
Charlotte, NC 28212
ATTN: Administrator
or to such other address or to such other person as may be designated by
notice given from time to time during the term by one party to the other. Any
notice, demand or request hereunder 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.
019 Entire Agreement, Amendment
This Agreement, together with its schedules, contains the entire agreement
between the parties with respect to the subject matter hereof, and no prior oral
or written representations or agreements between the parties shall be of any
force and effect. Any additions, amendments or modifications to this Agreement
shall be of no force and effect unless in writing and signed by both parties.
020 Governing Law
This Agreement has been executed and delivered in the State of Georgia and
all terms and provisions hereof and the rights and obligations of the parties
hereto shall be construed and enforced in accordance with the laws thereof.
021 Captions and Heading
The captions and headings throughout this Agreement are for convenience of
reference only, and the words contained therein shall in no way be held or
deemed to define, limit, describe, explain, modify, amplify or add to the
interpretation construction or meaning of any provision of, or the scope of
intent of, this Agreement nor in any way effect this Agreement.
022 Costs and Expenses
All fees, costs, expenses, debt, and other obligations incurred by a party
in connection with the performance of its services under this Agreement shall be
borne by that party, except as expressly provided herein to the contrary.
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023 Authorization of Agreement
All parties represent and warrant, each to the other, that the execution
and delivery of this Agreement has been duly authorized by each party.
024 Enforceability
If a provision hereof or the application thereof to any person or
circumstance shall, to any extent, be invalid or unenforceable, the remainder
hereof, or the application of such provision to person or circumstances other
than those as to which it is held invalid or unenforceable shall not be affected
thereby, and each provision hereof shall be valid and be enforced to the fullest
extent permitted by law, provided that the parties shall exercise their best
efforts to accommodate the terms and intent of this Agreement to the greatest
extent possible consistent with the requirements of law.
8.10 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 other Right, nor
shall any waiver of any Right with respect to 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.
8.11 Number of Days
In computing the number of days for purposes of the Agreement, unless
otherwise stated, 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.
8.12 Attorneys 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.
IN WITNESS WHEREOF, the parties hereto have executed sealed and delivered this
Agreement through their duly authorized representatives, as of the day and year
first above written.
By: /s/ Lawrence W. Lepley
-------------------------------------
Title: President
FACILITY: Wilora Lake Healthcare Center
By: /s/ Kenneth Edwards
-------------------------------------
Title: Administrator
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SCHEDULE 10.42
Paragon has entered into agreements substantially identical to Exhibit
10.42 as follows:
1. Agreement for Rehab Program Management Services effective as of April
22, 1996 with Tri-State Health and Rehab Center.
2. Agreement for Rehab Program Management Services effective as of June 1,
1996 with THS of Kannapolis.
3. Agreement for Rehab Program Management Services effective as of January
1, 1997 with Royal Terrace Nursing and Rehab Center.
4. Agreement for Rehab Program Management Services effective as of May 1,
1996 with Evangeline of King.
5. Agreement for Rehab Program Management Services effective as of April
1, 1996 with Montclair Nursing Center.
6. Agreement for Rehab Program Management Services effective as of June 1,
1996 with THS of Charlotte.
7. Agreement for Rehab Program Management Services effective as of April
1, 1996 with Evangeline of Woodfin.
8. Agreement for Rehab Program Management Services effective as of April
1, 1996 with Evangeline of Lenoir.
9. Agreement for Rehab Program Management Services effective as of May 1,
1996 with THS of Cary.
10. Agreement for Rehab Program Management Services effective as of June
1, 1996 with Evangeline of Archdale. A material detail in which this agreement
differs from Exhibit 10.42 is that Paragon is paid a monthly fee of $12,000.
11. Agreement for Rehab Program Management Services effective as of July
1, 1996 with Pinewood Care Center. A material detail in which this agreement
differs from Exhibit 10.42 is that Paragon is paid a monthly fee of $12,000.
12. Agreement for Rehab Program Management Services effective as of
December 5, 1996 with The Health and Rehabilitation Centre at Dolphins View. A
material detail in which this agreement differs from Exhibit 10.42 is that
Paragon is paid a monthly fee of $12,000.
13. Agreement for Rehab Program Management Services effective as of June
1, 1996 with Evangeline of Albemarle. A material detail in which this agreement
differs from Exhibit 10.42 is that Paragon is paid a monthly fee of $12,000.
14. Agreement for Rehab Program Management Services effective as of August
1, 1996 with Libby Care Center. A material detail in which this agreement
differs from Exhibit 10.42 is that Paragon is paid a monthly fee of $8,000.
15. Agreement for Rehab Program Management Services effective as of March
1, 1996 with Grant Park Care Center.
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16. Agreement for Rehab Program Management Services effective as of July
1, 1996 with The Oaks at Sweeten Creek. A material detail in which this
agreement differs from Exhibit 10.42 is that Paragon is paid a monthly fee of
$12,000.
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EXHIBIT 10.43
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DIRECT THERAPY SERVICES AGREEMENT
THIS DIRECT THERAPY SERVICES AGREEMENT ("Agreement") is made as of this 10th day
of May, 1996 by and between Paragon Rehabilitation, Inc., a provider of rehab
therapy services, (CONTRACTOR), having its principal place of business at 3100
West End Ave, Suite 470, Nashville, TN 37203 and ______________d/b/a Evangeline
of Abemarle doing business at 620 Heatwood Drive, Abemarle, NC 28001
("FACILITY").
RECITALS:
WHEREAS, Facility finds that patients are increasingly seeking admission to
Facility with requirements for comprehensive, interdisciplinary physical,
occupational and speech therapy services ("rehabilitation services" or
"Services");
WHEREAS, Facility desires to provide efficient and effective rehabilitation
services to patients who require such care;
WHEREAS, Facility desires to maintain compliance with the requirements of
applicable laws, and applicable state and Federal survey and certification
requirements that Facility provide care that will ensure that each patient
achieves the highest practicable physical, mental and psychosocial well being;
WHEREAS, Facility recognizes its responsibility to be a prudent buyer of
rehabilitation services; and
WHEREAS, Facility has reviewed the rates and services of other contract
providers of rehabilitation services and finds Contractor's rates to be
reasonable, considering the patients to be treated, the staffing required, the
scope of necessary rehabilitation services, and the quality of Contractor's
rehabilitation services.
IN CONSIDERATION of the above premises, the promises contained herein, and other
good and valuable consideration, the receipt and sufficiency of which the
parties acknowledge, the parties agree to be legally bound as follows:
ARTICLE I
NATURE OF ARRANGEMENT
Contractor shall hire and retain qualified, licensed and certified therapists
and other affiliated providers ("Therapists") to perform rehabilitation services
listed on Schedules A, B. and C attached hereto and incorporated herein
("Services") for the Facility's patients.
ARTICLE II
DUTIES AND OBLIGATIONS OF CONTRACTOR
2.1 Services. Contractor shall provide rehabilitation services as they
relate to therapy, to patients of the Facility pursuant to a plan of treatment
prescribed by the patient's physician, through Therapists pursuant to the terms
and conditions of this Agreement and in accordance with any and all applicable
requirements of Federal and state laws, rules and regulations. All Services
rendered by Contractor hereunder shall be in accordance with the requirements of
participation and reimbursement coverage requirements imposed by applicable
governmental and other third party reimbursement sources. Contractor shall
commence rendering Services pursuant to this Agreement as set forth in the
Schedules A, B, and C attached hereto.
2.2 Conferences: Training. Therapists rendering Services at the Facility
shall participate in staff meetings and conferences in accordance with
Facility's policies, for the purpose of discussing Facility's patient care
policies, plans of treatments generally, and common patient treatment problems
or issues. In addition, Therapists rendering Services at the Facility shall
advise and participate in appropriate in-service educational training programs
as may be required by state and Federal guidelines.
<PAGE>
2.3 Equipment and Supplies. Equipment and/or supplies owned or customary
stocked by Facility and which are necessary for rehabilitation services may be
used by Contractor. Should Contractor determine that certain equipment or
supplies are needed at the Facility, contractor shall so advise the Facility and
the Facility Administrator shall consider Contractor's recommendation for
purchase but shall not be obligated to act on it. If Contractor offers to supply
equipment or supplies, such arrangements shall be made on a request by request
basis and approved only by the Facility Administrator on behalf of the Facility.
2.4 Statement of Qualification. Contractor shall submit to Facility a
statement of the qualifications and experience of each Therapist who is to
provide rehabilitation services to Facility's patients on behalf of Contractor
and copies of current certificates, licenses and/or registrations and renewals.
Facility shall have the absolute right to disapprove of any Therapist who is to
render services to patients of the Facility on behalf of Contractor pursuant to
this Agreement, and to require that Contractor immediately replace such
Therapist with another Therapist.
2.5 Record Maintenance. Contractor shall provide, maintain and sign
written documentation on the individual patient charts of treatment, progress
and evaluations in accordance with requirements of the Facility and of Federal
and state governmental agencies or other third party reimbursement sources and
shall promptly incorporate such written documentation into the clinical records
of Facility's patients and otherwise as is proscribed from time to time by the
Facility. Additionally, Contractor shall maintain records as set forth in
Article IX, hereof.
2.6 Notification by Contractor. Contractor shall provide prompt
notification to Facility if it cannot provide rehabilitation services or
Therapists in a timely fashion so that the Facility can arrange alternate
sources for these services.
2.7 Preservation of Licenses. Contractor shall not knowingly take any
action or fail to take any action which may:
(a) cause any governmental authority having jurisdiction over the
operation of Facility to institute any proceeding for the
rescission or revocation of any necessary license, permit,
consent or approval; or
(b) adversely affect Facility's right to accept and obtain
payments under Medicare, Medicaid, or any other public or
private third party medical payment program.
2.8 Consulting. Contractor shall act as an consultant to the Facility with
regards to the rehabilitation program and will make recommendations to the
Facility, assist in implementation of such recommendations and maintain an
ongoing assessment of progress to facilitate compliance by the Facility with all
governmental or third party payor requirements. Written reports will be
submitted by Contractor as may from time to time be reasonably required by
Facility or applicable law.
ARTICLE III
DUTIES AND OBLIGATIONS OF FACILITY
3.1 Billing. Facility shall be solely responsible for billing patients
and/or their respective governmental or other third party reimbursement sources
for Services provided to the patients by Contractor.
3.2 Space and Equipment. Facility shall, at its sole expense, set aside a
designated work and storage area, adequate for provision of therapy services,
inside Facility's premises where Contractor's Therapists can provide the
Services required under this Agreement. The maintenance of the designated area
or space shall be the sole responsibility of Facility. Standard equipment and
supplies required for provision of therapy services shall also be provided and
maintained in good repair by Facility. All additional equipment requested by
Contractor shall be provided only if agreed upon by the Facility Administrator.
