<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 8, 1997
REGISTRATION NO. 333-34421
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
PROVINCE HEALTHCARE COMPANY
(Exact name of registrant as specified in its charter)
---------------------
<TABLE>
<S> <C> <C>
DELAWARE 8062 62-1710772
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
109 WESTPARK DRIVE, SUITE 180
BRENTWOOD, TENNESSEE 37027
TELEPHONE: (615) 370-1377
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------------
RICHARD D. GORE
109 WESTPARK DRIVE, SUITE 180
BRENTWOOD, TENNESSEE 37027
TELEPHONE: (615) 370-1377
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
<TABLE>
<C> <C>
H. KURT VON MOLTKE J. VAUGHAN CURTIS
KIRKLAND & ELLIS ALSTON & BIRD LLP
200 EAST RANDOLPH DRIVE 1201 WEST PEACHTREE STREET
CHICAGO, ILLINOIS 60601 ATLANTA, GEORGIA 30309
(312) 861-2000 (404) 881-7000
</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 of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, please 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
under the Securities Act of 1933, please check the following box. [ ]
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
OCTOBER 8, 1997
5,700,000 SHARES
[LOGO] PROVINCE HEALTHCARE
COMMON STOCK
------------------
All of the shares of Common Stock, par value $0.01 per share (the "Common
Stock") of Province Healthcare Company ("Province" or the "Company"), offered
hereby are being sold by the Company. Prior to this offering there has been no
public market for the Common Stock. It is presently estimated that the initial
public offering price will be between $13.00 and $15.00 per share. See
"Underwriting" for information relating to the factors to be considered in
determining the initial public offering price. Application has been made for the
approval and trading of the Common Stock on the Nasdaq National Market under the
symbol "PRHC."
Upon completion of the offering, officers and directors of the Company and
affiliates of the Company's officers and directors will beneficially own 49.3%
of the Common Stock (46.7% if the Underwriters' over-allotment option is
exercised in full). Accordingly, officers and directors of the Company and
affiliates of the Company's officers and directors acting in concert will
effectively be able to control the election of directors and management and
operations of the Company. See "Risk Factors -- Effective Control by Certain
Stockholders."
------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 11.
------------------
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 $1,200,000, payable
by the Company.
(2) The Company has granted the Underwriters a 30-day option to purchase up to
855,000 additional shares of Common Stock solely to cover over-allotments,
if any. To the extent 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 the Common Stock will be made at the
offices of BT Alex. Brown Incorporated, Baltimore, Maryland, on or about
, 1997.
BT ALEX. BROWN
BANCAMERICA ROBERTSON STEPHENS
GOLDMAN, SACHS & CO.
THE ROBINSON-HUMPHREY COMPANY
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE> 3
[PHOTOGRAPHS OF THE COMPANY'S EIGHT HOSPITALS]
THE UNDERWRITERS AND OTHER PERSONS MAY OVER-ALLOT OR EFFECT TRANSACTIONS
THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF THE COMPANY
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the Consolidated
Financial Statements and the related Notes thereto appearing elsewhere in this
Prospectus.
THE COMPANY
Province Healthcare Company is a provider of health care services in
attractive non-urban markets in the United States. In developing a platform for
the provision of health care services within target markets, the Company seeks
to acquire hospitals which are the sole or primary providers of health care in
those communities. After acquiring a hospital, the Company seeks to improve the
hospital's operating performance and to broaden the range of services provided
to the community. The Company offers a wide range of inpatient and outpatient
medical services and also provides specialty services, including skilled
nursing, geriatric psychiatry and rehabilitation. The Company currently owns or
leases eight general acute care hospitals in four states with a total of 570
licensed beds. The Company also provides management services to 50 primarily
non-urban hospitals in 17 states with a total of 3,448 licensed beds. For the
year ended December 31, 1996, and the six months ended June 30, 1997, the
Company had net operating revenue of $129.9 million and $80.9 million,
respectively.
The Company believes that non-urban markets are attractive to health care
service providers. Because non-urban service areas have smaller populations,
there are generally only one or two hospitals in each non-urban market,
resulting in less competition. The relative dominance of the acute care hospital
in these smaller markets also limits the entry of alternate site providers,
which provide services such as outpatient surgery, rehabilitation or diagnostic
imaging. The demographic characteristics of non-urban markets and the relative
strength of the local hospital also make non-urban markets less attractive to
HMOs and other forms of managed care. In addition, the Company believes that
non-urban communities are generally characterized by a high level of patient and
physician loyalty that fosters cooperative relationships among the local
hospital, physicians and patients. Despite these attractive characteristics,
many not-for-profit and governmental operators of non-urban hospitals are under
pressure due to capital constraints, limited management resources and the
challenges of managing in a complex health care regulatory environment. These
pressures often result in diminished operating and financial performance which
can lead owners to sell or lease their hospitals to companies, like Province,
that have greater financial and management resources.
The Company's objective is to be the leading provider of high quality
health care in selected non-urban markets. To achieve this end, the Company
seeks to acquire hospitals which are the primary providers of health care in
their markets and which present the opportunity to increase profitability and
market share. The Company targets acquisition candidates that: (i) have a
minimum service area population of 20,000 with a stable or growing employment
base; (ii) are the sole or primary providers of health care services in the
community; (iii) have annual net patient revenue of at least $12.0 million; and
(iv) have financial performance that will benefit from Province management's
proven operating skills. The Company's goal is to acquire two to four hospitals
each year of the approximately 1,100 non-urban hospitals that fit the Company's
acquisition profile.
Following the acquisition of a hospital, the Company implements its
systematic policies and procedures to improve the hospital's operating and
financial performance. Key elements of the Company's operating strategy are to:
(i) expand the breadth of services offered in the community to increase local
market share; (ii) improve hospital operations by implementing appropriate
expense controls, managing staffing levels, reducing supply costs, and
renegotiating certain vendor contracts; (iii) recruit additional general
practitioners and specialty physicians to the community; and (iv) form
relationships with local employers and regional tertiary providers to solidify
the position of the Company's hospital as the focal point of the community's
health care delivery system. The
3
<PAGE> 5
Company expects to make capital expenditures and to incur operating costs in
implementing this strategy, which management believes will be offset by
increases in market share and profitability resulting from such implementation.
Prior to its 1996 recapitalization and merger with PHC of Delaware, Inc.
("PHC"), the Company operated under the name Brim, Inc. ("Brim"). The current
operations of the Company include certain Brim operations and all of the
operations of PHC. Brim and its predecessors have provided health care services,
including managing and operating non-urban hospitals, since the 1970s. PHC was
founded in February 1996 by Golder, Thoma, Cressey, Rauner Fund IV, L.P. ("GTCR
Fund IV") and Martin S. Rash to acquire and operate hospitals in attractive
non-urban markets. In December 1996, Brim was recapitalized (the
"Recapitalization"). Subsequently, the operations of Brim and PHC were combined
in a merger (the "Merger"). In connection with the Recapitalization, Mr. Rash
and Richard D. Gore were elected as the senior management of the Company.
The Company's management team has extensive experience in acquiring and
operating previously under-performing non-urban hospitals. Prior to co-founding
PHC, Mr. Rash was the Chief Operating Officer of Community Health Systems, Inc.
("Community"), an acquiror and operator of non-urban hospitals. During Mr.
Rash's tenure, Community acquired many non-urban hospitals and owned or leased
36 hospitals at December 31, 1995. Mr. Gore was previously employed as Vice
President and Controller of Quorum Health Group, Inc., an owner, operator and
manager of acute care hospitals. John M. Rutledge, the Company's Chief Operating
Officer, was previously employed as a Regional Vice President/Group Director at
Community, reporting directly to Mr. Rash. Steven P. Taylor, the Company's
Senior Vice President of Acquisitions and Development, was previously President
of Brim Healthcare, Inc., a subsidiary of the Company.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company................ 5,700,000 shares
Common Stock to be outstanding after the
offering......................................... 15,698,314 shares(1)
Use of proceeds.................................... To repay certain indebtedness, to
redeem a portion of the Company's
preferred stock and to repurchase a
portion of the shares of Common Stock
issued upon conversion of preferred
stock. See "Use of Proceeds."
Proposed Nasdaq National Market symbol............. "PRHC"
</TABLE>
- ---------------
(1) Gives effect to the conversion of the Company's outstanding Series B Junior
Preferred Stock, no par value (the "Junior Preferred Stock") into 2,451,218
shares of Common Stock and the repurchase of 1,034,414 of such shares of
Common Stock (in each case at an assumed initial public offering price of
$14.00 per share), but does not include 385,765 shares of Common Stock
issuable upon the exercise of outstanding options issued pursuant to the
Company's 1997 Long-Term Equity Incentive Plan at a weighted average
exercise price of $3.38 per share.
4
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL AND STATISTICAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND STATISTICAL DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------- ---------------------------
PRO PRO
FORMA FORMA
1994 1995 1996 1996(1) 1996 1997 1997(1)
-------- -------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net operating revenue.................... $102,067 $101,214 $129,855 $153,136 $58,290 $80,861 $80,861
Operating expenses(2).................... 96,870 98,077 128,689 151,322 53,466 71,599 71,599
Interest expense......................... 760 589 2,523 5,389 847 3,941 2,459
Costs of recapitalization................ -- -- 11,570 11,570 -- -- --
Loss (gain) on sale of assets............ (635) (2,814) 442 442 106 (159) (159)
-------- -------- -------- -------- ------- ------- -------
Income (loss) from continuing operations
before provision for income taxes...... 5,072 5,362 (13,369) (15,587) 3,871 5,480 6,962
Provision (benefit) for income taxes..... 2,097 1,953 (4,464) (5,328) 1,846 2,081 2,659
-------- -------- -------- -------- ------- ------- -------
Income (loss) from continuing
operations............................. 2,975 3,409 (8,905) $(10,259) 2,025 3,399 $ 4,303
======== =======
Income (loss) from discontinued
operations, less applicable income
taxes.................................. (157) (264) 6,015 182 --
-------- -------- -------- ------- -------
Net income (loss)........................ $ 2,818 $ 3,145 (2,890) 2,207 3,399
======== ========
Preferred stock dividends and
accretion.............................. (172) -- (2,384)
-------- ------- -------
Net income (loss) applicable to common
shareholders........................... $ (3,062) $ 2,207 $ 1,015
======== ======= =======
Pro forma net income (loss) per share
applicable to common
shareholders(1)(3):
Income (loss) from continuing
operations........................... $ (1.03) $ (0.64) $ 0.23 $ 0.11 $ 0.27
======== =======
Income from discontinued operations.... 0.68 0.02 --
-------- ------- -------
Net income (loss) applicable to common
shareholders......................... $ (0.35) $ 0.25 $ 0.11
======== ======= =======
Pro forma shares used in computing net
income (loss) per share applicable to
common shareholders(1)(3).............. 8,843 15,959 8,843 8,843 15,959
CASH FLOW DATA:
Net cash provided by (used in)
operations............................. 2,661 3,694 1,766 7,442 (1,543)
Net cash used in investing activities.... (714) (1,527) (17,344) (6,668) (5,651)
Net cash (used in) provided by financing
activities............................. (2,605) (1,699) 24,547 329 1,954
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------------
PRO FORMA
ACTUAL AS ADJUSTED(4)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 6,016 $ 10,424
Total assets.............................................. 96,853 101,261
Long-term obligations, less current maturities............ 78,436 41,804
Mandatory redeemable preferred stock...................... 46,340 --
Common stockholders' equity (deficit)..................... (60,308) 29,515
</TABLE>
See accompanying notes on following page.