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3.3 Record Maintenance. Facility shall have primary responsibility for
maintaining all patient records, including coordinating the transmittal of
information required by Contractor for orderly and efficient delivery of
services and applicable administrative transactions. Facility shall make
available to Contractor for review and inspection, upon request, individual
patient treatment records necessary for the proper evaluation, screening and
treatment of, and provision of Services to, such patient. Contractor agrees to
respect and abide by any and all Federal, state and local regulations pertaining
to the confidentiality of patient records. Facility's responsibility for
maintaining patient records shall not be deemed by Contractor to relieve
Contractor of any of its responsibilities to maintain records as set forth in
Article IX, hereof.
ARTICLE IV
COMPENSATION
4.1 Fee Schedule. Facility shall compensate Contractor for Services
rendered to Facility's patients in accordance with attached Schedules A, B, and
C subject to section 4.4, hereof Contractor shall not bill any patient or any
governmental entity or other third party reimbursement sources for services
rendered to a patient pursuant to the Agreement, except as may be required by
applicable Federal or state law, rules or regulations.
4.2 Invoices. Contractor shall submit to Facility within three (3)
business days after the end of each month an invoice for the Services rendered
to each Facility patient during the latest service period. Support for the
monthly invoices shall include, among other things, (a) the name(s) of the
Therapist(s) who provided the Services; (b) the name(s) of the patients to whom
the Services were provided and the number of units of service provided to each
patient and the total applicable charges by patient; and (c) number of units and
total applicable charges relating to staff meetings, conferences and training
and; (d) such other information as Facility may require.
4.3 Payment. Subject to the provisions of Section 4.4, Facility shall
remit payment in full to Contractor as shown on each invoice within thirty (30)
days of the receipt of the Contractor's invoice.
4.4 Medicare Denials.
(a) General and Escrow. In the event that the Medicare fiscal
intermediary, through a denial notice or Notice of Amount of
Medicare Program Reimbursement ("NPR"), notifies the Facility
that rehabilitation services rendered did not meet the
applicable conditions of coverage, or that the charges for
Services provided by Contractor are deemed to exceed the
usual, customary and reasonable charges for said Services, or
that the charges for Services provided by Contractor are
deemed to exceed any applicable salary equivalency caps
(collectively, a "disallowance"), Facility shall provide
Contractor with a copy of the denial notice or NPR.
Contractor, within ten (10) business days after receiving a
copy of said denial notice or NPR, shall pay to an escrow
agent reasonably acceptable to Facility (the "Escrow Agent")
an amount equal to the total amount of disallowance listed in
the denial notice or NPR (the "Escrow Amount") for amounts
over $10,000.00. For denial notice or NPR amounts equal or
less than $10,000.00, Contractor shall pay Facility directly
within ten (10) business days after receiving a copy of said
denial notice or NPR and Facility shall assign any of its
rights to payment up to $10,000.00 to Contractor. Contractor
agrees to execute an escrow agreement with Escrow Agent which
provides for release of the Escrow Amount in accordance with
Section 4.4(b) below without any further action on the part of
Contractor required for release of the Escrow Amount.
(b) Appeal and Release of Escrow Amount. If a particular service
provided by Contractor is disallowed, in full or in part by
the Medicare fiscal intermediary, and the Escrow Amount is
properly forwarded to the Escrow Agent as set forth in 4.4(a)
above, Contractor shall, at its option, be responsible for
disputing such disallowance on its own time and its own
expense and shall, to the extent authorized by law, undertake
the entire appeal of the disallowance as the representative of
the Facility. Contractor, with the
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written concurrence of Facility, may compromise or settle the
disallowance for the account and on behalf of the Facility. In
connection with such dispute, Facility shall cooperate with
Contractor and its representatives and provide reasonable
access to any of its relevant books and records. Facility
shall execute any reasonable authorizations required for
Contractor and Contractor's counsel to prosecute the appeal in
the name of Facility. In the event the denial notice or NPR is
not appealed on a timely basis or the administrative appeal is
not settled within six (6) months, Facility shall be entitled
to the full Escrow Amount and Contractor agrees to fully
cooperate with Facility and Escrow Agent to cause the release
of the Escrow Amount to Facility.
(c) Default and Cross Default. If Contractor fails to pay Facility
or fund the Escrow Amount in accordance with the provisions of
this Section 4.4, Facility and all of its affiliates shall not
be obligated to pay Contractor any fees owed to Contractor
under this Agreement or under any other agreement executed for
the benefit of Contractor by any affiliate or affiliated
operator of Facility or WelCare International, Inc. or their
successors.
ARTICLE V
TERM OF CONTRACT
5.1 Term. The term of this Agreement shall commence as of the date hereof
and shall continue in full force and effect for an initial term of five ( 5 )
years. Unless either party elects to terminate this Agreement at the end of the
original or any renewal term by giving written notice, in accordance with
Section 11.3 of this Agreement, to the other party at least thirty (30) days
prior to the expiration of the then-current term, this Agreement shall be deemed
to have been automatically renewed for successive five (5) year periods.
5.2 Termination. This Agreement may be terminated for any reason
whatsoever by either party upon thirty (30) days prior written notice, in
accordance with Section 11.3 of this Agreement.
ARTICLE VI
INSURANCE
6.1 General Coverage. Contractor shall submit to Facility, within 30 days
of the date Contractor commences performing under this Agreement, a certificate
of insurance from a licensed insurance broker indicating the Contractor has
purchased, at its expense, appropriate coverage insuring the Facility for all of
the following:
(a) professional liability insurance with minimum liability limits
of $1,000,000 for each incident and $3,000,000 aggregate;
(b) general liability insurance, including personal injury on
death and property damage (including theft of or damage to
patient's property) in the combined single unit of not less
than $1,000,000.00; and
(c) worker's compensation, employer's liability or similar
insurance for the Therapists as required by applicable law.
6.2 Continuation, Cancellation and Updates. Such policies of insurance
shall be maintained throughout the term of this Agreement and shall provide that
the insurance company may not cancel any policy of insurance without providing
Facility ten (10) days advance written notice. Facility may request a
certificate from Contractor's licensed insurance broker from time to time.
ARTICLE VII
INDEMNIFICATION
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7.1 Contractor Indemnification. Facility shall indemnify and hold
Contractor harmless from and against all claims, demands, costs, expense,
liabilities and losses (including reasonable attorneys' fees) which may result
as a consequence of any alleged malfeasance, negligence or medical malpractice
caused or alleged to be caused by Facility, its employees, agents or
contractors.
7.2 Facility Indemnification. Contractor shall indemnify and hold Facility
harmless from and against all claims, demands, costs, expenses, liabilities and
losses (including reasonable attorneys' fees), which may result against Facility
as a consequence of any alleged malfeasance, negligence or medical malpractice
caused or alleged to be caused by Contractor, Therapists, its employees, agents
or contractors.
ARTICLE VIII
INDEPENDENT CONTRACTING PARTIES
This Agreement is an independent contract between Facility and Contractor.
Neither party shall be construed in any manner whatsoever to be an employee,
agent partner, joint venturer or lease party of the other, nor shall this
Agreement be construed as such. Nothing in this Agreement shall be construed as
limiting or restricting in any manner Contractor's right to render the same or
similar services as those covered by this Agreement to other individuals and
entities, including, but not limited to, other nursing home and acute care
facilities. There are no other relationships or agreements related to this
Agreement other than those specified herein.
ARTICLE IX
ACCESS TO RECORDS AND INFORMATION
9.1 General. Contractor agrees to keep and maintain records of services
rendered by Contractor to Facility's patients in order to meet the requirements
of any fiscal intermediary, Federal, state or local government agency, or other
party, as reasonably requested by Facility, to whom billings for Contractor's
Services are submitted. Contractor agrees to make all records of Facility's
patients to whom Contractor has rendered Services available from time to time
for Facility's inspection.
9.2 Specific Current Records and Information to be Maintained. For the
purpose of implementing Section 186 1 (v)(1)(I) of the Social Security Act, as
amended, and any written regulations thereto, Contractor agrees to comply with
the following statutory requirements governing the maintenance of documentation
to verify the cost of services rendered under this Agreement:
(a) until the expiration of four (4) years after the furnishing of such
services pursuant to this Agreement, upon written request,
Contractor shall make available to the Secretary of Health and Human
Services ("Secretary of HHS") or to the Comptroller General of the
United States ("Comptroller General"), or any other Federal or state
agency having authority or responsibility for the payments for or
supervision of Contractor's services, or any of their duly
authorized representatives, all contacts, books, documents and
records of Contractor that are necessary to certify the nature and
extent of such costs; and
(b) if Contractor carries out any of the duties of the contract through
a subcontract, with a value or cost of $10,000 or more over a twelve
(12) month period, with a related organization (as that term is
defined 42 C.F.R. Section 405.427(b), such subcontract shall contain
a clause to the effect that until the expiration of four (4) years
after the furnishing of such services pursuant to such subcontract,
the related organization or subcontractor, upon written request,
shall make available to the Secretary of HHS, or to the Comptroller
General, or any other Federal or state agency having authority or
responsibility for the payments for or supervision of Contractor's
services, or any of their duly authorized representatives, the
subcontract, books, documents and records of such organization that
are necessary to verify the nature and extent of such costs.
9.3 Notice to Other Party of Disclosure. If either party or any
subcontractor is requested to disclose any books, documents, or records,
relevant to this Agreement for any purpose of an audit or investigation, such
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party shall notify the other party as to the nature and scope of such request
and shall make available to the other party all such books, contracts or
subcontracts, documents, or records. By agreeing to the aforementioned,
Contractor and Facility do not waive any legal rights that they have with
regards to disclosure of documents or information.
9.4 Confidentiality of Patient Information. The parties agree that all
information and records obtained in the course of providing Services to the
patients in the Facility shall be subject to the confidentiality and disclosure
provisions of applicable ethical guidelines, federal and state statutes and
regulations adopted pursuant thereto.
9.5 Automatic Amendment to Agreement. If any existing or future Federal or
state laws are determined to require additional retention of documents and
records this Agreement shall be automatically amended without action required by
the parties to provide for such additional retention in accordance with Section
9.2 hereinabove.
ARTICLE X
COMPLIANCE WITH TITLE VI OF THE CIVIL RIGHTS ACT OF 1964
Facility and Contractor agree to fully comply with Title VI of the Civil Rights
Act of 1964 (P.L. 88-352), as amended, and all requirements imposed by and
pursuant to the regulations of the United States Department of Health and Human
Services issued pursuant to such Title VI, so that no person in the United
States of America shall, on the grounds of sex, race, color, handicap or
national origin, be excluded from participation in, be denied the benefits of,
or be otherwise subjected to discrimination under any program or activity
provided by Facility or Contractor.
ARTICLE XI
MISCELLANEOUS
11.1 Confidentiality. Each party hereto acknowledges that they will
receive from time to time confidential information regarding the other party.
Each party agrees to maintain any such information in confidence and not to
disclose the same to any third party except in furtherance of this Agreement.
Contractor shall not use any information gathered at Facility for any purpose
not contained in this Agreement without Facility's written permission,
including, but not limited to my general statistical presentations whether nor
not they reference Facility.
11.2 Controlling Law. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement, shall be governed by and
construed in accordance with the laws of the state of Georgia and both parties
agree that any dispute among them that arise that needs to be decided in a court
of law shall be brought in either the Federal Court, Atlanta Division of the
Northern District of Georgia or the Superior Court of Fulton County, Georgia.
11.3 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 upon actual receipt of
registered or certified mail, postage prepaid, return receipt requested, or upon
delivery by overnight mail services, addressed as set forth below:
(i) If to Contractor: Paragon Rehabilitation, Inc.
3100 West End Ave, Suite 470
Nashville, TN 37203
Attn: President/CEO
(ii) If to Facility: Evangeline of Albemarle
620 Heatwood Drive
Albemarle, NC 28001
Attn: Administrator
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With a copy to: Nelson Mullins Riley & Scarborough, L.L.P.
1201 Peachtree Street
400 Colony Square
Suite 2200
Atlanta, Georgia 30361
Attn: Paul A. Quiros, Esquire
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 Section for the giving of notice.
11.4 Assignment. Without the written consent of the other party, this
contract cannot be assigned, except to an affiliate or successor entity of
either party.
11.5 Entire Agreement and Amendment. This Agreement and the Schedule(s)
hereto contain the entire understanding between the parties hereto with respect
to the subject matter, and supersedes all prior and contemporaneous agreements
and understandings, inducements or conditions, express or implied, oral or
written. Except as stated herein, including section 9.5 hereinabove, neither
this Agreement nor the attached Schedules may be modified or amended other than
by an agreement in writing.
11.6 Incorporation. All Schedules, Exhibits, and Addenda attached hereto
are hereby incorporated by reference into, and made a part of, this Agreement.
11.7 Partial Invalidity. If any term, provision, covenant, or condition of
this Agreement is held by a court of competent jurisdiction to be invalid, void,
or unenforceable, the remainder of the provisions shall remain in full force and
effect and shall in no way be affected, impaired, or invalidated. The parties
recognize that this Agreement, at all times, is subject to applicable state,
local and Federal law including, but not limited to, the Social Security Act,
the rules and regulations and policies of the U.S. Department of Health and
Human Services, and all public health and safety provisions of state law and
regulation. The parties further recognize that the Agreement shall be subject to
any amendments in such laws and regulations. Any provisions of law that
invalidate or otherwise are inconsistent with the terms of this Agreement or
that would cause one or both of the parties to be in violation of law, shall be
deemed to have superseded the terms of this Agreement, provided, however, that
the parties shall exercise their best efforts to accommodate the terms and
intent of this Agreement to the greatest extent possible consistent with the
requirements of law.
11.8 Survival. The following provisions of this Agreement shall survive
the expiration and termination of this Agreement for any reason: Article IX and
Sections 3.3, 4.2, 4.4, 6.2, 7.1, 7.2 11.1 and 11.2.
11.9 Section Headings. The Article and section headings contained in this
Agreement are for reference purposes only and will not affect how this Agreement
is to be construed and interpreted.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement on
the data first above written.
d/b/a Paragon Rehabilitation, Inc.
By: /s/ Lawrence W. Lepley
----------------------------------------
Its: President
FACILITY: Evangeline of Albemarle
By: /s/ Steve Goings
----------------------------------------
Its: Administrator
Agreement Form Expires: May 31, 2001
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THERAPY SERVICES AGREEMENT
Schedule A
Fee Schedule - Physical Therapy
Contractor shall provide physical therapy services to Facility's patients for
the lesser of the usual, customary or reasonable charges or as follows:
Facility agrees to pay for the above services at rates specified by the Salary
Equivalency Guidelines as published in the Federal Register dated September 30,
1983 and in accordance with the requirements of Chapter 14 of the Provider
Reimbursement Manual (together the "Guidelines") based upon labor logs
documenting time in the Facility.
The rates will automatically be adjusted on the earlier of the beginning of the
Facility's new cost report fiscal year in accordance with the Guidelines or when
the Guidelines change.
The rates may also be adjusted by any additional, substitutionary or subsequent
laws or regulations to the Guidelines.
Current rates are as follows:
Physical Therapy Supervisor NA
Physical Therapist $34.84
RPTA $26.13
Physical Therapy Aide $10.71
Travel Allowance $17.42 for RPT/$13.07 for RPTA
Special TVL Allowance
Contractor will begin delivery of physical therapy services under this Agreement
as of the following date: June 1, 1996.
1. $2.50 Standard Travel Allowance should be added to the RPT and RPTA. Rates
above do not include this amount.
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THERAPY SERVICES AGREEMENT
Schedule B
Fee Schedule - Occupational Therapy
Facility agrees to pay for occupational therapy services performed for
in-patients and out-patients of Facility as follows:
Occupational Therapy Consulting Services $23.75 per unit
Each unit of service equals fifteen (15) minutes of a therapist's time,
including evaluations, delivery of patient therapy, preparation of treatment
plan, documentation, writing reports, but excluding travel and personal time for
which no charge is made.
The schedule of charges set forth above may be changed by Contractor at any time
upon thirty (30) days notice of Facility. Facility's objection to any fee
increase and failure of the parties to agree within such thirty (30) days
thereafter regarding fees will constitute "cause" for termination of this
Agreement.
Contractor will begin delivery of occupational therapy services under this
Agreement as of the following date: June 1, 1996.
9
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THERAPY SERVICES AGREEMENT
Schedule C
Fee Schedule - Language Pathology Services
Facility agrees to pay for speech or language pathology services performed for
inpatients and outpatients of Facility as follows:
Speech Therapy Consulting Services $23.75 per unit
Each unit of service equals fifteen (15) minutes of a therapist's time,
including evaluations, delivery of patient therapy, preparation of treatment
plan, documentation and writing reports, but excluding travel and personal time
for which no charge is made.
The schedule of charges set forth above may be changed by Contractor at any time
upon thirty (30) days notice to Facility. Facility's objection to a fee increase
and failure of the parties to agree within such thirty (30) days thereafter
regarding fees will constitute "cause" for termination of this Agreement.
Contractor will begin delivery of speech therapy services under this Agreement
as of the following date: June 1, 1996.
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SCHEDULE 10.43
Paragon has entered into agreements substantially identical to Exhibit
10.43 as follows:
1. Direct Therapy Services Agreement effective as of May 1, 1996 with THS
of Cary for Cary, North Carolina facility.
2. Direct Therapy Services Agreement effective as of April 1, 1996 with
Evangeline of Lenoir for Lenoir, North Carolina facility.
3. Direct Therapy Services Agreement effective as of April 1, 1996 with
Evangeline of Woodfin for Woodfin, North Carolina facility.
4. Direct Therapy Services Agreement effective as of December 5, 1996 with
The Health Rehabilitation Centre at Dolphins View for St. Petersburg, Florida
facility.
5. Direct Therapy Services Agreement effective as of June 1, 1996 with THS
of Charlotte for Charlotte, North Carolina facility.
6. Direct Therapy Services Agreement effective as of August 1, 1996 with
Libby Care Center for Libby, Montana facility.
7. Direct Therapy Services Agreement effective as of June 1, 1996 with
Evangeline of Archdale for Archdale, North Carolina facility.
8. Direct Therapy Services Agreement effective as of April 22, 1996 with
Tri-State Health and Rehab Center for Clarkston, Washington facility.
9. Direct Therapy Services Agreement effective as of June 1, 1996 with THS
of Kannapolis for Kannapolis, North Carolina facility.
10. Direct Therapy Services Agreement effective as of May 1, 1996 with
Evangeline of King for King, North Carolina facility.
11. Direct Therapy Services Agreement effective as of January 1, 1997 with
CHPC for Olathe, Kansas facility.
12. Direct Therapy Services Agreement effective as of July 1, 1996 with
Pinewood Care Center for Coeur d'Alene, Idaho facility.
13. Direct Therapy Services Agreement effective as of April 1, 1996 with
Montclair Nursing Center for Omaha, Nebraska facility. A material detail in
which this agreement differs from Exhibit 10.43 is that this agreement
automatically renews for successive one (1) year periods.
14. Direct Therapy Services Agreement effective as of March 1, 1996 with
Grant Park Care Center for Washington, D.C. facility. A material detail in which
this agreement differs from Exhibit 10.43 is that this agreement automatically
renews for successive one (1) year periods.
15. Direct Therapy Services Agreement effective as of May 1, 1996 with
Wilora Lake Healthcare Center for Charlotte, North Carolina facility.
16. Direct Therapy Services Agreement effective as of July 1, 1996 with
The Oaks at Sweeten Creek for Arden, North Carolina facility.
11
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EXHIBIT 10.44
<PAGE>
FEE FOR SERVICE
THERAPY SERVICES AGREEMENT
This Agreement ("Agreement") is made as of this 1st day of January, 1997,
by and between Paragon Rehabilitation, Incorporated ("Contractor") and
Greeneville West Health Care Center ("Facility").
RECITALS
Whereas, Facility is a duly licensed nursing facility that furnishes
nursing care to residents in the Facility who are in need of rehabilitation
services and eligible to have such services covered under the Medicare Program,
which services are not available directly from Facility;
Whereas, Contractor employs licensed and qualified professionals who
furnish a full range of speech-language pathology, physical therapy and
occupational therapy (hereinafter referred to as "rehabilitation services"); and
Whereas, Facility wishes to make arrangements with Contractor for
furnishing rehabilitation services to its patients which-are not available
directly from Facility; and
Whereas, Contractor employs qualified professionals who furnish
rehabilitation support services; and
Whereas, Facility wishes to make arrangements with Contractor for
furnishing rehabilitation support services.
Now, Therefore, in consideration of the covenants and promises herein
contained, and other good and valuable consideration, the parties agree as
follows:
ARTICLE I.
OBLIGATIONS OF CONTRACTOR
1.01 Services by Contractor
(a) Except as otherwise provided in this Agreement, Contractor shall
furnish, under the control and supervision of the Facility, the rehabilitation
and rehabilitation support services identified in Attachment "A".
(b) All services shall be furnished in accordance with applicable
requirements of federal and state laws, and the applicable policies of the
Contractor, the Facility, and any third-party payors.