5
<PAGE> 7
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
STATISTICAL DATA(5):
Hospitals owned or leased (at end of period).............. 4 4 7 5 7
Licensed beds (at end of period).......................... 294 294 513 371 517
Admissions................................................ 8,868 8,839 11,460 5,101 7,371
Patient days.............................................. 57,161 56,088 64,647 29,368 40,837
Adjusted patient days(6).................................. 91,047 92,085 115,805 50,992 73,367
Average length of stay (days)(7).......................... 6.5 6.4 5.6 5.8 5.5
Gross outpatient service revenue (in thousands)........... $46,312 $51,414 $ 78,561 $32,336 $53,680
Gross outpatient service revenue (% of gross patient
service revenue)........................................ 37.2% 39.1% 44.2% 42.4% 44.3%
EBITDAR (in thousands)(8)................................. $10,508 $ 9,041 $ 11,311 $ 8,273 $14,635
EBITDAR margin(9)......................................... 10.3% 8.9% 8.7% 14.2% 18.1%
</TABLE>
- ---------------
(1) Pro forma 1996 and 1997 statements of operations data give effect to: (i)
the operating results of the three hospitals acquired by the Company in
1996 (the "1996 Acquired Hospitals") for periods prior to their
acquisition; (ii) the sale in July 1997 of 3,755 shares of Junior Preferred
Stock and 958,225 shares of Common Stock; (iii) Leeway & Co.'s exercise in
September 1997 of its warrant to purchase 343,265 shares of Common Stock;
(iv) the conversion of the Junior Preferred Stock and accumulated and
unpaid dividends with an aggregate carrying amount of approximately $33.1
million into 2,451,218 shares of Common Stock in connection with the
offering (the "Preferred Stock Conversion"); and (v) the sale of the Common
Stock in the offering, and the application of the estimated net proceeds
thereof to the repurchase of the Common Stock issued with respect to 13,636
of the shares of Junior Preferred Stock, the redemption of the Company's
Series A Senior Preferred Stock, no par value (the "Senior Preferred
Stock") and the repayment of debt, as described in "Use of Proceeds," as if
all such transactions had been completed as of January 1, 1996 and assuming
an initial public offering price of $14.00 per share. Net income (loss) per
share applicable to common shareholders on the 1996 and 1997 pro forma
amounts are based on the same assumptions outlined above.
(2) Includes an increase in insurance expense in the second half of 1996 due to
a change in estimate of $2.1 million.
(3) Pro forma net income (loss) per share applicable to common shareholders for
the historical year ended December 31, 1996 and the historical six months
ended June 30, 1996 and 1997 is computed using the weighted average number
of shares of Common Stock outstanding during the period, including dilutive
common equivalent shares from stock options and warrants (using the
treasury stock method). The 7,280,020 common shares issued in the
Recapitalization and the Merger in December 1996 have been included in the
pro forma calculation as if the Recapitalization and the Merger had
occurred as of the first day of 1996. Pursuant to the Securities and
Exchange Commission Staff Accounting Bulletins, all other Common Stock
issued, and Common Stock options and warrants granted by the Company at
prices below the initial public offering price during the twelve-month
period prior to the initial public offering have been included in the
calculation as if they were outstanding for the full fiscal year (using the
treasury stock method). Historical net income (loss) per share has not been
presented since the historical capitalization of the Company is not
meaningful due to the significant change in the capital structure of the
Company resulting from the Recapitalization. Supplemental pro forma net
income (loss) per share applicable to common shareholders as required by
Accounting Principles Board Opinion No. 15, Earnings per Share, has not
been presented as that information is provided in the pro forma net income
(loss) per share applicable to common shareholders presentation referred to
in (1) above.
(4) The pro forma as adjusted balance sheet data as of June 30, 1997 gives
effect to: (i) the sale in July 1997 of 3,755 shares of Junior Preferred
Stock and 958,225 shares of Common Stock; (ii) the payment in July 1997 of
$211,200 on the note receivable for Common Stock; (iii) Leeway & Co.'s
exercise in September 1997 of its warrant to purchase 343,265 shares of
Common Stock; (iv) the conversion from no par value to $0.01 par value
Common Stock in connection with the Reincorporation (as defined below); (v)
the Preferred Stock Conversion; and (vi) the sale of Common Stock in the
offering and the application of the estimated net proceeds thereof to the
repurchase of Common Stock issued with respect to 13,636 of the shares of
Junior Preferred Stock, the redemption of Senior Preferred Stock and the
repayment of debt, as described in "Use of Proceeds," as if all such
transactions had been completed as of June 30, 1997 and assuming an initial
public offering price of $14.00 per share.
(5) Excludes Fifth Avenue Hospital in Seattle, Washington, which was sold in
May 1995.
(6) Adjusted patient days have been calculated based on an industry-accepted,
revenue-based formula (multiplying actual patient days by the sum of gross
inpatient revenue and gross outpatient revenue and dividing the result by
gross inpatient revenue for each hospital) to reflect an approximation of
the number of inpatients and outpatients served.
(7) Average length of stay is calculated based on the number of patient days
divided by the number of admissions.
(8) "EBITDAR" is defined to mean earnings before interest, taxes, depreciation
and amortization, rentals and leases, cumulative effect of change in
accounting method, costs of the Recapitalization, loss (gain) on sale of
assets, and income (loss) from discontinued operations, net of taxes.
EBITDAR has been adjusted in 1996 to exclude the increase in insurance
expense due to a change in estimate of $2.1 million. Investors should
consider cash flow in evaluating financial performance. Cash flow trends
may not mirror EBITDAR trends. The items excluded from EBITDAR are
significant components in understanding and assessing the Company's
financial performance. The Company has included EBITDAR data because such
data are one measure in determining the enterprise value of the Company.
6
<PAGE> 8
EBITDAR reflects the operating results of the Company from a cash
perspective. The Company believes discussion of EBITDAR provides meaningful
information to the reader of the financial statements and allows investors
to better determine the ability of the Company to meet its future debt
service, capital expenditure, and working capital requirements and to incur
additional indebtedness. By including rentals and leases expense in the
definition of EBITDAR, the results are comparable to those results which
would be obtained if the Company had chosen to purchase, rather than lease,
assets. The choice to purchase assets would have resulted in depreciation
expense, a noncash item. EBITDAR is not a measure of financial performance
under generally accepted accounting principles and should not be considered
an alternative to net income as a measure of operating performance or to
cash flows from operating activities as a measure of liquidity. The
Company's computations of EBITDAR may not be comparable to other similarly
titled measures of other companies.
(9) EBITDAR margin represents EBITDAR divided by net operating revenue.
Investors should consider cash flow in evaluating financial performance.
Cash flow trends may not mirror EBITDAR Margin trends. The items excluded
from EBITDAR Margin are significant components in understanding and
assessing the Company's financial performance. The Company believes
discussion of EBITDAR Margin is meaningful to the reader of the financial
statements to provide information with respect to the ability of the
Company to meet its future debt service, capital expenditure and working
capital requirements. The Company's computations of EBITDAR Margin may not
be comparable to other similarly titled measures of other companies.
7
<PAGE> 9
FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus Summary and under the captions "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business," and elsewhere in this Prospectus, constitute
forward-looking statements. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company or industry results to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: general economic and business conditions, both
nationally and in regions where the Company operates; demographic changes; the
effect of existing or future governmental regulation and federal and state
legislative and enforcement initiatives on the Company's business, including the
recently-enacted Balanced Budget Act of 1997; changes in Medicare and Medicaid
reimbursement levels; the Company's ability to implement successfully its
acquisition and development strategy and changes in such strategy; the
availability and terms of financing to fund the expansion of the Company's
business, including the acquisition of additional hospitals; the Company's
ability to attract and retain qualified management personnel and to recruit and
retain physicians and other health care personnel to the non-urban markets it
serves; the effect of managed care initiatives on the non-urban markets served
by the Company's hospitals and the Company's ability to enter into managed care
provider arrangements on acceptable terms; the effect of liability and other
claims asserted against the Company; the effect of competition in the markets
served by the Company's hospitals; and other factors referenced in this
Prospectus. Certain of these factors are discussed in more detail elsewhere in
this Prospectus. Given these uncertainties, prospective investors are cautioned
not to place undue reliance on such forward-looking statements. The Company
disclaims any obligation to update any such factors or to publicly announce the
result of any revisions to any of the forward-looking statements contained
herein to reflect future events or developments. See "Risk Factors."
Unless the context otherwise requires, references in this Prospectus to
"Province" or the "Company" shall mean Province Healthcare Company and its
predecessors (including Principal Hospital Company, formerly known as Brim,
Inc.), together with Province Healthcare Company's direct and indirect
subsidiaries. Unless otherwise indicated, all information contained in this
Prospectus: (i) has been adjusted to give effect to the Recapitalization, the
Merger, the 3-for-1 stock split effected in May 1997, and the Reincorporation
(as defined below); and (ii) assumes no exercise of the Underwriters'
over-allotment option.
8
<PAGE> 10
THE COMPANY
Prior to the Recapitalization and the Merger with PHC, the Company operated
under the name Brim, Inc. The current operations of the Company include certain
Brim operations and all of the operations of PHC. Brim and its predecessors have
provided health care services, including managing and operating non-urban
hospitals, since the 1970s. PHC was founded in February 1996 by GTCR Fund IV and
Mr. Rash to acquire and operate hospitals in non-urban communities in the United
States. In December 1996, Brim was recapitalized. Following the
Recapitalization, new members of the Board of Directors were elected, and
Messrs. Rash and Gore were elected as Brim's Chief Executive Officer and Chief
Financial Officer, respectively; the operations of Brim and PHC were combined in
the Merger; and the Company operated under the name Principal Hospital Company.
During 1996, prior to the Recapitalization, PHC purchased Memorial Mother
Frances Hospital in Palestine, Texas and leased Starke Memorial Hospital in
Knox, Indiana, and Brim leased Parkview Regional Hospital in Mexia, Texas
(collectively, the "1996 Acquisitions"). In August 1997, the Company leased
Needles Desert Community Hospital in Needles, California (the "Needles
Acquisition").
In October 1997, the Company's predecessor, Principal Hospital Company,
will be merged with and into Province Healthcare Company, a Delaware
corporation, to change the name and jurisdiction of incorporation of Principal
Hospital Company and to make certain other changes to the Company's authorized
capitalization (the "Reincorporation").
The Company's principal executive offices are located at 109 Westpark
Drive, Suite 180, Brentwood, Tennessee 37027, and its telephone number is (615)
370-1377.
THE RECAPITALIZATION AND THE MERGER
On December 18, 1996, Brim was recapitalized pursuant to an Investment
Agreement among GTCR Fund IV, Brim and PHC. Prior to the Recapitalization, Brim
was owned by certain of its officers and employees, and PHC was controlled by
GTCR Fund IV, which owned 82.1% of its common stock. Following the
Recapitalization, GTCR Fund IV controlled both Brim and PHC, and merged a
subsidiary of Brim into PHC. The combination was accounted for as a merger of
businesses under common control.
The basic elements of the December 1996 recapitalization of the Company
included the following: GTCR Fund IV and other investors purchased new shares of
the Company's common and preferred stock. The Company sold its senior living
business and entered into a new credit facility to, along with the proceeds from
the sale of the new shares, provide financing for the redemption of a portion of
the pre-existing common and preferred stock; this pre-existing common and
preferred stock was redeemed; and certain pre-existing debt was repaid. The
recapitalization was accounted for as such and, accordingly, did not result in a
new basis of accounting. Upon completion of the recapitalization, GTCR Fund IV
controlled the Company and also controlled PHC, a company unrelated to Brim that
GTCR Fund IV founded in February 1996. Since both companies are engaged in the
business of owning, leasing and managing hospitals in non-urban communities,
GTCR Fund IV then merged PHC into Brim so that the two companies would be under
the same corporate structure and management.
As a result of the Recapitalization and the subsequent Merger with PHC, and
immediately thereafter, the Company was controlled by GTCR Fund IV, and the
Common Stock ownership of the Company was as follows: certain
pre-Recapitalization Brim shareholders (the "Continuing Shareholders") -- 10.9%;
GTCR Fund IV -- 61.0%; Leeway & Co. -- 11.5%; Messrs. Rash and Gore -- 15.7%;
and two banks -- 0.9%. After giving effect to: (i) the sale in July 1997 by the
Company of shares of its Junior Preferred Stock and Common Stock; (ii) the
exercise in September 1997 of the warrant held by Leeway & Co.; (iii) the
Preferred Stock Conversion; and
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(iv) the application of a portion of the proceeds of the offering to repurchase
the Common Stock issued to GTCR Fund IV and Leeway & Co. with respect to 13,636
of their shares of Junior Preferred Stock (in the case of clauses (iii) and (iv)
assuming an initial public offering price of $14.00 per share and as if such
transactions occurred prior to the offering); the Common Stock ownership of the
Company immediately prior to the issuance of shares of Common Stock pursuant to
the offering will be as follows: the Continuing Shareholders -- 10.8%; GTCR Fund
IV -- 59.0%; Leeway & Co. -- 15.3%; Messrs. Rash and Gore -- 13.9%; and two
banks -- 1.0%.
The principal elements of the Recapitalization included the following:
- The outstanding common stock of certain of Brim's shareholders (the
"Redeemed Shareholders") was exchanged for redeemable preferred stock (the
"Redeemable Stock").
- GTCR Fund IV, Messrs. Rash and Gore, and two banks (together with Leeway
& Co., the "Investors") purchased an aggregate of 1,912,124 shares of
Common Stock and 6,805 shares of Junior Preferred Stock, for an aggregate
purchase price of $7.5 million.
- Leeway & Co. purchased 20,000 shares of Senior Preferred Stock, 3,752
shares of Junior Preferred Stock, 833,778 shares of Common Stock and a
warrant to purchase 343,265 shares of Common Stock for an aggregate
purchase price of $24.1 million.
- Through a series of transactions, the Continuing Shareholders received
3,580 shares of Junior Preferred Stock and 795,562 shares of Common Stock
in exchange for their Brim common stock.
- Brim repaid its existing debt of $5.4 million and entered into a $100.0
million credit facility with First Union National Bank and certain other
lenders and borrowed $35.0 million under the term loan portion of the
facility and $37.0 million under the revolving credit portion of the
facility.
- Brim redeemed all of the Redeemable Stock for $42.3 million and settled
outstanding stock options for $8.0 million. Brim also redeemed preferred
stock held by General Electric Credit Corporation for $29.9 million.
In connection with the Recapitalization, an aggregate of $11.6 million was
charged to operations, consisting of $8.0 million paid to settle outstanding
stock options, $2.2 million of severance payments and $1.4 million of
transaction-related costs, principally professional fees.
Following the Recapitalization, a subsidiary of Brim was merged into PHC,
and PHC became a subsidiary of Brim. In connection with the Merger, the
stockholders of PHC received an aggregate of 14,403 shares of Junior Preferred
Stock and 3,738,556 shares of Common Stock, and PHC's existing debt of $19.6
million was repaid.
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RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should consider carefully the following information
relating to the Company and the Common Stock before making an investment in the
Common Stock offered hereby.
RISKS OF ACQUISITION STRATEGY
A key element of the Company's growth strategy is expansion through the
acquisition of acute care hospitals in attractive non-urban markets. There can
be no assurance that the Company will be able to acquire hospitals which meet
its target criteria on satisfactory terms, or of the number of such acquisitions
the Company will make during a period of time. Expenses arising from the
Company's efforts to complete acquisitions, increase services offered or
increase its market penetration could have a material adverse effect on the
Company's business, financial condition or results of operations. There can be
no assurance that the Company will be able to implement its growth strategy
successfully or manage its expanded operations effectively and profitably.
The Company faces competition for acquisitions primarily from other
for-profit health care companies as well as not-for-profit entities. Some of the
Company's competitors have greater financial and other resources than the
Company. Increased competition for the acquisition of non-urban acute care
hospitals could have an adverse impact on the Company's ability to acquire such
hospitals on favorable terms.
Hospital acquisitions generally require a longer period to complete than
acquisitions in many other businesses and are subject to additional uncertainty.
In recent years, the legislatures and attorneys general of several states have
shown a heightened level of interest in transactions involving the sale of
hospitals by not-for-profit entities. Although the level of interest varies from
state to state, the trend is to provide for increased governmental review, and
in some cases approval, of transactions in which not-for-profit entities sell a
health care facility. Attorneys general in certain states, including California,
where the Company owns or leases four hospitals, have been especially active in
evaluating these transactions. Although the Company has not yet been adversely
affected as a result of these trends, such increased scrutiny may increase the
difficulty or prevent the completion of transactions with not-for-profit
organizations in certain states in the future, and may affect the Company's
ability to exercise existing purchase options for hospitals, including the
hospitals in Eureka, California (lease expires in December 2000) and Blythe,
California (lease expires in December 2002, subject to a ten-year renewal
option).
EFFECT OF REIMBURSEMENT AND PAYMENT POLICIES; HEALTH CARE REFORM LEGISLATION
The Company's owned and leased hospitals derive a substantial portion of
their revenue from Medicare and Medicaid programs. Such programs are highly
regulated and are subject to frequent and substantial changes. In recent years,
changes in Medicare and Medicaid programs have resulted in limitations on, and
reduced levels of, payment and reimbursement for a substantial portion of
hospital procedures and costs. Congress recently enacted the Balanced Budget Act
of 1997, which establishes a plan to balance the federal budget by fiscal year
2002, and includes significant additional reductions in spending levels for the
Medicare and Medicaid programs.
Federal and state proposals are pending that would impose further
limitations on governmental payments to health care providers such as the
Company and increase co-payments and deductibles. In addition, a number of
states are considering legislation designed to reduce their Medicaid
expenditures and to provide universal coverage and additional care and/or to
impose additional taxes on hospitals to help finance or expand the states'
Medicaid systems. Significant additional reductions in payment levels could have
a material adverse effect on the business, financial condition and results of
operations of the Company.
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An increasing number of related legislative proposals have been introduced
or proposed in Congress and in some state legislatures that would effect major
changes in the health care system, either nationally or at the state level.
Among the proposals under consideration or already enacted are price controls on
hospitals, insurance market reforms to increase the availability of group health
insurance coverage to small businesses, and requirements that all businesses
offer health insurance coverage to their employees. While the Company
anticipates that payments to hospitals will be reduced as a result of future
federal and state legislation, it is uncertain at this time what legislation on
health care reform may ultimately be enacted or whether other changes in the
administration or interpretation of governmental health care programs will
occur. There can be no assurance that future health care legislation or other
changes in the administration or interpretation of governmental health care
programs will not have a material adverse effect on the Company's business,
financial condition or results of operations. See "Business -- Health Care
Reform, Regulation and Licensing."
HEALTH CARE INDUSTRY INVESTIGATIONS
Significant media and public attention has recently been focused on the
hospital industry due to ongoing investigations reportedly related to certain
referral, cost reporting, and billing practices, laboratory and home health care
services and physician ownership and joint ventures involving hospitals. The
alleged practices have been the subject of federal and state investigations, as
well as other proceedings.
As part of its hospital operations, the Company operates laboratories and
provides some home health care services. The Company also has significant
Medicare and Medicaid billings. The Company monitors its billing practices for
compliance with applicable law, in accordance with standard industry
interpretations of such laws. For example, in public statements surrounding
these current investigations, governmental authorities have taken positions on
issues ranging from the legality of physician ownership in healthcare facilities
in which they perform services, to the propriety of including marketing costs in
the Medicare cost report of hospital-affiliated home health agencies. These
positions appear to be inconsistent with practices that are common within the
industry and which have not previously been challenged in this manner. Moreover,
in certain instances, government investigations that have in the past been
conducted under the civil money penalty provisions of applicable law, are now
being investigated under criminal provisions of the Medicare Fraud and Abuse
Laws. There can be no assurance that the Company or other hospital operators
will not be the subject of future investigations or inquiries. The positions
taken by authorities in the current investigations or any future investigations
of the Company or other providers could have a material adverse effect on the
Company's business, financial condition or results of operations. See "-- Health
Care Regulation" and "Business -- Health Care Reform, Regulation and Licensing"
and "-- Hospital Operations -- Regulatory Compliance Program."
DEPENDENCE ON MANAGEMENT
The Company's success is largely dependent on the skills, experience and
efforts of its senior management. The Company's operations are also dependent on
the efforts, ability and experience of key members of its local management
staffs. The loss of services of one or more members of the Company's senior
management or of a significant portion of its local management staff could have
a material adverse effect on the Company's business, financial condition or
results of operations. The Company does not maintain key man life insurance
policies on any of its officers. See "Management."
DEPENDENCE ON PHYSICIANS
The success of the Company's owned and leased hospitals is dependent upon
the number and quality of the physicians on the medical staff of, or who admit
patients to, such facilities, the admissions practices of such physicians and
the maintenance of good relations between the
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Company and such physicians. Hospital physicians are generally not employees of
the Company and most staff physicians have admitting privileges at other
hospitals. Only a limited number of physicians are interested in practicing in
the non-urban communities in which the Company's hospitals are located, and the
loss of physicians in these communities, or the inability of the Company to
recruit physicians to these communities, could have a material adverse effect on
the Company's business, financial condition and results of operations. The
operations of the Company's hospitals may also be affected by the shortage of
nurses and certain other health care professionals in these communities. See
"Business -- Employees and Medical Staff."
HEALTH CARE REGULATION
The health care industry is subject to extensive federal, state and local
laws and regulations relating to issues such as licensure, conduct of
operations, ownership of facilities, addition of facilities and services, and
prices for services, that are extremely complex and for which, in many
instances, the industry has the benefit of little or no regulatory or judicial
interpretation. In particular, Medicare and Medicaid anti-kickback amendments
codified under Section 1128B(b) of the Social Security Act (the "Anti-kickback
Amendments") prohibit certain business practices and relationships that might
affect the provision and cost of health care services reimbursable under
Medicare and Medicaid, including the payment or receipt of remuneration for the
referral of patients whose care will be paid for by Medicare or other
governmental programs. Sanctions for violating the Anti-kickback Amendments
include criminal penalties and civil sanctions, including fines and possible
exclusion from government programs such as Medicare and Medicaid. Pursuant to
the Medicare and Medicaid Patient and Program Protection Act of 1987, the
Department of Health and Human Services ("HHS") has issued regulations that
describe some of the conduct and business relationships permissible under the
Anti-kickback Amendments ("Safe Harbors"). The fact that a given business
arrangement does not fall within a Safe Harbor does not render the arrangement
per se illegal. Business arrangements of health care service providers that fail
to satisfy the applicable Safe Harbor criteria, however, risk increased scrutiny
by enforcement authorities. The "Health Insurance Portability and Accountability
Act of 1996," which became effective January 1, 1997, amends, among other
things, Title XI (42.U.S.C. 1301 et seq.) to broaden the scope of certain fraud
and abuse laws to include all health care services, whether or not they are
reimbursed under a federal program. See " -- Current Publicity."
The Company provides financial incentives to recruit physicians into the
communities served by its hospitals, including loans and minimum revenue
guarantees. No Safe Harbor for physician recruitment is currently in force. The
Company also enters into certain leases with physicians, and is a party to
certain joint ventures with physicians. The Company is also a participant in a
group purchasing joint venture. There can be no assurance that regulatory
authorities who enforce the Anti-kickback Amendments will not determine that the
Company's physician recruiting activities, other physician arrangements or group
purchasing activities violate the Anti-kickback Amendments or other federal
laws. Such a determination could subject the Company to liabilities under the
Social Security Act, including exclusion of the Company from participation in
Medicare and Medicaid. See "Business -- Health Care Reform, Regulation and
Licensing."
In addition, Section 1877 of the Social Security Act (commonly known as the
"Stark Laws"), which restricts referrals by physicians of Medicare and other
government-program patients to providers of a broad range of designated health
services with which they have ownership or certain other financial arrangements,
was amended effective January 1, 1995, to broaden significantly the scope of
prohibited physician referrals under the Medicare and Medicaid programs to
providers with which referring physicians have ownership or certain other
financial arrangements (the "Self-Referral Prohibitions"). Many states have
adopted or are considering similar legislative proposals, some of which extend
beyond the Medicaid program to prohibit the payment or receipt of remuneration
for the referral of patients and physician self-referrals regardless of the
source of the payment for the care. The Company's participation in and
development of joint ventures and other
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financial relationships with physicians and others could be adversely affected
by these amendments and similar state enactments.