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(c) All services shall be rendered in a competent, efficient and
satisfactory manner, in compliance with professional standards, and in
accordance with a plan of treatment established from time to time by the
physician responsible for the patient's care or a qualified therapist, as
permitted by law.
(d) Contractor shall maintain adequate properly licensed personnel to
perform the services required to be performed by it under this Agreement, and
shall provide Facility with a resume of the qualifications of each employee who
will furnish the services, as well as copies of their current licenses and/or
registrations and renewals.
(e) Contractor shall participate in conferences required to coordinate the
care of an individual patient.
(f) Contractor shall review the potential rehabilitative requirements of
prospective patients prior to admission.
(g) Contractor shall provide for the preparation of treatment records,
with progress notes and observations, and for their prompt incorporation, as may
be required, into the clinical records of Facility or others designated by the
Facility. Such records shall be prepared in accordance with applicable
requirements of the facility, any fiscal intermediary, and any federal and-state
agency, and/or any other party to whom billings for services are rendered.
(h) Contractor shall provide quality standards, outcome measurement and
program evaluation for rehabilitation services.
(i) Contractor will be the sole provider of Services to Facility's
patients during the term of this Agreement, unless a patient specifically
requests otherwise. Contractor will notify Facility if any services to be
provided cannot be rendered hereunder in a timely fashion so that Facility can
arrange an alternate source for the services, without liability to Contractor
hereunder. In the event Contractor is unable to provide services as defined in
this Agreement, in a timely fashion, the Facility may provide services through
another source until Contractor is able to provide such services. At that time
Contractor will again be the sole provider.
(j) Contractor shall provide a Rehabilitation Coordinator who will
function as the on site liaison between the Contractor and Facility. This
liaison function includes, but is not limited to, supervision of Contractors
personnel, communication between Contractor's and Facility's personnel,
implementation of Contractors systems and programs, and Community Awareness
activities.
(k) Contractor shall provide a Medical Coordinator responsible for
developing, implementing, and monitoring such systems and programs necessary to
meet the clinical goals and objectives of the Facility.
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1.02 Access to Books, Records and Documents
(a) If it is determined by any existing or future federal or state laws
that documents should be retained regarding the furnishing of services,
Contractor agrees to this retention and further agrees as follows:
(i) until the expiration of four years after the furnishing of
services pursuant to this Agreement, Contractor warrants and represents
that, as provided in the applicable federal regulations, upon written
request, the following shall be made available to the Secretary of Health
and Human Services or, upon request, to the Comptroller General of the
United States or any of their duly authorized representatives; this
Agreement, and all books and records necessary to verify the nature and
extent of the costs of any services furnished pursuant to this Agreement
for which payment may be made under the Medicare program; and
(ii) if Contractor carries out any of its duties under this
Agreement through a subcontract or subcontracts with an aggregate value or
cost of Ten Thousand Dollars ($10,000.00) or more over a twelve-month
period with another person, entity or organization, such subcontract or
subcontracts shall contain a clause to the effect that until the
expiration of four years after the furnishing of such services pursuant to
such subcontract or subcontracts, that other person, entity or
organization shall make available, upon written request, to the secretary
of Health and Human Services or upon request, to the Comptroller General
of the United States or any of their duly authorized representatives, the
subcontract or subcontracts, and all books and records necessary to verify
the nature and extent of the costs of any services furnished pursuant to
such subcontract or subcontracts for which payment may be made under the
Medicare program.
1.03 Licenses
Contractor shall not knowingly and intentionally take any action or fail
to take any action which will: (a) cause any governmental authority having
jurisdiction over the operation of Facility to institute any proceeding for the
rescission or revocation of any of the Facility's licenses, permit, consents or
approvals, or (b) materially adversely affect Facility's fight to accept and
obtain payments under Medicare, Medicaid, or any other public or private third
party medical payment program.
1.04 Consulting
Contractor will act as an consultant to the Facility with regard to their
rehabilitation programs and will make recommendations to the Facility and assist
in implementation of such recommendations, and maintain an ongoing assessment of
progress to facilitate compliance by Facility with the requirements of any
governmental authority or third party payor. Written reports will be submitted
by Contractor as may from time to time be reasonably required by Facility or
applicable law.
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1.05 Training
Contractor shall provide in-service training on a regular basis to
Facility on subjects related to Contractor's rehabilitation programs.
1.06 Equipment
Contractor may procure specialized equipment or supplies as necessary at
its expense. Such equipment and supplies shall remain the property of
Contractor.
ARTICLE II.
OBLIGATIONS OF FACILITY
2.01 Control
Facility, acting by and through its duly authorized officers and
employees, shall at all times be responsible for and exercise overall control
over its assets and operations and shall provide such services or arrange for
the provision of such services and the performance of such duties as may be
required to be provided or performed by Facility under federal and state laws.
2.02 Patient Information
Facility shall furnish Contractor with all patient information required
for documentation and submission of any bills for services rendered. Facility
shall also notify Contractor of any changes in the eligibility or coverage
status of Facility patients. Facility shall furnish Contractor with all other
information, assistance, documentation and cooperation which may be required or
appropriate for Contractor to fulfill their respective duties and
responsibilities under this Agreement and any applicable federal and state laws.
2.03 Compliance
Facility shall comply in all respects with all billing and payment
requirements of Contractor as set forth in this Agreement.
2.04 Control and Responsibilities
Facility shall act as the Provider of services and exercise supervision
and control over all services furnished which shall include:
(a) Accepting rehabilitation patients for treatment in accordance with
admission policies established by the Facility for such services;
(b) Maintaining a complete and timely clinical record of each such
patient, including diagnosis, medical history, physician's orders, and progress
notes relating to all such services received;
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(c) Maintaining a liaison with each rehabilitation patient's attending
physician with regard to the progress of the patient and assuring that the
patient's plan of treatment is periodically reviewed by the physician;
(d) Securing from the physician the required certifications and
recertifications;
ARTICLE III.
TERM OF AGREEMENT
3.01 Term
This Agreement shall begin on the 1st day of January, 1997, and shall
continue for consecutive terms of one (1) year each which shall be automatically
renewed unless sooner terminated as provided herein. Any party shall have the
right to terminate this Agreement at any time with or without cause on the
giving of thirty (30) days advance written notice to the other parties
specifying the-date of termination. The termination of this Agreement shall be
subject to the terms and conditions contained in Articles VI and VII hereof
ARTICLE IV.
PAYMENTS
4.01 Fee-For-Service Arrangement with Contractor
Contractor shall be paid by Facility on a "fee-for-service" basis for the
services identified in Attachment "A". Facility is responsible for billing for
services, collecting payment from third party payors and/or the patient, and
paying Contractor. Facility assumes responsibility for all billing, collections,
denials, and payments, except as otherwise provided herein.
(a) Fee-For-Service Covenants
(i) Rates
Contractor will be compensated by Facility for the specified
service(s), at the rate(s) indicated and shall be paid within the time frames
identified in Attachment "A". Invoices reflecting services rendered from the
first of the month to the last of the month (hereinafter referred to as the
"billing period') will be submitted to Facility, as applicable, no later than
five (5) working days following the end of the billing period in which said
services were rendered.
Any amendments or changes to the designated rates of Contractor
shall be effective thirty (30) days following the date upon which the parties
hereto agree to such amendment or change in writing. Upon the parties' mutual
acceptance in writing of any such change or amendment, the amended schedule of
rates shall become a part of this Agreement.
(ii) Payment Documentation
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Contractor's invoices will include (a) the name(s) of the patient(s)
to whom the services were rendered, (b) the date(s) of service, and (c) the
charges applicable to each patient. Contractor will maintain a time-in facility
log at the Facility.
(iii) Payment Terms
Facility shall pay Contractor, upon the conditions hereinafter set forth,
for all services rendered by Contractor, except as hereinabove provided, within
sixty (60) days following the date on which Contractor's invoices and time-in
facility logs have been received by Facility.
(iv) Denied Payments
(a) Facility will pay Contractor the full amount for all
invoiced Services, notwithstanding any notice of payment denial for Services
("Denial Notice") for reasons to medical necessity or appropriateness of
Services, by a governmental, other third-party payor or patient, except as
described in this subparagraph. Facility will notify Contractor within fourteen
(14) business days of its receipt of any Denial Notice, at which time, a denial
authorization code will be assigned and provided to Facility by Contractor.
Facility will pursue, or, at the request of Contractor, will appoint Contractor
as Facility's agent to pursue, all rights of rehearing and administrative appeal
regarding such Denial Notice. If Facility and Contractor do not appeal or upon
denial of payment following consideration, Contractor will grant Facility credit
towards payment for future Services for the cost of Services deemed medically
unnecessary or inappropriate, only where an authorization code has been
assigned. In the event Contractor is no longer providing Services to the
Facility it will immediately reimburse the Facility for the amounts so denied.
(b) Contractor agrees that if any charges or payment made to
Contractor by Facility pursuant to this Agreement are disallowed or rejected by
Medicare during any audit, review or rate setting, or medical claims review,
whether interim or final, then Contractor shall repay all such charges or
payments to the Facility. The foregoing refers to the rate-setting mechanism as
contrasted with medical claims review referred to in Paragraph (a). Facility
will notify Contractor in writing, within sixty (60) days, by certified mail or
next day mail services, at Contractors address as stated elsewhere in this
Agreement, of any such disallowance or rejection actually made by Medicare. Such
notification shall include documentation which substantiates the claim.
Contractor shall have the right upon notice at Contractors sole expense to
contest any such disallowance or rejection in its own name or in the name of
Facility by accountants and/or counsel reasonably satisfactory to Facility. In
connection with any such contest, Facility shall cooperate fully with
Contractor, and will provide full access to any of its relevant books and
records. Facility shall pay to Contractor any moneys recovered from Medicare for
which payment has been made by Contractor with sixty (60) days.
ARTICLE V.
INSURANCE
5.01 Insurance
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Contractor shall maintain, at their own respective expense, throughout the
term of this Agreement, insurance with reputable insurance companies, licensed
in the State of Tennessee, in the minimum amounts and covering the risks
described below:
(a) Comprehensive public liability insurance, including personal injury or
death and property damage (including theft of or damage to patients' property)
in the combined single Emit of not less than One Million Dollars
($1,000,000.00);
(b) Workmen's compensation, employers' liability or similar insurance as
may be required by law; and
(c) Professional liability insurance against claims for bodily injury or
death or otherwise arising out of the operations of Contractor, as the case may
be, such insurance to afford minimum protection of not less than One Million
Dollars ($1,000,000.00) in respect to bodily injury or death to any one person.
(d) All such insurance to the extent appropriate, shall name the
Contractor and the Facility, as coinsured, as their respective interests may
appear.