Both federal and state government agencies have announced heightened and
coordinated civil and criminal enforcement efforts. One federal initiative,
Operation Restore Trust, is focused on investigating health care providers in
the home health and nursing home industries as well as on medical suppliers to
these providers in 17 states, including California, Texas and Colorado, where
the Company provides home health and nursing home care. The Office of Inspector
General and Department of Justice have from time to time established enforcement
initiatives that focus on specific billing practices or other suspected areas of
abuse. Current initiatives include a focus on hospital billing for outpatient
charges associated with inpatient services, as well as hospital laboratory
billing practices.
Some states require state approval for purchase, construction and expansion
of health care facilities, including findings of need for additional or expanded
health care facilities or services. Certificates of Need ("CONs"), which are
issued by governmental agencies with jurisdiction over health care facilities,
may be required for capital expenditures exceeding a prescribed amount, changes
in bed capacity or services and certain other matters. Following a number of
years of decline, the number of states requiring CONs is on the rise. There can
be no assurances that the Company will be able to obtain required CONs.
The laws, rules and regulations described above are subject to considerable
interpretation. If a determination is made that the Company is in violation of
such laws, rules or regulations, or if further changes in the regulatory
framework occur, any such determination or changes could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Health Care Reform, Regulation and Licensing."
COMPETITION
Competition among hospitals and other health care providers in the United
States has intensified in recent years as hospital occupancy rates have declined
as a result of cost containment pressures, changing technology, changes in
government regulation and reimbursement, changes in practice patterns (e.g.,
shifting from inpatient to outpatient treatments), the impact of managed care
organizations, and other factors. The Company's hospitals face competition from
larger tertiary care centers, outpatient service providers and other local
non-urban hospitals, which provide similar services to those offered by the
Company's hospitals. Some of the hospitals that compete with the Company are
owned by governmental agencies or not-for-profit corporations supported by
endowments and charitable contributions, and can finance capital expenditures on
a tax-exempt basis. In addition, the Company faces competition for acquisitions
primarily from for-profit hospital management companies as well as
not-for-profit entities. Some of the Company's competitors are larger, may be
more established and may have more capital and other resources than the Company.
See "Business -- Competition."
NEED FOR ADDITIONAL CAPITAL; SUBSTANTIAL INDEBTEDNESS
The Company's acquisition program requires substantial capital resources.
In addition, the operations of its existing hospitals require ongoing capital
expenditures for renovation and expansion and the addition of costly medical
equipment and technology utilized in the hospitals. The Company may incur
indebtedness and may issue, from time to time, debt or equity securities to fund
any such expenditures. There can be no assurance that sufficient financing will
be available on terms satisfactory to the Company. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Business -- Business Strategy."
As of June 30, 1997, after giving effect to: (i) the Investors' purchases
in July 1997 of Junior Preferred Stock and Common Stock; (ii) Leeway & Co.'s
exercise of its warrant to purchase Common
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Stock; (iii) the Preferred Stock Conversion; and (iv) the application of the net
proceeds of the offering, the Company's total long-term debt (excluding current
maturities) would be $41.8 million or 58.6% of its total capitalization. The
Company has a $100.0 million line of credit with a group of banks and is
presently discussing an increase of the line of credit to $175.0 million to
$200.0 million. See "Capitalization," "Pro Forma Condensed Consolidated
Financial Statements" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
The degree to which the Company is leveraged could have important
consequences to holders of the Common Stock, including the following: (i) the
Company's ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions, general corporate purposes or other
purposes may be impaired; (ii) a substantial portion of the Company's cash flow
from operations must be dedicated to the payment of principal and interest on
its indebtedness, thereby reducing the funds available to the Company for its
operations; (iii) certain of the Company's borrowings are at variable rates of
interest, which makes the Company vulnerable to increases in interest rates; and
(iv) such indebtedness contains numerous financial and other restrictive
covenants (including restrictions on payments of dividends, incurrences of
indebtedness and sales of assets), the failure to comply with which may result
in an event of default which, if not cured or waived, could cause such
indebtedness to be declared immediately due and payable. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
CONCENTRATION OF HOSPITALS IN CALIFORNIA
Four of the Company's eight owned and leased hospitals are located in
California and, excluding Needles Desert Community Hospital in Needles,
California which was acquired in August 1997, for the six months ended June 30,
1997, 39.8% of the Company's net operating revenue was derived from its
hospitals located in California. Accordingly, the Company may be particularly
sensitive to economic, competitive and regulatory conditions in California.
California has created a voluntary health insurance purchasing cooperative
that seeks to make health care coverage more affordable for businesses with five
to fifty employees and, effective January 1, 1995, began changing the payment
system for participants in its Medicaid program in certain counties from
fee-for-service arrangements to managed care plans. While none of the Company's
hospitals are located in the counties targeted for conversion to managed care,
if the state is able to implement successfully managed care in these counties,
this initiative could be expanded throughout the state. Reduction in
reimbursement levels in California, including reductions due to the
implementation of managed care, could have a material adverse effect on the
business, financial condition and results of operations of the Company.
California recently adopted a law requiring standards and regulations to be
developed to ensure hospitals meet seismic performance standards. Within three
years after adoption of the standards by the California Building Standards
Commission, owners of subject properties are to evaluate their facilities and
develop a plan and schedule for complying with the standards. To date, the
Commission has adopted evaluation criteria but has not yet adopted the retrofit
standards. Therefore, the Company is unable, at this time, to evaluate its
facilities to determine whether the requirements will have any material adverse
effect on the Company's operations.
PROFESSIONAL LIABILITY
In recent years, physicians, hospitals and other health care providers have
become subject to an increasing number of lawsuits alleging malpractice, product
liability or related legal theories, many of which involve large claims and
significant defense costs. To cover claims arising out of the operations of
owned, leased and managed hospitals, the Company maintains professional
malpractice liability insurance and general liability insurance in amounts that
management believes
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to be sufficient for its operations, although some claims may exceed the scope
of the coverage in effect. The cost of malpractice and other liability insurance
has risen significantly during the past few years. While the Company's
professional and other liability insurance has been adequate in the past to
provide for liability claims, there can be no assurance that such insurance will
continue to be available for the Company to maintain adequate levels of
insurance. The Company's management contracts with its managed hospitals
generally require the hospital to indemnify the Company against certain claims
and to maintain specified amounts of insurance, however, there can be no
assurance the hospitals will maintain such insurance or that such indemnities
will be available.
EFFECTIVE CONTROL BY CERTAIN STOCKHOLDERS
Upon completion of the offering, the Company's officers and directors and
their affiliates as a group will beneficially own 49.3% of the outstanding
shares of Common Stock, including the 37.7% of the shares of Common Stock which
will be owned by GTCR Fund IV. As a result of such ownership, these
stockholders, if acting together, will effectively have the ability to elect the
Board of Directors and thereby control the affairs and management of the
Company. This may have the effect of delaying, deferring or preventing a change
in control of the Company. See "Principal Stockholders" and "Management."
BENEFITS OF OFFERING TO CERTAIN STOCKHOLDERS
The Company will receive net proceeds of approximately $73.0 million from
the offering (at an assumed public offering price of $14.00 per share) after
deduction of the underwriting discounts and estimated expenses of the offering.
Of this amount, $21.9 million will be used to redeem the Senior Preferred Stock,
including all accrued and unpaid dividends thereon, held by Leeway & Co., $12.1
million will be used to repurchase the Common Stock issued to GTCR Fund IV in
respect of the conversion of 11,363 of its shares of Junior Preferred Stock, and
$2.4 million will be used to repurchase the Common Stock issued to Leeway & Co.
in respect of the conversion of 2,273 of its shares of Junior Preferred Stock.
See "Use of Proceeds" and "Certain Relationships and Related Transactions."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the offering, there has been no public market for the Common
Stock. The initial public offering price of the Common Stock will be determined
by negotiations between the Company and the Representatives of the Underwriters
and may not be indicative of the market price for shares of the Common Stock
after the offering. See "Underwriting." There can be no assurance that an active
trading market will develop or be maintained or as to the price at which the
Common Stock will trade if and when such a market develops. The Company has
applied for approval and trading of the Common Stock on the Nasdaq National
Market. The market price of the Common Stock may be subject to significant
fluctuations in response to variations in the Company's operating results and
other factors, including future acquisitions or divestitures of hospitals,
market rates of interest, developments affecting the health care industry
generally, the enactment of health care reform, reductions in payment rates and
changes in governmental regulation. In addition, the stock market in recent
years has experienced price and volume fluctuations that often have been
unrelated or disproportionate to the operating performance of companies, and the
price of the Common Stock could be affected by such fluctuations.
ABSENCE OF DIVIDENDS
The Company does not anticipate paying cash dividends in the foreseeable
future. In addition, the terms of the Company's bank credit agreement prohibit
the payment of cash dividends. Any future indebtedness incurred to refinance the
Company's existing indebtedness or to fund future growth may prohibit or limit
the Company's ability to pay dividends. See "Dividend Policy."
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SUBSTANTIAL DILUTION
The assumed initial public offering price of $14.00 per share will exceed
the net tangible book value per share of the Common Stock after the offering by
$12.70 per share. Purchasers of the Common Stock in the offering will experience
immediate and substantial dilution in the amount of $12.70 per share, and
present stockholders will experience an immediate and substantial increase in
net tangible book value in the amount of $10.84 per share of Common Stock. The
net tangible book value (deficit) of the Company at June 30, 1997 was $(69.4
million), or $(9.54) per share of Common Stock. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
There will be 15,698,314 shares of Common Stock outstanding upon completion
of the offering (16,553,314 shares if the Underwriters over-allotment option is
exercised in full). All of the 5,700,000 shares offered in the offering will be
eligible for resale in the public market without restriction by persons other
than affiliates of the Company upon completion of the offering. All of the
remaining 9,998,314 shares of Common Stock are "restricted securities" as that
term is defined in Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act"). Commencing 90 days after the completion of the offering,
7,280,020 shares of Common Stock will be eligible for sale in the public market
pursuant to Rule 144. The remaining restricted shares of Common Stock will
become eligible for sale pursuant to Rule 144 thereafter. The Company, each of
its officers and directors and substantially all of the current stockholders
have agreed not to sell or otherwise dispose of any of the shares of Common
Stock owned by them in the public market for a period of 180 days after the date
of this Prospectus without the prior written consent of Alex. Brown & Sons
Incorporated. Sales of substantial amounts of the Company's Common Stock in the
public market, or the perception that such sales could occur, could adversely
affect the prevailing market price for the Common Stock and could impair the
Company's ability to raise additional capital through the sale of equity
securities. See "Description of Capital Stock" and "Shares Eligible for Future
Sale."
In connection with the Recapitalization, the Company entered into a
Registration Agreement (the "Registration Agreement") which provides certain
demand and piggyback registration rights to the Company's current stockholders
who hold an aggregate of 9,998,314 shares of Common Stock, substantially all of
which shares are subject to the 180-day restrictions described above. The
registration rights are subject to certain notice requirements, timing
restrictions and volume limitations which may be imposed by the underwriters of
such offering. See "Shares Eligible for Future Sale -- Registration Agreement."
In addition, the Company expects to register the issuance of up to 1,300,000
shares of Common Stock authorized under its 1997 Long-Term Equity Incentive Plan
following the offering. See "Management -- Long-Term Equity Incentive Plan."
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USE OF PROCEEDS
The net proceeds to the Company from the offering, after deducting
estimated underwriting discounts and offering expenses and assuming an initial
public offering price of $14.00 per share, are estimated to be $73.0 million
($84.1 million if the Underwriters' over-allotment option is exercised in full).
Of this amount, $36.6 million will be used to reduce the outstanding term and
revolving loan balance under the Credit Agreement, dated as of December 17,
1996, among the Company and the lenders named therein (the "Credit Agreement");
$21.9 million will be used to redeem in full the outstanding Senior Preferred
Stock and all accrued and unpaid dividends thereon; and $14.5 million will be
used to repurchase shares of Common Stock issued upon conversion of 13,636 of
the shares of the Junior Preferred Stock held by GTCR Fund IV and Leeway & Co.