(e) Contractor shall secure certificates of such insurance for the
Facility, shall maintain the original policies at its office, and shall obtain
endorsements thereto prohibiting any termination or cancellation thereof until
the expiration of ten (10) days written notice of cancellation to all named
insureds.
ARTICLE VI.
DEFAULT
6.01 Bankruptcy
If Facility or Contractor, as the case may be, files a petition in
bankruptcy, is adjudicated a bankrupt or takes advantage of the insolvency laws
of any jurisdiction, make an assignment for the benefit of creditors, is
voluntarily or involuntarily dissolved, or has a receiver, trustee or other
court officer appointed with respect to its assets, business or property,
Facility or Contractor, as the case may be, shall be in default hereunder.
6.02 Breach
If Facility or Contractor, as the case may be, fails to perform any of its
duties and* obligations hereunder, or otherwise breaches any of the terms,
representations or warranties hereunder, and such failure or breach is not cured
within thirty (30) days after receiving notice of such failure or breach, then
Facility or Contractor, as the case may be, shall be in default hereunder.
6.03 Remedies
In the event of a default by Facility or Contractor pursuant to paragraphs
6.01 and
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6.02 above, the non-defaulting party shall have the right to terminate this
Agreement upon five (5) days notice to the defaulting party, whereupon the
non-defaulting party shall be entitled to all remedies, at law and in equity,
arising from such default.
Failure of either party to exercise such right to terminate shall not
operate as a waiver thereof or preclude any other or further exercise of such
right.
ARTICLE VII.
NON-DISCLOSURE AND CONFIDENTIALITY
7.01 Non-Disclosure and Confidentiality
(a) Facility hereby acknowledges that Contractor in the future may make
disclosures to Facility of certain confidential and proprietary information and
materials related to, or in connection with, Contractor and its business and
operations. The contents of all such disclosures, explanations and any writings
and materials related thereto, whether or not prepared by Contractor, are deemed
Contractor's proprietary information.
(b) Facility acknowledges and agrees that any and all proprietary and/or
confidential information, writings and materials related to, or in connection
with, Contractor and its business and operations are to be secret and are not to
be used or exploited by Facility, or revealed to anyone by Facility (except to
their respective attorneys and/or accountants acting within the scope of their
representation) without the express written consent of Contractor and except as
authorized under the terms of this Agreement. Facility agrees that any such
proprietary and/or confidential information, writings or materials disclosed to
their respective attorneys and/or accountants shall be privileged
communications, and that such attorneys and/or accountants will be bound by the
terms of this Agreement to the same extent as the parties hereto. Facility
further agrees to instruct their respective attorneys and/or accountants not to
use or exploit or to disclose such information, writings and materials to anyone
without the express written consent of Contractor. All written confidential and
proprietary information and material provided by Contractor hereunder shall be
returned to Contractor by Facility upon Contractor's request.
(c) In addition to all other remedies available to Contractor at law or in
equity, Contractor shall have the right to enforce the provisions of this
Article VII by injunctive relief against the party wrongfully disclosing such
information or against any other third party to whom the information is
disclosed.
ARTICLE VIII.
MISCELLANEOUS COVENANTS
8.01 Assignment
Except as otherwise provided in this Agreement, neither party shall assign
their
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respective fights. duties and/or obligations under this Agreement without the
prior written consent of the other party to this Agreement. Subcontractors may
be used by the Contractor as it deems appropriate or necessary, but the
responsibility for the overall therapy program provided by Contractor pursuant
to this Agreement shall remain with Contractor.
8.02 Binding Agreement
The terms, covenants, conditions, provisions and agreements herein
contained shall be binding upon and inure to the benefit of the parties hereto,
and their successors and permitted assigns.
8.03 Indemnification
(a) Misconduct of Employees and Others. The Facility agrees that
Contractor shall not be liable for damages suffered by Facility, Contractor or
any third party on account of the dishonesty, willful misconduct or negligence
of any Facility employee or agent. The Contractor agrees that the Facility shall
not be liable for damages suffered by Contractor, Facility or any third party on
account of the dishonesty, willful misconduct or negligence of any Contractor
employee or agent.
(b) Indemnification by Facility. The Facility shall defend, indemnify and
hold Contractor, its officers, employees and agents harmless from and against
any and all liability, loss, expense, attorneys' fees, or claims for injury or
damages arising out of the performance of this Agreement, but only in proportion
to and to the extent such liability, loss, expense, attorneys' fees, or claims
for injury or damages are caused by or result from the negligent or intentional
acts or omissions of the Facility, its officers, agents, or employees.
(c) Indemnification by Contractor. The Contractor shall defend, indemnify
and hold the Facility, its officers, employees and agents harmless from and
against any and all liability, loss, expense, attorneys' fees, or claims for
injury or damages arising out of the performance of this Agreement, but only in
proportion to and to the extent such liability, loss, expense, attorneys' fees,
or claims for injury or damages are caused by or result from the negligent or
intentional acts or omissions of the Contractor, its officers, agents, ore
employees.
8.04 Personnel Covenant
Each of the parties hereto agree that during the term of this Agreement
and for a period of two (2) years following the termination of this Agreement,
that they shall not (i) hire, (ii) entice or induce to be hired by any means
whatsoever, either directly or indirectly, or (iii) enter into any contract or
agreement to perform any rehabilitation services utilizing, any personnel
employed by the other party.
8.05 Relationship of Parties
Nothing contained in this Agreement shall constitute or be construed to be
or to create a partnership, joint venture or other such relationship between the
parties.
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8.06 Notices
(a) All notices, demands and requests contemplated or required to be given
hereunder by either party to the other shall be in writing, and shall be
delivered by certified mail, postage prepaid, return receipt requested, or by
personal delivery or courier, with acknowledgment of delivery:
(i) to Contractor, by addressing the same to:
Lonnie Leply
Paragon Rehabilitation, Inc.
3100 West End Avenue, Suite 470
Nashville, TN 37203
(ii) to Facility, by addressing the same to:
Greeneville West Health Care Center
Administrator: Karla DeBrunner
106 Holt Street
Greeneville, TN 37743-3004
With a copy to: James L. Adams
Attorney at Law
Box 30100
Shreveport, LA 71130-0100
or to such other address or to such other person as may be designated by notice
given from time to time during the Term by one party to the other. Any notice,
demand or request hereunder shall be deemed given five (5) days after mailing,
if given by certified mail, or on the date delivered if given personally or by
courier.
8.07 Entire Agreement; Amendments
This Agreement, together with its attachments, contains the entire
agreement between the parties with respect-to-the subject matter hereof, and no
prior oral or written representations or agreements between the parties shall be
of any force and effect. Any additions, amendments or modifications to this
Agreement shall be of no force and effect unless in writing and signed by both
parties.
8.08 Governing Law
This Agreement has been executed and delivered in the State of Tennessee,
and all the terms and provisions hereof and the rights and obligations of the
parties hereto shall be construed and enforced in accordance with the laws
thereof.
8.09 Captions and Headings
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The captions and headings throughout this Agreement are for convenience of
reference only, and the words contained therein shall in no way be held or
deemed to define, limit, describe, explain, modify, amplify or add to the
interpretation, construction or meaning of any provision of, or the scope of
intent of, this Agreement nor in any way effect this Agreement.
8.10 Disclaimer of Employment of Facility Employees
Each party will be responsible for its obligations and expenses of
employment with respect to its own employees, including, but not limited to, the
payment of wages, fringe benefits, payroll and employment taxes and other such
expenses.
8.11 Costs and Expenses
(a) All fees, costs, expenses, debt, and other obligations incurred by a
party in connection with the performance of its services under this Agreement
shall be borne by that party, except as expressly provided herein to the
contrary.
(b) Facility will reimburse Contractor for all collection agency and
attorney collection fees, and all attorney fees and court costs related to any
legal action that Contractor incurs to collect payment for Services from
Facility.
8.12 Authorization of Agreement
All parties represent and warrant, each to the other, that the execution
and delivery of this Agreement has, if such is required, been duly authorized by
all necessary action of their respective shareholders, partners, owners or
governing boards, as the case may be.
8.13 Civil Rights
Contractor agrees to comply with Title VI of the Civil Rights Act of 1964
and all requirements imposed by or pursuant to the applicable regulations of the
Department of Health, Education and Welfare to-the end that, no person in the
United States shall, on the basis of race, color or national origin, be excluded
from participation in, be denied of benefits of, or be otherwise subjected to
discrimination under any program or activity for which federal funds are used in
support of Contractor's activities.
8.14 Severability
If a provision hereof or the application thereof to any person or
circumstance shall, to any extent, be invalid or unenforceable, the remainder
hereof or the application of such provision to person or circumstances other
than those as to which it is held invalid or unenforceable shall not be affected
thereby, and each provision hereof shall be valid and be enforced to the fullest
extent permitted by law, provided that the parties shall exercise their best
efforts to accommodate the terms and intent of this Agreement to the greatest
extent possible consistent with the requirements of law.
-11-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed, sealed and delivered
this Agreement through their duly authorized representatives, as of the day and
year first above written.
CONTRACTOR: FACILITY:
By: /s/ Lawrence W. Lepley, Jr. By: /s/ signature illegible
----------------------------- -----------------------------
Title: President Title: Director of Operations
Date: 12/20/96 Date: 12/20/96
-12-
<PAGE>
ATTACHMENT "A"
THERAPY SERVICES PROVIDED TO: Greeneville West Health Care Center
================================================================================
SPEECH- REHABILITATION
LANGUAGE REHABILITATION SUPPORT
PATHOLOGY SERVICES SERVICES(1)
- --------------------------------------------------------------------------------
Medicare A $23.00/unit $5.00/unit
- --------------------------------------------------------------------------------
Medicare B $23.00/unit $5.00/unit
- --------------------------------------------------------------------------------
Medicaid $23.00/unit $5.00/unit
- --------------------------------------------------------------------------------
Private Insurance $23.00/unit $5.00/unit
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OCCUPATIONAL
THERAPY
- --------------------------------------------------------------------------------
Medicare A $23.00/unit $5.00/unit
- --------------------------------------------------------------------------------
Medicare B $23.00/unit $5.00/unit
- --------------------------------------------------------------------------------
Medicaid $23.00/unit $5.00/unit
- --------------------------------------------------------------------------------
Private Insurance $23.00/unit $5.00/unit
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PHYSICAL
THERAPY
- --------------------------------------------------------------------------------
Medicare A Salary Equivalency $5.00/unit
- --------------------------------------------------------------------------------
Medicare B Salary Equivalency $5.00/unit
- --------------------------------------------------------------------------------
Medicaid Salary Equivalency $5.00/unit
- --------------------------------------------------------------------------------
Private Insurance Salary Equivalency $5.00/unit
================================================================================
Note: (1) Facility agrees to pay Contractor a Rehabilitation Support Service
monthly fee equal to five dollars ($5) per Speech, Occupational, and Physical
Therapy unit up to a maximum number of treatment units of 3,000 per month or
$15,000 per month.
(2) A unit of service is comprised of fifteen (15) minute segments for
CONTRACTOR: FACILITY:
By: /s/ Lawrence W. Lepley, Jr. By: /s/ signature illegible
----------------------------- -----------------------------
Title: President Title: Director of Operations
Date: 12/20/96 Date: 12/20/96
-13-
<PAGE>
SCHEDULE 10.44
Paragon has entered into an agreement substantially identical to Exhibit
10.44 as follows:
1. Fee for Service Therapy Services Agreement dated January 1, 1997 with
Greeneville West Health Care Center.
-14-
<PAGE>
EXHIBIT 10.45
<PAGE>
PROFESSIONAL SERVICES CONTRACT
This agreement is entered into this 26th day of September 1996 by and between
Tri-State Health & Rehab, Paragon Rehabilitation, Inc. and Tri-State Memorial
Hospital (TSMH).
1. This agreement is specifically for the provision of Occupational and
Speech therapy services to patients of TSMH.
2. The duration of this agreement shall be until date of cancellation by
either of the parties hereto. Cancellation is effective upon receipt, by
either party, of a written 30 day notice.
3. This agreement is subject to periodic review and renegotiation by the
parties.
4. Therapists are responsible for assisting in developing a plan of treatment
which will include the specific procedures and modalities to be used and
the amount, frequency and duration of treatment. The plan will be based on
attending physician orders and will be coordinated by the registered nurse
assigned to the patient.
5. Therapists are responsible to and shall receive administrative supervision
and direction through the TSMH Director of Nursing Services.
6. Tri-State Health & Rehab is responsible for the quality of all therapy
services, and it is important that the therapist provide health services
to the patients in accordance with the plan of treatment which may not be
altered in type, scope or duration by the therapists unless approved by
the TSMH Director of Nursing Services.
7. Therapists are required to provide proof of qualifications specified or
required for TSMH Allied Health personnel; to notify TSMH of any change in
such qualifications to provide services; to participate in functions,
supervision, orientation and in-service training consistent with the
policies and requirements of TSMH; to develop plans of treatment, and to
provide to TSMH both clinical and progress notes and other patient
information as TSMH may require; and to participate in TSMH evaluations.
8. Payment to Tri-State Health & Rehab for therapy services shall generally
be based on the accepted and current reimbursement for such services
within the several communities served.
9. All therapy billings for patients receiving benefits through TSMH shall be
the responsibility of TSMH only.
10. Parties hereto agree that Title VI of the Civil Rights Act shall apply. In
essence this title provides that no person in the United States shall, on
the ground of race, color, or national origin, be excluded from
participation in, be denied benefits of, or be subjected to
discrimination.
11. Insurance:
a. Tri-State Health & Rehab must carry not less than one million
dollars ($1,000,000) in malpractice insurance.
b. The insurance must be provided by a company licensed or approved by
the State of Washington.
c. Tri-State Health & Rehab must furnish evidence of continuous
coverage at all times.
d. The evidence must be a copy of the policy or notification of such
insurance provided by the company and/or agent.
<PAGE>
e. The policy must contain language of advance notice to the Hospital
of any material change or cancellation.
Tri-State Memorial Hospital shall reimburse Tri-State Health & Rehab for the
cost of the visit in the amount of $45.00 per hour. Mileage costs are included
in the hourly rate. Billings may be divided into segments no smaller than
quarter hours at $10.00 per quarter hour.
IT IS MUTUALLY AGREED THAT:
1. The contract is to be effective September 1, 1996 and shall remain in effect
for a period of one (1) year from said date and will be renewed for one year
periods until canceled in writing.
2. The agreement may be terminated at will by either party, with or without
cause by giving thirty (30) calendar days written notice.
Pursuant to Public Law 96.499 and regulations thereunder, until the expiration
of four (4) years after termination of the Agreement, PROVIDER shall make
available upon appropriate written request by the Secretary of the United States
Department of Health & Human Services or the Comptroller General of the United
States General Accounting Office, or any of their duly authorized
representatives, a copy of this agreement and such books, documents and records
as are necessary to certify the nature or extent of the costs of the services
provided by PROVIDER under this Agreement. PROVIDER further agrees that in the
event he carried out any of his duties under this Agreement through subcontract
with a value or cost of Ten Thousand Dollars ($10,000) or more over a twelve
(12) month period with a related organization, such subcontract shall contain a
clause to the effect that until expiration of four (4) years after the
furnishing of such services pursuant to such subcontract, the related
organization shall make available, upon appropriate written request by the
Secretary of the United States Department of Health & Human Services or the
Comptroller General of the United States General Accounting Office or any of
their duly authorized representatives, a copy of such subcontract and such
books, documents and records of such organization as are necessary to verify the
nature and extent of such costs. Disclosure pursuant of Section shall not be
construed as a waiver of any other legal right to which PROVIDER may be entitled
under law or regulations.
ACCEPTED BY:
/s/ signature illegible /s/ signature illegible
- --------------------------- ----------------------------
Administrator Administrator
Tri-State Memorial Hospital Tri-State Health & Rehab
September 30, 1996 /s/ Lawrence W. Lepley, Jr.
- ------------------------ ----------------------------
Date: President
Paragon Rehabilitation, Inc.
2
<PAGE>
SCHEDULE 10.45
Paragon has entered into agreements substantially similar to Exhibit 10.45
as follows:
1. Professional Services Contract dated September 26, 1996 with Home
Health & Hospice of Southeastern Washington ("HHH"). Material details in which
this agreement differs from Exhibit 10.45 are that Paragon only provides speech
therapy services to HHH, and the speech therapy services are billed at $60.00
per visit or initial assessment and $.28 per mile.
2. Agreement between Shands Teaching Hospital and Clinics, Inc. and
Paragon Incorporated for Therapy Services dated July 12, 1994. Material details
in which this agreement differs from Exhibit 10.45 are that this agreement may
be terminated upon sixty (60) days notice, therapy services are billed at $60.00
per visit and $.275 per mile, and the facility is billed at $28.00 per hour of
attendance by therapists at staff meetings, conferences and in-house training
sessions.
3
<PAGE>
EXHIBIT 10.46
<PAGE>
RIGHT OF FIRST REFUSAL AGREEMENT
(River Oaks)
THIS RIGHT OF FIRST REFUSAL AGREEMENT (this "Agreement") is made and
entered into as of the 1st day of April, 1993, by and between INTERNATIONAL
HEALTH CARE PROPERTIES XX, L.P., a Georgia limited partnership ("IHCP"), and
WELCARE INTERNATIONAL MANAGEMENT CORPORATION, a Georgia corporation ("WelCare").
W I T N E S S E T H:
WHEREAS, IHCP and Consolidated Resources Health Care Fund IV ("Fund IV")
have consummated the transactions contemplated by that certain Purchase and Sale
Agreement dated as of December 1, 1992, between American Health Care Associates,
Inc. ("American Health") and Fund IV, as assigned by American Health to IHCP
pursuant to that certain Assignment of Purchase and Sale Agreement dated as of
January 15, 1993 (the "Purchase Agreement"), pursuant to which IHCP agreed to
purchase from Fund IV and Fund IV agreed to sell to IHCP all of Fund IV's right,
title and interest in and to certain real property and personal property
comprising a nursing home facility known as River Oaks Nursing Center
"Facility");
WHEREAS, IHCP has engaged WelCare to manage the Facility pursuant to that
certain Management Agreement dated as of April 1, 1993, between IHCP and
WelCare;
WHEREAS, IHCP and WelCare desire to provide for WelCare to have the right
of first refusal to purchase the Facility, subject to the terms and conditions
set forth herein.
NOW, THEREFORE, for and in consideration of TEN AND NO/100 DOLLARS
($10.00) cash in hand and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, IHCP and WelCare hereby agree as
follows:
1. Definitions. Except as defined in this Agreement, capitalized terms
shall have the meanings ascribed to such terms in the Purchase Agreement.
2. Right of First Refusal.
2.1 IHCP shall not sell, transfer, convey or otherwise dispose of
the Real Property and the Personal Property (as defined in the Purchase
Agreement), including without limitation the real property on which the Facility
is located, as described on Exhibit "A" attached to the Purchase Agreement and
incorporated herein by reference, and all other real, personal and intangible
property located at the Facility or used in the business operated on the
Facility (collectively, the "Property"), or any part thereof, without first
offering the same to WelCare in accordance with the terms and provisions hereof.
<PAGE>
2.2 In the event IHCP (a) determines to sell the Property or any
part thereof, (b) receives from a third party a bona fide offer to purchase the
Property or any part thereof, which IHCP desires to accept, or (c) makes to a
third party a bona fide offer to sell the Property or any part thereof, which
such third party desires to accept, IHCP shall, prior to IHCP's sale of the
Property or such part thereof, give to WelCare written notice of IHCP's
intention to sell the Property or such part thereof, or of such offer, as
applicable (herein called a "Notice of Offer"), identifying and setting out
accurately and in detail the Property covered thereby (the "Notice Property"),
the price and all of the conditions and terms of the proposed sale, including
(in the event the Notice of Offer details an offer made by or to IHCP to or from
a third party purchaser) the proposed purchaser and such purchaser's intended
use of the Notice Property. In each event described above, IHCP agrees that
WelCare shall have the primary right, at its election, to purchase the Notice
Property for the price and on the terms specified in the Notice of Offer, which
option shall be exercised by WelCare's giving written notice of exercise thereof
to IHCP within thirty (30) days after WelCare's receipt of the Notice of Offer.
In the event WelCare shall exercise the right to purchase the Notice Property,
the sale and purchase of the Notice Property shall be closed within a reasonable
time after exercise of such right and, in any event, within ninety (90) days
after WelCare's notice to IHCP of its exercise of the right to purchase the
Notice Property. If, however, WelCare does not elect within the time and in the
manner above provided to exercise such option, then IHCP may, at any time within
ninety (90) days after expiration of such thirty (30) day offer period, sell the
Notice Property to any bona fide third party purchaser (in the event the Notice
of Offer was not premised on an offer to or from a particular third party
purchaser) or to the proposed purchaser identified in the Notice of Offer, if
applicable, for the price and on the terms specified in the Notice of Offer, but
any later sale, any sale of Property other than the Notice Property, any sale
for a different price, any sale on different terms, or, if the Notice of Offer
is premised on a third party offer, any sale to a different purchaser, must
again be submitted to WelCare in a Notice of Offer as required above. If the
Notice Property is sold by IHCP to a third party after WelCare has failed to
exercise its right of first refusal with respect to such sale as herein
provided, such third party purchaser shall take the Notice Property from IHCP
free and clear of the rights of WelCare set forth herein, and in such event,
WelCare agrees to execute such release or other instrument as may reasonably be
requested by IHCP, but any part of the Property or interest therein which is
retained or reserved by IHCP shall remain subject to the right of first refusal
of WelCare under this Agreement.