See "Certain Relationships and Related Transactions." The Company continuously
seeks out appropriate acquisition candidates and is frequently engaged in
discussions regarding potential acquisitions.
Borrowings under the Credit Agreement bear interest at a floating rate,
which is calculated on the basis of the agent's prime rate, the federal funds
rate or LIBOR, plus, in each case, a margin depending upon the Company's
outstanding indebtedness. As of June 30, 1997, the effective rate was 8.5%.
Borrowings under the revolving loan portion of the Credit Agreement mature on
December 16, 1999 and borrowings under the term loan portion of the Credit
Agreement mature on December 16, 2002. The Credit Agreement was entered into in
connection with the Recapitalization.
The Senior Preferred Stock, which will be redeemed with a portion of the
proceeds of this offering, accrues dividends on a daily basis at a per annum
rate of 11.0% on the sum of the liquidation value plus accumulated and unpaid
dividends thereon ($21.9 million as of the assumed offering date of October 15,
1997). The Company would be required to redeem the Senior Preferred Stock in
full on December 17, 2005.
The Junior Preferred Stock, which will be converted to shares of Common
Stock in connection with this offering, accrues dividends on a daily basis at a
per annum rate of 8.0% on the sum of the liquidation value plus accumulated and
unpaid dividends thereon ($34.3 million as of the assumed offering date of
October 15, 1997). The Company would be required to redeem the Junior Preferred
Stock in full on December 17, 2006.
DIVIDEND POLICY
The Company currently intends to retain its earnings for use in its
business and therefore does not anticipate declaring or paying any cash
dividends in the foreseeable future. The Credit Agreement prohibits the payment
of dividends by the Company (other than dividends paid in the Company's stock).
Any future determination to declare or pay cash dividends will be made by the
Board of Directors in light of the Company's earnings, financial position,
capital requirements, credit agreements and such other factors as the Board of
Directors deems relevant at such time. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and Note 6 of Notes to Consolidated Financial Statements.
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<PAGE> 20
CAPITALIZATION
The following table sets forth as of June 30, 1997: (i) the capitalization
of the Company; (ii) the capitalization of the Company on a pro forma basis; and
(iii) the capitalization of the Company on a pro forma as adjusted basis to
reflect the sale of the shares of Common Stock offered hereby (based on an
assumed offering price of $14.00 per share) and the application of the estimated
net proceeds therefrom all as if they occurred on June 30, 1997.
<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED
------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents.............................. $ 6,016 $10,424 $10,424
======= ======= =======
Current maturities of long-term obligations............ $ 1,640 $ 1,640 $ 1,640
======= ======= =======
Long-term obligations, less current maturities(2):..... $78,436 $78,436 $41,804
Mandatory redeemable preferred stock(3):
Series A redeemable senior preferred stock, no par
value, authorized: 25,000 shares; issued and
outstanding: 20,000 shares (net of issuance and
warrant costs of $843,000 and $139,000,
respectively); 20,000 shares pro forma and no
shares pro forma as adjusted...................... 19,018 19,018 --
Series B redeemable junior preferred stock, no par
value, authorized: 50,000 shares; issued and
outstanding: 28,540 shares (net of issuance costs
of $1,218,000); no shares pro forma and pro forma
as adjusted....................................... 27,322 -- --
------- ------- -------
Total mandatory redeemable preferred stock........... 46,340 19,018 --
Common stockholders' equity (deficit):
Common stock, no par value, authorized: 20,000,000
shares; issued and outstanding: 7,280,020 shares;
$0.01 par value, authorized: 25,000,000 shares;
issued and outstanding: 11,032,728 shares pro
forma and 15,698,314 shares pro forma as
adjusted(4)....................................... 3,276 110 157
Additional paid-in capital........................... -- 36,846 94,349
Notes receivable for Common Stock.................... (391) (180) (180)
Common stock warrant................................. 139 -- --
Retained earnings (deficit).......................... (63,332) (64,811) (64,811)
------- ------- -------
Total common stockholders' equity (deficit)....... (60,308) (28,035) 29,515
------- ------- -------
Total capitalization......................... $64,468 $69,419 $71,319
======= ======= =======
</TABLE>
- ---------------
(1) Gives effect to: (i) the Investors' purchases in July 1997 of an aggregate
of 3,755 shares of Junior Preferred Stock and 958,225 shares of Common Stock
for an aggregate purchase price of $4.2 million; (ii) the payment in July
1997 of $211,200 on the note receivable for Common Stock; (iii) Leeway &
Co.'s exercise in September 1997 of its warrant to purchase 343,265 shares
of Common Stock; (iv) the conversion from no par value to $0.01 par value
Common Stock in connection with the Reincorporation; and (v) the Preferred
Stock Conversion.
(2) For information regarding the Company's long-term obligations, see Note 6 of
Notes to Consolidated Financial Statements.
(3) For information regarding the Company's mandatory redeemable preferred
stock, see Note 7 of Notes to Consolidated Financial Statements.
(4) Excludes 385,765 shares of Common Stock issuable upon exercise of
outstanding stock options with a weighted average exercise price of $3.38
per share. See "Management -- Long-Term Equity Incentive Plan" and Notes 8
and 17 of Notes to Consolidated Financial Statements.
19
<PAGE> 21
DILUTION
The net tangible book value (deficit) of the Company at June 30, 1997 was
$(69.4 million), or $(9.54) per share of Common Stock. Net tangible book value
(deficit) per share of Common Stock represents the amount of total assets less
total liabilities, mandatory redeemable preferred stock, minority interests and
intangible assets, divided by the number of shares of Common Stock outstanding
at June 30, 1997. After giving effect to: (i) the sale in July 1997 of 3,755
shares of Junior Preferred Stock and 958,225 shares of Common Stock; (ii) Leeway
& Co.'s exercise in September 1997 of its warrant to purchase 343,265 shares of
Common Stock; (iii) the Preferred Stock Conversion; and (iv) the sale by the
Company of the 5,700,000 shares of Common Stock offered hereby (at an assumed
initial public offering price of $14.00 per share) and the application of the
net proceeds as set forth under "Use of Proceeds," the pro forma net tangible
book value of the Company at June 30, 1997 would have been $20.4 million, or
$1.30 per share of Common Stock. This represents an immediate increase in net
tangible book value of $10.84 per common share to existing stockholders and an
immediate dilution of $12.70 per common share to investors purchasing Common
Stock in the offering, as illustrated by the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $14.00
------
Net tangible book value (deficit) per common share prior
to the offering(1)..................................... $(9.54)
Increase per common share attributable to new investors... 10.84
------
Pro forma net tangible book value per common share after the
offering.................................................. 1.30
------
Dilution per common share to new investors(2)............... $12.70
======
</TABLE>
The following table summarizes certain differences between the existing
stockholders and the new investors with respect to the number of shares of
Common Stock purchased from the Company, the total consideration paid and the
average price per share paid by the existing stockholders and new investors
(based on an assumed initial public offering price of $14.00 per share), in each
case on a pro forma basis after giving effect to: (i) the sale in July 1997 of
3,755 shares of Junior Preferred Stock and 958,225 shares of Common Stock; (ii)
the payment in July 1997 of $211,200 on the note receivable for Common Stock;
(iii) Leeway & Co.'s exercise in September 1997 of its warrant to purchase
343,265 shares of Common Stock; (iv) the conversion from no par value to $0.01
par value Common Stock in connection with the Reincorporation; (v) the Preferred
Stock Conversion; and (vi) the sale of the shares of Common Stock in the
offering and the application of the estimated net proceeds thereof to the
redemption of Senior Preferred Stock, the repurchase of certain shares of Common
Stock and the repayment of debt, as described in "Use of Proceeds".
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing investors(1)............... 9,998,314 63.7% $ 23,692,593 22.9% $ 2.37
New investors....................... 5,700,000 36.3 79,800,000 77.1 $14.00
---------- ----- ------------ -----
Total..................... 15,698,314 100.0% $103,492,593 100.0%
========== ===== ============ =====
</TABLE>
- ---------------
(1) Excludes common shares issuable upon the exercise of outstanding options to
purchase 385,765 shares of Common Stock pursuant to the Company's 1997
Long-Term Equity Incentive Plan at a weighted average exercise price of
$3.38 per share.
(2) Dilution is determined by subtracting pro forma net tangible book value per
common share after giving effect to this offering from the initial public
offering price per share. Dilution to new investors will be $12.04 if the
Underwriters' over-allotment option is exercised in full.
20
<PAGE> 22
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company: (i) as of and for each of the five fiscal years ended December 31,
1996, which information has been derived from the audited consolidated financial
statements of the Company; and (ii) as of and for the six-month periods ended
June 30, 1996 and 1997, which information has been derived from consolidated
financial statements of the Company which are unaudited but which, in the
opinion of management, have been prepared on the same basis as the audited
consolidated financial statements and include all adjustments necessary
(consisting of normal recurring adjustments) for a fair presentation of the
results for such periods. The selected consolidated financial data are qualified
by, and should be read in conjunction with, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- -------- -------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:(1)
Net operating revenue.................... $69,245 $84,859 $102,067 $101,214 $129,855 $58,290 $ 80,861
Operating expenses(2).................... 66,026 81,091 96,870 98,077 128,689 53,466 71,599
Interest expense......................... 969 896 760 589 2,523 847 3,941
Costs of recapitalization................ -- -- -- -- 11,570 -- --
Loss (gain) on sale of assets............ (7) (10) (635) (2,814) 442 106 (159)
------- ------- -------- -------- -------- ------- --------
Income (loss) from continuing operations
before provision for income taxes...... 2,257 2,882 5,072 5,362 (13,369) 3,871 5,480
Provision (benefit) for income taxes..... 1,021 1,731 2,097 1,953 (4,464) 1,846 2,081
------- ------- -------- -------- -------- ------- --------
Income (loss) from continuing
operations............................. 1,236 1,151 2,975 3,409 (8,905) 2,025 3,399
Income (loss) from discontinued
operations, less applicable
income taxes........................... 496 593 (157) (264) 6,015 182 --
------- ------- -------- -------- -------- ------- --------
Income (loss) before cumulative effect of
change in accounting for income
taxes.................................. 1,732 1,744 2,818 3,145 (2,890) 2,207 3,399
Cumulative effect of change in accounting
for income taxes....................... -- 1,141 -- -- -- -- --
------- ------- -------- -------- -------- ------- --------
Net income (loss)........................ $ 1,732 $ 2,885 $ 2,818 $ 3,145 (2,890) 2,207 3,399
======= ======= ======== ========
Preferred stock dividends and
accretion.............................. (172) -- (2,384)
-------- ------- --------
Net income (loss) per share applicable to
common shareholders.................... $ (3,062) $ 2,207 $ 1,015
======== ======= ========
Pro forma net income (loss) per share
applicable to common shareholders(3):
Income (loss) from continuing
operations............................. $ (1.03) $ 0.23 $ 0.11
Income from discontinued operations...... 0.68 0.02 --
-------- ------- --------
Net income (loss) applicable to common
shareholders........................... $ (0.35) $ 0.25 $ 0.11
======== ======= ========
Pro forma shares used in computing net
income (loss) per share applicable to
common shareholders(3)................. 8,843 8,843 8,843
Cash dividends declared per common
share.................................. -- -- -- -- -- -- --
</TABLE>
21
<PAGE> 23
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- -------- -------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:(1)
Cash and cash equivalents................ $ 538 $ 2,477 $ 1,819 $ 2,287 $ 11,256 $ 3,390 $ 6,016
Total assets............................. 29,512 42,895 46,057 47,075 94,025 53,154 96,853
Long-term obligations, less current
maturities............................. 4,587 8,972 6,892 5,519 76,633 5,045 78,436
Mandatory redeemable preferred stock..... -- 8,816 8,816 8,816 46,227 8,816 46,340
Common stockholders' equity (deficit).... 6,514 9,305 11,640 14,666 (61,323) 26,700 (60,308)
OTHER DATA:(1)
EBITDAR(4)............................... $ 6,645 $ 7,813 $ 10,508 $ 9,041 $ 11,311 $ 8,273 $ 14,635
EBITDAR margin(5)........................ 9.6% 9.2% 10.3% 8.9% 8.7% 14.2% 18.1%
</TABLE>
- ---------------
(1) The Company's financial statements for the periods presented are not
strictly comparable due to the significant effect that acquisitions,
divestitures and the Recapitalization have had on such statements. See Notes
3 and 4 of Notes to Consolidated Financial Statements.