2.3 At the closing of such purchase of the Notice Property by
WelCare pursuant to the right of first refusal contained herein, IHCP shall
deliver to WelCare a properly executed and acknowledged general warranty deed
with respect to the Notice
2
<PAGE>
Property, subject only to such exceptions as may have been permitted in the
Notice of Offer.
3. Binding; Assignability. This Agreement shall constitute a covenant
running with the land, and the terms and provisions of this Agreement shall be
binding upon and shall inure to the benefit of IHCP, WelCare and their
respective successors and assigns; provided, however, that WelCare may not
assign this Agreement without the prior written consent of IHCP except to a
subsidiary or affiliate of WelCare which is controlled by or under common
control with WelCare.
4. Notices. All notices required or permitted to be given under the terms
of this Agreement shall be in writing and shall be deemed given when delivered
personally, telecopied (transmission confirmed), or, if mailed (by first class
mail with postage prepaid, return receipt requested), when received, addressed
or telecopied, as the case may be, to the appropriate address or telecopier
number set forth below:
To WelCare: WelCare International Management
Corporation
7000 Central Parkway
Suite 970
Atlanta, Georgia 30328
Attention: J. Stephen Eaton
Telecopy Number: (404) 395-9776
To IHCP: International Health Care
Properties XX, L.P.
c/o BNA Corporate Center
404 BNA Drive, Suite 313
Nashville, Tennessee 37217
Attention: Jere M. Ervin
Telecopy Number: (615) 399-0604
Either party may change its address by giving notice to the other party as
aforesaid.
5. Entire Agreement; Amendments. This Agreement contains the entire
agreement between the parties hereto, and no prior oral or written, and no
contemporaneous oral representations or agreements between the parties with
respect to the subject matter of this Agreement shall be of any force and
effect. Any additional amendments or modifications to this Agreement shall be of
no force or effect unless in writing and signed by both WelCare and IHCP.
6. Governing Law. This Agreement and all the terms and provisions and the
rights and obligations of the parties hereto shall be governed by, and construed
and enforced in accordance with, the laws of the State of Georgia to the extent
allowable (without regard to its rules of conflicts of laws).
3
<PAGE>
7. Captions and Headings. The captions and headings throughout this
Agreement are for convenience and reference only, and the words contained
therein shall in no way be held or deemed to define, limit, describe, explain,
modify, amplify or add to the interpretation, construction or meaning of any
provision of or the scope or intent of this Agreement nor in any way affect this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed, sealed and delivered
this Agreement through their duly authorized representatives, as of the date
first above written.
"WELCARE":
WELCARE INTERNATIONAL MANAGEMENT
CORPORATION, a Georgia corporation
By: /s/ Alan C. Dahl
---------------------------------
Alan C. Dahl, Vice President
"IHCP":
INTERNATIONAL HEALTH CARE
PROPERTIES XX, L.P., a Georgia
limited partnership
By: International Health Care
Associates XX, Inc., Its
General Partner
By: /s/ Jere M. Ervin
---------------------------------
Jere M. Ervin,
Executive Vice President
[ACKNOWLEDGMENTS ON NEXT PAGE]
4
<PAGE>
STATE OF GEORGIA ss.
ss.
COUNTY OF FULTON ss.
The foregoing instrument was acknowledged before me on the 1st day of
April, 1993, by Alan C. Dahl, Vice President of WELCARE INTERNATIONAL MANAGEMENT
CORPORATION, a Georgia corporation, on behalf of said corporation.
/s/ Sondra M. Hicks
---------------------------------
Notary Public
[NOTARY SEAL]
My Commission Expires:
July 30, 1995
STATE OF GEORGIA ss.
ss.
COUNTY OF FULTON ss.
The foregoing instrument was acknowledged before me on the 1st day of
April, 1993, by Jere M. Ervin, Executive Vice President of International Health
Care Associates XX, Inc., the General Partner of INTERNATIONAL HEALTH CARE
PROPERTIES XX, L.P., a Georgia limited partnership, on behalf of said limited
partnership.
/s/ Sondra M. Hicks
---------------------------------
Notary Public
[NOTARY SEAL]
My Commission Expires:
July 30, 1995
5
<PAGE>
SCHEDULE 10.46
CHMC has entered into agreements substantially identical to Exhibit 10.46
as follows:
1. Right of First Refusal Agreement dated April 30, 1991 with
International Health Care Properties VII & VIII, L.P. for Red Boiling Springs,
Tennessee facility.
2. Right of First Refusal Agreement dated May 1, 1991 with International
Health Care Properties VII & VIII, L.P. for Clarkston, Washington facility.
3. Right of First Refusal Agreement dated August 22, 1991 with
International Health Care Properties VI, L.P. for Albuquerque, New Mexico
facility.
4. Right of First Refusal Agreement dated May 31, 1991 with International
Health Care Properties IX, L.P. for Roscommon, Michigan facility.
CHPC has entered into agreements substantially identical to Exhibit 10.46
as follows:
5. Right of First Refusal Agreement dated August 1, 1994 with
International Health Care Properties XXVII, L.P. for Olathe, Kansas facility.
6. Right of First Refusal Agreement dated as of January 1, 1997 with EBT
for Fort Worth, Texas facility.
7. Right of First Refusal Agreement dated as of January 1, 1997 with EBT
for Orofino, Idaho facility.
8. Right of First Refusal Agreement dated as of January 1, 1997 with EBT
for Pinewood, Idaho facility.
9. Right of First Refusal Agreement dated as of January 1, 1997 with EBT
for Libby, Montana facility.
10. Right of First Refusal Agreement dated as of January 1, 1997 with EBT
for Union, Mississippi facility.
11. Right of First Refusal Agreement dated as of January 1, 1997 with EBT
for Natchez, Mississippi facility.
12. Right of First Refusal Agreement dated as of January 1, 1997 with EBT
for Winona, Mississippi facility.
13. Right of First Refusal Agreement dated as of January 1, 1997 with EBT
for Starkville, Mississippi facility.
6
<PAGE>
14. Right of First Refusal Agreement dated as of January 1, 1997 with EBT
for McComb, Mississippi facility.
15. Right of First Refusal Agreement dated as of January 1, 1997 with EBT
for Franklinton, Louisiana facility.
16. Right of First Refusal Agreement dated as of January 1, 1997 with EBT
for Bossier City, Louisiana facility.
17. Right of First Refusal Agreement dated as of January 1, 1997 with EBT
for Ferriday, Louisiana facility.
18. Right of First Refusal Agreement dated as of January 1, 1997 with EBT
for Hiawatha, Kansas facility.
7
<PAGE>
EXHIBIT 10.47
<PAGE>
SUBORDINATION OF
RIGHT OF FIRST REFUSAL AGREEMENT
(Red Boiling Springs)
THIS SUBORDINATION OF RIGHT OF FIRST REFUSAL AGREEMENT (this "Agreement")
is made and entered into as of the 1st day of August, 1993, by and between
INTERNATIONAL HEALTH CARE PROPERTIES VII & VIII, L.P., a Georgia limited
partnership ("IHCP"), and WELCARE INTERNATIONAL MANAGEMENT CORPORATION, a
Georgia corporation ("WelCare").
W I T N E S S E T H:
WHEREAS, IHCP purchased certain real property and personal property
comprising a nursing home facility known as Heritage Manor of Red Boiling
Springs (the "Facility");
WHEREAS, IHCP engaged WelCare to manage the Facility pursuant to a
Management Agreement between IHCP and WelCare (the "Management Agreement");
WHEREAS, IHCP and WelCare provided for WelCare to have the right of first
refusal to purchase the Facility, subject to the terms and conditions set forth
in a Right of First Refusal Agreement between IHCP and WelCare (the "Right of
First Refusal Agreement"); and
WHEREAS, IHCP and WelCare desire to provide for WelCare to subordinate its
right of first refusal to purchase the Facility, subject to the terms and
conditions set forth herein.
NOW, THEREFORE, for and in consideration of TEN AND NO/100 DOLLARS
($10.00) cash in hand and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, IHCP and WelCare hereby agree as
follows:
1. Definitions. Except as defined in this Agreement, capitalized terms
shall have the meanings ascribed to such terms in the Right of First Refusal
Agreement.
2. Subordination of Right of First Refusal.
2.1 Approved Sale. IHCP shall have the right to sell, transfer,
convey or otherwise dispose of the real property and the personal property
comprising the Facility, including without limitation the real property on which
the Facility is located, and all other real, personal and intangible property
located at the Facility or used in the business operated on the Facility
(collectively, the "Property"), or any part thereof, without first offering the
same to WelCare in accordance with the terms and provisions of the Right of
First Refusal Agreement only if IHCP (i) sells, transfers, conveys or otherwise
disposes of the Property
<PAGE>
to Jere M. Ervin ("Ervin") and Seiji Suzuki ("Suzuki"), an entity of which Ervin
and Suzuki are the sole shareholders or an entity of which Linda Ervin and
Sandra Suzuki are the sole shareholders (collectively, the "Purchaser"), and
(ii) complies with the provisions of Sections 2.2 and 2.3 below (the "Approved
Sale").
2.2 Release From Liabilities. In the event that IHCP determines to
sell, transfer, convey or otherwise dispose of the Property pursuant to the
Approved Sale, IHCP agrees that WelCare and its affiliates will be released from
all liability for any indebtedness with respect to the Property (the
"Indebtedness"). IHCP and the Purchaser shall jointly and severally indemnify
and hold harmless WelCare and its affiliates, to the fullest extent permitted by
law, from all losses, damages, expenses, liabilities, charges, costs, claims,
demands, and fees (including, without limitation, amounts paid in satisfaction
of judgments, as fines or penalties, attorneys' fees and costs of litigation)
sustained or incurred WelCare or its affiliates in connection with the
Indebtedness.
2.3 Management and Right of First Refusal Agreements. At the closing
of the Approved Sale, the Purchaser shall deliver to WelCare a properly executed
and acknowledged management agreement and right of first refusal agreement with
respect to the Property, containing like terms and provisions as the Management
Agreement and the Right of First Refusal Agreement.
3. Binding; Assignability. This Agreement shall constitute a covenant
running with the land, and the terms and provisions of this Agreement shall be
binding upon and shall inure to the benefit of IHCP, WelCare and their
respective successors and assigns; provided, however, that WelCare may not
assign this Agreement without the prior written consent of IHCP except to a
subsidiary or affiliate of WelCare which is controlled by or under common
control with WelCare.