(2) Includes an increase in insurance expense in the second half of 1996 due to
a change in estimate of $2.1 million.
(3) Pro forma net income (loss) per share applicable to common shareholders is
computed using the weighted average number of shares of Common Stock
outstanding during the period, including dilutive common equivalent shares
from stock options and warrants (using the treasury stock method). The
7,280,020 common shares issued in the Recapitalization and the Merger in
December 1996 have been included in the pro forma calculation as if the
Recapitalization and the Merger had occurred as of the first day of 1996.
Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletins, all other Common Stock issued, and Common Stock options and
warrants granted, by the Company at prices below the initial public offering
price during the twelve-month period prior to the initial public offering
have been included in the calculation as if they were outstanding for the
full fiscal year (using the treasury stock method). Historical net income
(loss) per share has not been presented since the historical capitalization
of the Company is not meaningful due to the significant change in the
capital structure of the Company resulting from the Recapitalization.
(4) "EBITDAR" is defined to mean earnings before interest, taxes, depreciation,
amortization, rentals and leases, cumulative effect of change in accounting
method, costs of Recapitalization, loss (gain) on sale of assets, and income
(loss) from discontinued operations, net of taxes. EBITDAR has been adjusted
in 1996 to exclude the increase in insurance expense due to a change in
estimate of $2.1 million. Investors should consider cash flow in evaluating
financial performance. Cash flow trends may not mirror EBITDAR trends. The
items excluded from EBITDAR are significant components in understanding and
assessing the Company's financial performance. The Company has included
EBITDAR data because such data are one measure in determining the enterprise
value of the Company. EBITDAR reflects the operating results of the Company
from a cash perspective. The Company believes discussion of EBITDAR provides
meaningful information to the reader of the financial statements and allows
investors to better determine the ability of the Company to meet its future
debt service, capital expenditure, and working capital requirements and to
incur additional indebtedness. By including rentals and leases expense in
the definition of EBITDAR, the results are comparable to those results which
would be obtained if the Company had chosen to purchase, rather than lease,
assets. The choice to purchase assets would have resulted in depreciation
expense, a noncash item. EBITDAR is not a measure of financial performance
under generally accepted accounting principles and should not be considered
an alternative to net income as a measure of operating performance or to
cash flows from operating activities as a measure of liquidity. The
Company's computations of EBITDAR may not be comparable to other similarly
titled measures of other companies.
(5) EBITDAR margin represents EBITDAR divided by net operating revenue.
Investors should consider cash flow in evaluating financial performance.
Cash flow trends may not mirror EBITDAR trends. The items excluded from
EBITDAR Margin are significant components in understanding and assessing the
Company's financial performance. The Company believes discussion of EBITDAR
Margin is meaningful to the reader of the financial statements to provide
information with respect to the ability of the Company to meet its future
debt service, capital expenditure and working capital requirements. The
Company's computations of EBITDAR Margin may not be comparable to other
similarly titled measures of other companies.
22
<PAGE> 24
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On February 1, 1996, the Company acquired Parkview Regional Hospital from
Parkview Regional Hospital, Inc. (a not-for-profit organization). On July 26,
1996, the Company acquired Memorial Mother Frances Hospital from Memorial
Hospital Foundation of Palestine, Inc. On November 1, 1996, the Company acquired
Starke Memorial Hospital from Starke County, Indiana.
The following unaudited pro forma condensed consolidated balance sheet as
of June 30, 1997 gives effect to: (i) the sale in July 1997 of 3,755 shares of
Junior Preferred Stock and 958,225 shares of Common Stock; (ii) the payment in
July 1997 of $211,200 on the note receivable for Common Stock; (iii) Leeway &
Co.'s exercise in September 1997 of its warrant to purchase 343,265 shares of
Common Stock; (iv) the conversion from no par value to $0.01 par value Common
Stock in connection with the Reincorporation; (v) the Preferred Stock
Conversion; and (vi) the sale of the Common Stock in the offering and the
application of the estimated net proceeds thereof to the repurchase of certain
shares of Common Stock, the redemption of Senior Preferred Stock and the
repayment of debt, as described in "Use of Proceeds," as if all such
transactions had been completed as of June 30, 1997 and assuming an initial
public offering price of $14.00 per share.
The unaudited pro forma condensed consolidated statements of operations for
the year ended December 31, 1996 and the six months ended June 30, 1997, give
effect to: (i) the operating results of the 1996 Acquired Hospitals for periods
prior to their acquisition; (ii) the sale in July 1997 of 3,755 shares of Junior
Preferred Stock and 958,225 shares of Common Stock; (iii) Leeway & Co.'s
exercise in September 1997 of its warrant to purchase 343,265 shares of Common
Stock; (iv) the Preferred Stock Conversion; and (v) the sale of the Common Stock
in the offering and the application of the estimated net proceeds thereof to the
repurchase of certain shares of Common Stock, the redemption of Senior Preferred
Stock and the repayment of debt, as described in "Use of Proceeds," as if all
such transactions had been completed as of January 1, 1996 and assuming an
initial public offering price of $14.00 per share.
The pro forma condensed consolidated financial information presented herein
does not purport to represent what the Company's results of operations or
financial position would have been had such transactions in fact occurred at the
beginning of the periods presented or to project the Company's results of
operations in any future period. The pro forma result of operations, which do
not take into account certain operational changes instituted by the Company upon
acquisition of its hospitals, are not necessarily indicative of the results that
may be expected from such hospitals. The unaudited pro forma condensed
consolidated financial statements should be read in conjunction with the audited
financial statements, including the notes thereto, included elsewhere in this
Prospectus.
23
<PAGE> 25
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRE-OFFERING PRE-OFFERING OFFERING
PRO FORMA PRO FORMA PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS(1) CONSOLIDATED ADJUSTMENTS(2) CONSOLIDATED
---------- -------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents........ $ 6,016 $ 4,182(a) $ 73,014(g)
211(b) (14,482)(h)
15(c) (21,900)(i)
$ 10,424 (36,632)(j) $ 10,424
Accounts receivable, less
allowance for doubtful
accounts....................... 28,292 28,292 28,292
Other current assets............. 10,477 10,477 10,477
-------- ------- -------- -------- --------
Total current assets...... 44,785 4,408 49,193 -- 49,193
Property, plant and equipment,
net.............................. 39,066 39,066 39,066
Unallocated purchase price......... 6,822 6,822 6,822
Other assets....................... 6,180 6,180 6,180
-------- ------- -------- -------- --------
Total assets.............. $ 96,853 $ 4,408 $101,261 $ -- $101,261
======== ======= ======== ======== ========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable................. $ 7,982 $ 7,982 $ 7,982
Accrued salaries and benefits.... 5,085 5,085 5,085
Accrued expenses................. 5,451 5,451 5,451
Current maturities of long-term
obligations.................... 1,640 1,640 1,640
-------- ------- -------- -------- --------
Total current
liabilities............. 20,158 -- 20,158 -- 20,158
Long-term obligations, less current
maturities....................... 78,436 78,436 $(36,632)(j) 41,804
Third-party settlements............ 5,984 5,984 5,984
Other liabilities.................. 6,243 $ 1,479(d) (1,900)(i)
(2,022)(e) 5,700 3,800
-------- ------- -------- -------- --------
90,663 (543) 90,120 (38,532) 51,588
Mandatory redeemable preferred
stock............................
Senior preferred stock......... 19,018 19,018 (19,018)(i) --
Junior preferred stock......... 27,322 3,755(a)
(31,077)(e) -- --
-------- ------- -------- -------- --------
46,340 (27,322) 19,018 (19,018) --
Common stockholders' equity
(deficit)
Common stock..................... 3,276 427(a) 57(g)
154(c) (10)(h)
(3,772)(f)
25(e) 110 157
Additional paid-in-capital....... -- 3,772(f) 72,957(g)
33,074(e) (14,472)(h)
36,846 (982)(i) 94,349
Notes receivable for common
stock.......................... (391) 211(b) (180) (180)
Common stock warrant............. 139 (139)(c) -- --
Retained earnings (deficit)...... (63,332) (1,479)(d) (64,811) (64,811)
-------- ------- -------- -------- --------
(60,308) 32,273 (28,035) 57,550 29,515
-------- ------- -------- -------- --------
$ 96,853 $ 4,408 $101,261 $ -- $101,261
======== ======= ======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated balance
sheet.
- ---------------
(1) Reflects the effects of equity transactions occurring prior to or
simultaneously with the closing of the sale of Common Stock in the offering.
(2) Reflects the effects of the sale of the Common Stock in the offering and the
application of the estimated net proceeds thereof.
24
<PAGE> 26
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
(a) Reflects the sale in July 1997 of 3,755 shares of Junior Preferred
Stock and 958,225 shares of Common Stock for cash proceeds of $4,182
as follows:
Common Stock....................................... $ 427
Junior Preferred Stock............................. 3,755
--------
Cash proceeds...................................... $ 4,182
========
(b) Reflects the payment in July 1997 of $211 on the notes receivable for
Common Stock.
(c) Reflects Leeway & Co.'s exercise in September 1997 of its warrant to
purchase 343,265 shares of Common Stock for cash proceeds of $15 as
follows:
Common Stock....................................... $ 154
Common Stock warrant............................... (139)
--------
Cash proceeds...................................... $ 15
========
(d) Reflects the accrual of $1,479 of dividends on the Senior Preferred
Stock and Junior Preferred Stock for the period from July 1, 1997 to
the anticipated closing date of the offering.
(e) Reflects the conversion of 32,295 shares of Junior Preferred Stock
with a liquidation value of $32,295 net of issuance costs of $1,218
and estimated accumulated and unpaid dividends of $2,022 into
2,451,218 shares of Common Stock as follows (at an assumed offering
price of $14.00 per share):
Accumulated and unpaid dividends................... $ (2,022)
Junior Preferred Stock............................. (31,077)
Common Stock....................................... 25
Additional paid-in-capital......................... 33,074
--------
$ --
========
(f) Reflects the reclassification of $3,772 from Common Stock to
additional paid-in-capital upon conversion from no par to $0.01 par
value Common Stock in connection with the Reincorporation.
(g) Reflects the sale of 5,700,000 shares of Common Stock in the offering
at an assumed offering price of $14.00 per share, for net proceeds of
$73,014 as follows:
Common Stock....................................... $ 57
Additional paid-in-capital......................... 72,957
--------
Cash proceeds...................................... $ 73,014
========
(h) Reflects the repurchase of 1,034,414 shares of Common Stock issued
with respect to the conversion of 13,636 of the shares of Junior
Preferred Stock held by GTCR Fund IV and Leeway & Co. using offering
proceeds of $14,482 as follows:
Common Stock....................................... $ (10)
Additional paid-in-capital......................... (14,472)
--------
Cash disbursed..................................... $(14,482)
========
(i) Reflects the redemption of 20,000 shares of Senior Preferred Stock
with a liquidation value of $20,000 net of issuance and warrant costs
of $982 and the payment of estimated accumulated and unpaid dividends
of $1,900 using offering proceeds of $21,900 as follows:
Accumulated and unpaid dividends................... $ (1,900)
Senior Preferred Stock............................. (19,018)
Additional paid-in-capital......................... (982)
--------
Cash disbursed..................................... $(21,900)
========
(j) Reflects the application of the remaining proceeds from the offering
of $36,632 for the repayment of long-term obligations.
</TABLE>
25
<PAGE> 27
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ADJUSTMENTS
--------------------- -----------------------
1996 1996
ACQUIRED ACQUIRED PRO FORMA
COMPANY HOSPITALS HOSPITALS OFFERING CONSOLIDATED
--------- --------- --------- -------- ------------
<S> <C> <C> <C> <C> <C>
Net operating revenue............ $ 129,855 $ 23,281 $153,136
Operating expenses............... 128,689 23,008 $ (375)(a) 151,322
Interest expense................. 2,523 3,031 (44)(b) $(121)(d) 5,389
Costs of recapitalization........ 11,570 11,570
Loss on sale of assets........... 442 442
--------- -------- ------- ----- --------
Loss from continuing operations
before income taxes............ (13,369) (2,758) 419 121 (15,587)
Income tax benefit............... (4,464) -- (912)(c) 48(c) (5,328)
--------- -------- ------- ----- --------
Loss from continuing
operations..................... (8,905) (2,758) 1,331 73 (10,259)
--------- -------- ------- ----- --------
Preferred stock dividends and
accretion...................... (172) -- 172(e) --
--------- -------- ------- ----- --------
Loss from continuing operations
applicable to common shares.... $ (9,077) $ (2,758) $ 1,331 $ 245 $(10,259)
========= ======== ======= ===== ========
Loss per common share:
Primary and fully diluted...... $ (0.64)
========
Weighted average shares used in
earnings per share computation:
Primary and fully diluted...... 15,959
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated statements
of operations.
26
<PAGE> 28
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
OFFERING PRO FORMA
HISTORICAL ADJUSTMENTS CONSOLIDATED
---------- ----------- ------------
<S> <C> <C> <C>
Net operating revenue................................ $80,861 $80,861
Operating expenses................................... 71,599 71,599
Interest expense..................................... 3,941 $(1,482)(d) 2,459
Gain on sale of assets............................... (159) (159)
------- ------- -------
Income from continuing operations before income
taxes.............................................. 5,480 1,482 6,962
Provision for income taxes........................... 2,081 578(c) 2,659
------- ------- -------
Income from continuing operations.................... 3,399 904 4,303
------- ------- -------
Preferred stock dividends and accretion.............. (2,384) 2,384(e) --
------- ------- -------
Income from continuing operations applicable to
common shares...................................... $ 1,015 $ 3,288 $ 4,303
======= ======= =======
Income per common share:
Primary and fully diluted.......................... $ 0.27
=======
Weighted average shares used in earnings per share
computation:
Primary and fully diluted.......................... 15,959
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated statements
of operations.
27
<PAGE> 29
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
- ---------------
(a) Reflects the elimination of the historical depreciation expense of the 1996
Acquired Hospitals and the inclusion of the Company's depreciation expense.
(b) Reflects the elimination of the historical interest expense related to debt
of the 1996 Acquired Hospitals not assumed in the acquisitions, and the
inclusion of the Company's interest expense related to debt used to finance
the acquisitions.
(c) Reflects the inclusion of income tax expense (benefit) based on the combined
federal and state statutory rate of 39% applied to adjusted pre-tax income
or loss.
(d) Reflects the elimination of the interest expense associated with the $36,632
of long-term obligations to be repaid with the net proceeds of the offering.
(e) Reflects the elimination of the dividends and the accretion of issuance
costs on the Senior Preferred Stock to be redeemed with a portion of the net
proceeds of the offering and Junior Preferred Stock to be converted into
Common Stock in connection with the offering.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements and related notes thereto included elsewhere
in this Prospectus.
OVERVIEW
Province Healthcare Company is a health care services company focused on
acquiring and operating hospitals in attractive non-urban markets in the United
States. The Company currently operates eight general acute care hospitals in
four states with a total of 570 licensed beds, and manages 50 hospitals in 17
states with a total of 3,448 licensed beds.
Prior to the Recapitalization and the Merger with PHC, the Company operated
under the name Brim, Inc. The current operations of the Company include certain
Brim operations and all of the operations of PHC. Prior to the Recapitalization,
Brim operated primarily through two divisions: the Health Care Group, which
primarily managed and leased hospitals, and the Senior Living Group, which was
responsible for Brim's assisted living facilities. In February 1996, Brim
acquired Parkview Regional Hospital in Mexia, Texas ("Parkview"). PHC was
founded in February 1996 by GTCR Fund IV and Martin S. Rash to acquire and
operate hospitals in attractive non-urban markets. PHC acquired its first
hospital, Memorial Mother Frances Hospital in Palestine, Texas ("Memorial Mother
Frances"), in July 1996 and acquired another hospital, Starke Memorial Hospital
in Knox, Indiana ("Starke Memorial"), in October 1996. In December 1996, Brim
sold its Senior Living Group and Brim was recapitalized. The operations of Brim
and PHC were subsequently combined in the Merger. See "The Recapitalization and
The Merger."
An integral part of the Company's strategy is to acquire non-urban acute
care hospitals. See "Business -- Business Strategy." Because of the financial
impact of the Company's recent acquisitions and divestitures, it is difficult to
make meaningful comparisons between the Company's financial statements for the
fiscal periods presented. In addition, due to the relatively small number of
owned and leased hospitals, each hospital acquisition can materially affect the
overall operating margin of the Company. Upon the acquisition of a hospital, the
Company typically takes a number of steps to lower operating costs. See
"Business -- Hospital Operations." The impact of such actions may be offset by
cost increases to expand services, strengthen medical staff and improve market
position. The benefits of these investments and of other activities to improve
operating margins generally do not occur immediately. Consequently, the
financial performance of a newly-acquired hospital may adversely affect overall
operating margins in the near term. As the Company makes additional hospital
acquisitions, the Company expects that this effect will be mitigated by the
expanded financial base of existing hospitals and the allocation of corporate
overhead among a larger number of hospitals.
RECAPITALIZATION AND MERGER
The basic elements of the December 1996 recapitalization of the Company
included the following: GTCR Fund IV and other investors purchased new shares of
the Company's common and preferred stock. The Company sold its senior living
business and entered into a new credit facility to, along with the proceeds from
the sale of the new shares, provide financing for the redemption of a portion of
the pre-existing common and preferred stock; this pre-existing common and
preferred stock was redeemed; and certain pre-existing debt was repaid. The
recapitalization was accounted for as such and, accordingly, did not result in a
new basis of accounting. Upon completion of the recapitalization, GTCR Fund IV
controlled the Company and also controlled PHC, a company unrelated to Brim that
GTCR Fund IV founded in February 1996. Since both companies are engaged in the
business of owning, leasing and managing hospitals in non-urban communities,
GTCR Fund IV then merged PHC into Brim so that the two companies would be under
the same corporate structure and management.
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<PAGE> 31
Pursuant to the Recapitalization: (i) each of the Investors purchased
shares of the Common Stock and Junior Preferred Stock; (ii) Leeway & Co. also
purchased shares of Senior Preferred Stock and a warrant to purchase additional
shares of Common Stock; (iii) the Company's current Board of Directors and
senior management were elected; (iv) Brim repaid its existing indebtedness and
entered into the Credit Agreement; and (v) the Company redeemed stock held by
the Redeemed Stockholders and settled outstanding Brim stock options. In
connection with the Recapitalization, an aggregate of $11.6 million was charged
to operations, consisting of $8.0 million paid to settle Brim stock options,
$2.2 million of severance payments, and $1.4 million of transaction-related
costs (principally professional fees). See "The Recapitalization and The
Merger."
Following the Recapitalization, a subsidiary of Brim was merged into PHC,
such that PHC became a subsidiary of the Company. Pursuant to the Merger, the
stockholders of PHC received an aggregate of 14,403 shares of Junior Preferred
Stock and 3,738,556 shares of Common Stock, and PHC's existing indebtedness of
$19.6 million was repaid.
ACQUISITIONS AND DIVESTITURES
In February 1995, Brim acquired two senior living residences for $15.8
million. In September 1995, Brim sold the real property of the two facilities
and leased them back under an operating lease agreement for a minimum lease term
of 15 years. In May 1995, Brim sold Fifth Avenue Hospital, located in Seattle,
Washington, for $6.0 million and recorded a pre-tax gain on this transaction of
$2.5 million. In February 1996, Brim acquired Parkview by entering into a
15-year operating lease agreement with two five-year renewal terms, and by
purchasing certain assets and assuming certain liabilities for a purchase price
of $1.8 million.
In July 1996, PHC purchased certain assets and assumed certain liabilities
of Memorial Mother Frances for a purchase price of $23.2 million in a
transaction resulting in PHC owning 95.0% of the hospital. In October 1996, PHC
acquired Starke Memorial by assuming certain liabilities and entering into a
capital lease agreement, and by purchasing certain net assets for a purchase
price of $7.7 million.
In August 1997, the Company acquired Needles Desert Community Hospital
("Needles") by assuming certain liabilities and entering into an operating lease
agreement, and by purchasing certain net assets for a purchase price of $1.3
million.
All of the foregoing acquisitions were accounted for as purchases.
DISCONTINUED OPERATIONS
During the past three years, Brim discontinued certain operations. In May
1995, Brim discontinued its business of providing managed care administration
and practice management services to physician groups, reporting an after-tax
loss of $0.7 million on the disposal. In September 1995, Brim disposed of its
stand-alone business of providing surgery on an outpatient basis for a loss of
$0.4 million, net of taxes. In December 1996, immediately prior to the
Recapitalization, Brim sold its senior living business for a gain of $5.5
million, net of taxes. The net results of operations of these businesses are
included in "Discontinued Operations" in the 1994, 1995 and 1996 consolidated
financial statements.
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<PAGE> 32
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, information
expressed as a percentage of net operating revenue. Such information has been
derived from the consolidated statements of operations of the Company included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------- --------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net patient service revenue................... 76.5% 75.0% 80.3% 74.5% 86.1%
Management and professional services
revenue..................................... 15.7 19.3 14.6 16.5 10.4
Other revenue................................. 7.8 5.7 5.1 9.0 3.5
----- ----- ----- ----- -----
Net operating revenue......................... 100.0% 100.0% 100.0% 100.0% 100.0%
Expenses:
Salaries, wages and benefits................ 52.6 54.6 50.6 49.4 41.8
Purchased services.......................... 16.5 14.2 15.0 14.6 12.8
Supplies.................................... 10.8 10.0 10.1 9.0 9.7
Provision for doubtful accounts............. 5.0 4.5 7.4 4.8 7.3
Other operating expenses.................... 4.8 7.6 9.8 8.0 10.4
Rentals and leases.......................... 3.7 4.1 4.0 4.4 3.6
Depreciation and amortization............... 1.5 1.7 2.2 1.5 3.1
Interest expense............................ 0.7 0.6 1.9 1.5 4.9
Costs of recapitalization................... -- -- 8.9 -- --
Loss (gain) on sale of assets............... (0.6) (2.8) 0.3 0.2 (0.2)
----- ----- ----- ----- -----
Income (loss) from continuing operations
before provision for income taxes........... 5.0% 5.3% (10.3)% 6.6% 6.8%
Income (loss) from continuing operations...... 2.9% 3.4% (6.9)% 3.5% 4.2%
Net income (loss)............................. 2.8% 3.1% (2.2)% 3.8% 4.2%
</TABLE>
Hospital revenues are received primarily from Medicare, Medicaid and
commercial insurance. The percentage of revenues received from the Medicare
program is expected to increase due to the general aging of the population. The
payment rates under the Medicare program for inpatients are based on a
prospective payment system ("PPS"), based upon the diagnosis of a patient. While
these rates are indexed for inflation annually, the increases have historically
been less than actual inflation. In addition, states, insurance companies and
employers are actively negotiating the amounts paid to hospitals as opposed to
their standard rates. The trend toward managed care, including health
maintenance organizations, preferred provider organizations and various other
forms of managed care, may affect the hospitals' ability to maintain their
current rate of net revenue growth.
Net operating revenue is comprised of: (i) net patient service revenue from
the Company's owned and leased hospitals; (ii) management and professional
services revenue; and (iii) other revenue.
Net patient service revenue for the owned and leased hospitals is reported
net of contractual adjustments and policy discounts of $52.1 million, $57.4 and
$77.0 million for the years ended December 31, 1994, 1995 and 1996,
respectively; and $32.9 million and $51.5 million for the six months ended June
30, 1996 and 1997, respectively. The adjustments principally result from
differences between the hospitals' customary charges and payment rates under the
Medicare and Medicaid programs. Customary charges have generally increased at a
faster rate than the rate of increase for Medicare and Medicaid payments.