4. Notices. All notices required or permitted to be given under the terms
of this Agreement shall be in writing and shall be deemed given when delivered
personally, telecopied (transmission confirmed), or, if mailed (by first class
mail with postage prepaid, return receipt requested), when received, addressed
or telecopied, as the case may be, to the appropriate address or telecopier
number set forth below:
To WelCare: 7000 Central Parkway
Suite 970
Atlanta, Georgia 30328
Attention: J. Stephen Eaton
Telecopy Number: (404) 395-9776
To IHCP and
the Purchaser: c/o BNA Corporate Center
404 BNA Drive, Suite 313
Nashville, Tennessee 37217
2
<PAGE>
Attention: Jere M. Ervin
Telecopy Number: (615) 399-0604
Either party may change its address by giving notice to the other party as
aforesaid.
5. Entire Agreement; Amendments. This Agreement contains the entire
agreement between the parties hereto, and no prior oral or written, and no
contemporaneous oral representations or agreements between the parties with
respect to the subject matter of this Agreement shall be of any force and
effect. Any additional amendments or modifications to this Agreement shall be of
no force or effect unless in writing and signed by both WelCare and IHCP.
6. Governing Law. This Agreement and all the terms and provisions and the
rights and obligations of the parties hereto shall be governed by, and construed
and enforced in accordance with, the laws of the State of Georgia to the extent
allowable (without regard to its rules of conflicts of laws).
7. Captions and Headings. The captions and headings throughout this
Agreement are for convenience and reference only, and the words contained
therein shall in no way be held or deemed to define, limit, describe, explain,
modify, amplify or add to the interpretation, construction or meaning of any
provision of or the scope or intent of this Agreement nor in any way affect this
Agreement.
8. Counterparts. This Agreement may be executed in counterparts, each of
which shall be an original, and together shall constitute one and the same
document.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed, sealed and delivered
this Agreement through their duly authorized representatives, as of the date
first above written.
"WELCARE":
WELCARE INTERNATIONAL MANAGEMENT
CORPORATION, a Georgia corporation
By: /s/ Alan C. Dahl
-------------------------------------
Alan C. Dahl, Vice President
"IHCP":
INTERNATIONAL HEALTH CARE
PROPERTIES VII & VIII, L.P., a
Georgia limited partnership
By: /s/ Jere M. Ervin
-------------------------------------
Jere M. Ervin,
General Partner
"ERVIN":
/s/ Jere M. Ervin (SEAL)
-------------------------------------
Jere M. Ervin
"SUZUKI":
/s/ Seigi Suzuki (SEAL)
-------------------------------------
Seiji Suzuki
[ACKNOWLEDGMENTS ON NEXT PAGE]
4
<PAGE>
STATE OF GEORGIA ss.
ss.
COUNTY OF FULTON ss.
The foregoing instrument was acknowledged before me on the 4th day of
October, 1993, by Alan C. Dahl, Vice President of WELCARE INTERNATIONAL
MANAGEMENT CORPORATION, a Georgia corporation, on behalf of said corporation.
/s/ Janet Mamane
-------------------------------------
Notary Public
[NOTARY SEAL]
My Commission Expires:
March 25, 1995
STATE OF GEORGIA ss.
ss.
COUNTY OF FULTON ss.
The foregoing instrument was acknowledged before me on the 4th day of
October, 1993, by Jere M. Ervin, the General Partner of INTERNATIONAL HEALTH
CARE PROPERTIES VII & VIII, L.P., a Georgia limited partnership, on behalf of
said limited partnership.
/s/ Janet Mamane
-------------------------------------
Notary Public
[NOTARY SEAL]
My Commission Expires:
March 25, 1995
5
<PAGE>
SCHEDULE 10.47
CHMC has entered into agreements substantially identical to Exhibit 10.47
as follows:
1. Subordination of Right of First Refusal Agreement dated August 1, 1993
with International Health Care Properties VII & VIII, L.P. for Clarkston,
Washington facility.
2. Subordination of Right of First Refusal Agreement dated August 1, 1993
with International Health Care Properties IX, L.P. for Roscommon, Michigan
facility.
3. Subordination of Right of First Refusal Agreement dated August 1, 1993
with International Health Care Properties VI, L.P. for Albuquerque, New Mexico
facility.
6
<PAGE>
EXHIBIT 11.1
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION
COMPUTATION OF EARNINGS PER SHARE
Years Ended December 31, 1995 1996
---- ----
Average outstanding shares used in the
computation of per share earnings
Common stock issued 1,782,868 2,005,754
Common stock in treasury (223,575) (223,575)
Special voting common stock 3,046,058
Stock option common stock equivalents 248,098 120,977
Convertible preferred common stock
equivalents 886,627
--------- ---------
Average outstanding shares 2,694,018 4,949,214
Income before accretion and dividends on
preferred stock 1,876,034 2,436,603
Accretion on Convertible Preferred A and B (a) (121,818)
Dividends on Convertible Preferred A and B (a) (340,897)
Accretion on Nonconvertible Preferred C (259,237)
Dividends on Nonconvertible Preferred C (1,469,795)
--------- ---------
Income applicable to common stock 1,876,034 244,856
Earnings per share 0.70 0.05
(a) In 1996, the assumed conversion of Series A and B was antidilutive, thus
the conversion of these shares was not included in the average
outstanding shares used in the computation of per share earnings and the
dividends and accretion associated with these shares was deducted from
net earnings applicable to common stock.
<PAGE>
EXHIBIT 16.1
<PAGE>
March 27, 1997
Securities and Exchange Commission
450-5th Street, N.W.
Washington, D.C. 20549
Gentlemen:
We have been furnished with a copy of the response to Item 304(a)
of Regulation S-K as included under the caption "Experts" in the Registration
Statement on Form S-1, filed by our former client, Centennial HealthCare
Corporation (formerly WelCare International, Inc.). We agree with the
statements made in the first, fourth and fifth sentences of paragraph four
insofar as they relate to our firm. We have no basis for agreeing or
disagreeing with the statements made in the second and third sentences of
paragraph four.
Very truly yours,
/s/ BDO SEIDMAN, LLP
BDO SEIDMAN, LLP
<PAGE>
EXHIBIT 21.1
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION
Subsidiaries of Centennial HealthCare Corporation
-------------------------------------------------
CENTENNIAL HEALTHCARE MANAGEMENT CORPORATION
A Georgia corporation
CENTENNIAL HEALTHCARE PROPERTIES CORPORATION
A Georgia corporation
CENTENNIAL/ASHTON PROPERTIES CORPORATION
A Georgia corporation
CENTENNIAL PROFESSIONAL THERAPY SERVICES CORPORATION
A Georgia corporation
CENTENNIAL ACQUISITION CORPORATION
A Georgia corporation
TRANSITIONAL HEALTH SERVICES, INC.
A Delaware corporation
Subsidiaries of Centennial HealthCare Properties Corporation
------------------------------------------------------------
CENTENNIAL HEALTHCARE INVESTMENT CORPORATION
A Georgia corporation
Subsidiaries of Centennial Acquisition Corporation
--------------------------------------------------
CENTENNIAL SERVICE CORPORATION - GRANT PARK
A Georgia corporation
CENTENNIAL SERVICE CORPORATION - MONTCLAIR
A Georgia corporation
<PAGE>
Subsidiaries of Transitional Health Services, Inc.
--------------------------------------------------
THS PARTNERS I, INC.
A Delaware corporation
THS PARTNERS II, INC.
A Delaware corporation
PARAGON REHABILITATION, INC.
A Delaware corporation
TRANSITIONAL FINANCIAL SERVICES, INC.
A Delaware corporation
<PAGE>
EXHIBIT 23.2
<PAGE>
After consummation of the proposed reverse stock split, as discussed in Note
20 to the audited financial statements, Coopers & Lybrand L.L.P. will be in a
position to render the following consent.
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our report dated March 7, 1997, except for Note 20, as to which the date is
March 26, 1997, on our audit of the financial statements of Centennial
HealthCare Corporation and Subsidiaries as of December 31, 1995 and 1996 and
for each of the two years in the period ended December 31, 1996. We also
consent to the reference to our firm under the caption "Experts."
Atlanta, Georgia
March 28, 1997
<PAGE>
EXHIBIT 23.3
<PAGE>
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated July 3, 1996, with respect to the consolidated
financial statements of Transitional Health Services, Inc. and subsidiaries
included in the Registration Statement (Form S-1 No. 33-00000) and related
Prospectus of Centennial HealthCare Corporation for the registration of
shares of its common stock.
/s/ Ernst & Young LLP
Louisville, Kentucky
March 26, 1997
<PAGE>
EXHIBIT 23.4
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Centennial HealthCare Corporation
Atlanta, Georgia
We hereby consent to the use in the Prospectus constituting a part
of this Registration Statement of our report dated July 7, 1995, except for
Note 18, which is as of August 15, 1995 relating to the consolidated
financial statements of Centennial HealthCare Corporation (formerly WelCare
International, Inc.), which is contained in that Prospectus.
We also consent to the reference to us under the captions
"Selected Consolidated Financial Data" and "Experts" in the Prospectus.
/s/ BDO SEIDMAN, LLP
BDO SEIDMAN, LLP
Atlanta, Georgia
March 28, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS UNAUDITED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
AUDITED FINANCIAL STATEMENTS INCLUDED IN THE COMPANY'S FORM S-1 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FILING.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 DEC-31-1996
<CASH> 4,894 7,560
<SECURITIES> 0 0
<RECEIVABLES> 35,712 50,024
<ALLOWANCES> 5,912 2,959
<INVENTORY> 0 0
<CURRENT-ASSETS> 42,083 60,808
<PP&E> 58,426 87,924
<DEPRECIATION> 3,090 6,730
<TOTAL-ASSETS> 155,018 204,271
<CURRENT-LIABILITIES> 38,098 51,963
<BONDS> 83,559 116,714
19,455 21,305
0 0
<COMMON> 17 21
<OTHER-SE> 11,381 12,117
<TOTAL-LIABILITY-AND-EQUITY> 155,018 204,271
<SALES> 0 0
<TOTAL-REVENUES> 75,226 246,272
<CGS> 0 0
<TOTAL-COSTS> 72,031 231,878
<OTHER-EXPENSES> 449 (108)<F1>
<LOSS-PROVISION> 1,035 440
<INTEREST-EXPENSE> 590 10,511
<INCOME-PRETAX> 3,466 4,470
<INCOME-TAX> 1,389 1,851
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,876 708
<EPS-PRIMARY> .70 .05
<EPS-DILUTED> .70 .05
<FN>
<F1> EQUITY IN INCOME (LOSS) OF UNCONSOLIDATED PARTNERSHIPS
</FN>
</TABLE>