Operating expenses of the hospitals primarily consist of salaries and benefits,
purchased services, supplies, provision for doubtful accounts and other
operating expenses (principally consisting of utilities, insurance, property
taxes, travel, freight, postage, telephone, advertising, repairs and
maintenance).
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<PAGE> 33
Management and professional services revenue is comprised of fees from
management and professional consulting services provided to third-party
hospitals pursuant to management contracts and consulting arrangements, plus
reimbursable expenses. Operating expenses for the management and professional
services business primarily consist of salaries and benefits and reimbursable
expenses.
Other revenue includes interest income and other miscellaneous revenue.
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Net operating revenue was $80.9 million in 1997, compared to $58.3 million
in 1996, an increase of $22.6 million, or 38.8%.
Net patient service revenue totaled $69.6 million in 1997, compared to
$43.4 million in 1996, an increase of $26.2 million, or 60.4%. This increase is
principally the result of the 1996 Acquisitions. Memorial Mother Frances and
Starke Memorial net patient revenue for 1997 totaled $22.1 million. The 1996
results reflect five months operations of Parkview, while the 1997 results
reflect six months. This accounts for $0.9 million of the increase. The
remaining $3.2 million increase is attributable to increased patient volumes,
new patient services and increased customary charges at the Company's four other
hospitals. On a same hospital basis, net patient service revenue increased by
5.6% to $41.9 million.
Management and professional services revenue totaled $8.4 million in 1997,
compared to $9.6 million in 1996, a decrease of $1.2 million, or 12.5%. This
decrease results primarily from a decrease in rebilled salaries (which
represents salaries of certain hospital executives whose salaries are billed to
the hospitals for reimbursement) of $1.0 million in 1996. The remaining decrease
of $0.2 million results from a decline in consulting fees at the managed
hospitals.
Other revenue totaled $2.9 million in 1997, compared to $5.3 million in
1996, a decrease of $2.4 million, or 45.3%. Of this decrease, $1.0 million
relates to a fee received in 1996 in connection with a failed merger. The
remaining $1.4 million decrease relates to a decline in miscellaneous other
revenues.
Salaries, wages and benefits totaled $33.8 million in 1997, compared to
$28.8 million in 1996, an increase of $5.0 million, or 17.4%. The 1996
Acquisitions resulted in an increase of $8.0 million. This increase was
partially offset by a reduction in the number of employees, which resulted in a
decrease of $3.0 million.
Purchased services expense totaled $10.3 million in 1997, compared to $8.5
million in 1996, an increase of $1.8 million, or 21.2%. The 1996 Acquisitions
resulted in an increase of $2.8 million. This increase was partially offset by a
reduction of $1.0 million in expense on a same hospital basis.
Supplies expense totaled $7.8 million in 1997 compared to $5.3 million in
1996, an increase of $2.5 million, or 47.2%. The 1996 Acquisitions resulted in
an increase of $2.3 million. The remaining $0.2 million relates to an increase
in patient volumes in 1997.
Provision for doubtful accounts totaled $5.9 million in 1997, compared to
$2.8 million in 1996, an increase of $3.1 million, or 110.7%. The 1996
Acquisitions resulted in an increase of $2.6 million. The provision increased
$0.9 million on a same hospital basis. The provision at the management company
decreased $0.5 million as a result of recoveries in 1997 on previously written
off accounts.
Other operating expenses totaled $8.4 million in 1997, compared to $4.7
million in 1996, an increase of $3.7 million, or 78.7%. The 1996 Acquisitions
resulted in an increase of $2.5 million. On a same hospital basis, other
operating expenses increased $0.3 million in correlation to the increased net
patient services revenue at these hospitals. The remaining increase of $0.9
million relates to increased acquisition activity and increased corporate
operations expenses.
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<PAGE> 34
EBITDAR totaled $14.6 million in 1997, compared to $8.3 million in 1996, an
increase of $6.3 million, or 75.9%. While EBITDAR should not be considered in
isolation or construed as a substitute for net income or a better indicator of
liquidity than cash flow from operating activities, which are determined in
accordance with generally accepted accounting principles, it is included herein
to provide additional information with respect to the ability of the Company to
meet its future debt service, capital expenditure and working capital
requirements.
Rentals and leases totaled $2.9 million in 1997, compared to $2.6 million
in 1996, an increase of $0.3 million, or 11.5%. The 1996 Acquisitions resulted
in an increase of $0.2 million. The remaining $0.1 million increase relates to
increases on a same hospital basis.
Depreciation and amortization totaled $2.5 million in 1997, compared to
$0.9 million in 1996, an increase of $1.6 million, or 177.8%. The 1996
Acquisitions resulted in an increase of $1.4 million. The remaining $0.2 million
increase relates to increases as a result of increases in property, plant and
equipment on a same hospital basis.
Interest expense totaled $3.9 million in 1997, compared to $0.8 million in
1996, an increase of $3.1 million, or 387.5%. This increase resulted primarily
from $72.0 million of new bank debt incurred in connection with the
Recapitalization.
The Company recorded a gain on sale of assets of $0.2 million in 1997,
compared to a loss of $0.1 million in 1996. The gain in 1997 relates primarily
to the sale of the remaining assets of Fifth Avenue Hospital. The loss in 1996
related to the sale of assets in the normal course of business.
The net result of the above was that the Company recorded net income from
operations of $3.4 million for the six months ended June 30, 1997, compared to
$2.2 million in 1996, an increase of $1.2 million, or 54.5%.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net operating revenue was $129.9 million in 1996, compared to $101.2
million in 1995, an increase of $28.7 million, or 28.4%.
Net patient service revenue totaled $104.3 million in 1996, compared to
$75.9 million in 1995, an increase of $28.4 million, or 37.4%. This increase is
principally the result of the 1996 Acquisitions which provide combined 1996 net
patient service revenue of $22.3 million. The 1996 amounts include eleven months
of revenue for Parkview, five months of revenue for Memorial Mother Frances, and
three months of revenue for Starke Memorial. The remaining $6.1 million increase
is attributable to increased patient volumes, new patient services and increased
customary charges at the Company's four other hospitals. On a same hospital
basis, net patient service revenue increased by 7.1% to $79.4 million.
Management and professional services revenue totaled $18.9 million in 1996,
compared to $19.6 million in 1995, a decrease of $0.7 million, or 3.6%. The
decrease is principally the result of a decline in consulting fees at the
managed hospitals.
Other revenue totaled $6.6 million in 1996, compared to $5.8 million in
1995, an increase of $0.8 million, or 13.8%. This increase is principally
attributable to a $1.0 million fee received in 1996 relating to a failed merger.
Salaries, wages and benefits expenses totaled $65.7 million in 1996,
compared to $55.3 million in 1995, an increase of $10.4 million, or 18.8%. The
1996 Acquisitions accounted for $8.9 million of this increase. Salaries, wages
and benefits increased $1.5 million on a same hospital basis, primarily as a
result of increases in rates of pay.
Purchased services expense totaled $19.5 million in 1996, compared to $14.4
million in 1995, an increase of $5.1 million, or 35.4%. The 1996 Acquisitions
accounted for $4.2 million of this increase. Also, purchased services increased
$0.9 million on a same hospital basis, primarily as a
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<PAGE> 35
result of increased professional fees at the corporate level related to merger
and acquisition activity and increased use of contract labor.
Supplies expense totaled $13.1 million in 1996, compared to $10.1 million
in 1995, an increase of $3.0 million, or 29.7%. The 1996 Acquisitions accounted
for $2.7 million of this increase. The remaining $0.3 million increase was due
to increased patient volumes and new patient services.
Provision for doubtful accounts totaled $9.6 million in 1996, compared to
$4.6 million in 1995, an increase of $5.0 million, or 108.7%. The 1996
Acquisitions accounted for $2.4 million of this increase. The provision
increased $2.6 million on a same hospital basis as a result of a change in
estimate. During the year ended December 31, 1996, the Company changed the
methodologies used by the separate entities to calculate the allowance for
doubtful accounts to conform to a single method, which resulted in an
unfavorable impact on the provision for doubtful accounts in 1996.
Other operating expenses totaled $12.8 million in 1996, compared to $7.7
million in 1995, an increase of $5.1 million, or 66.2%. The 1996 Acquisitions
accounted for $1.3 million of this increase. Insurance expense increased $2.1
million as a result of a change in estimate of incurred but not reported claims
related to professional liability and workers' compensation insurance. In 1996,
an actuarial calculation was made, resulting in a change in estimate. The
actuarial calculation was based on available loss run information for each
facility and supplemented with industry data. Prior to 1996, the Company was
unable to make a reasonable estimate of a liability based on the lack of
available information, e.g., loss runs and statistics. The remaining increase of
$1.7 million resulted from increased costs on a same hospital basis, in
correlation to the increased net patient services revenue at these hospitals,
and increased acquisition activity.
EBITDAR, as adjusted to exclude the increase in insurance expense in 1996
due to a change in estimate of $2.1 million, totaled $11.3 million in 1996,
compared to $9.0 million in 1995, an increase of $2.3 million, or 25.6%. This
increase relates principally to increased patient service revenue.
Rentals and leases totaled $5.2 million in 1996, compared to $4.1 million
in 1995, an increase of $1.1 million, or 26.8%. Of this increase, $0.5 million
resulted from the 1996 Acquisitions. The remaining increase resulted from
scheduled rent increases in the long-term facilities leases at the other
hospitals of $0.2 million, and increases in other lease and rental obligations
of $0.4 million.
Depreciation and amortization totaled $2.8 million in 1996, compared to
$1.8 million in 1995, an increase of $1.0 million, or 55.6%. This increase
resulted from the 1996 Acquisitions.
Interest expense totaled $2.5 million in 1996, compared to $0.6 million in
1995, an increase of $1.9 million, or 316.7%. This increase resulted primarily
from new borrowings to finance the 1996 Acquisitions. In July 1996, the Company
borrowed $13.7 million to finance the acquisition of Memorial Mother Frances,
and in October 1996 borrowed an additional $5.6 million to finance the
acquisition of Starke Memorial. Following the Recapitalization and the Merger in
December 1996, the $19.3 million noted above was refinanced with a portion of
the borrowings of $72.0 million under the Credit Agreement. The interest rates
on this debt ranged from 8.1% to 9.3% during 1996. The remaining increase
relates to increased interest rates on variable-rate debt, the balance ($5.3
million) of which was paid in full following the Merger in December 1996.
Interest rates on this debt ranged from 7.0% to 10.0% during 1996. See
"-- Liquidity and Capital Resources."
Recapitalization expense totaled $11.6 million in 1996. This expense
consisted of $8.0 million paid to settle options, $2.2 million of severance
payments, and $1.4 million of transaction-related costs (principally
professional fees).
The Company recorded a loss on sale of assets of $0.4 million in 1996,
compared to a gain of $2.8 million in 1995. The 1996 loss related to the sale of
certain assets in connection with the Recapitalization. The gain in 1995
resulted from the sale of Fifth Avenue Hospital in May 1995.
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<PAGE> 36
The net result of the above was that the Company recorded a loss from
continuing operations before provision for income taxes of $13.4 million in
1996, compared to income from continuing operations of $5.4 million in 1995, a
decrease of $18.8 million, or 348.1%.
The Company recognized an income tax benefit of $4.5 million in 1996, as a
result of the $13.4 million loss from continuing operations (33.4% effective
rate), compared to tax expense of $2.0 million in 1995 on income of $5.4 million
(36.4% effective rate). The benefit in 1996 resulted in an increase in deferred
tax assets to a balance of $6.4 million at December 31, 1996. Management
believes it is more likely than not that the deferred tax assets will ultimately
be realized through future taxable income from operations.
Income from discontinued operations, net of income taxes, in 1996 was $0.5
million, compared to $0.8 million in 1995. The income is the result of income
from the operations of the senior living business, which was sold in December
1996.
Gain on disposal of discontinued operations, net of income taxes, in 1996
was $5.5 million, compared to a loss of $1.0 million in 1995. The 1996 gain is
related to the sale of the senior living business. The 1995 loss resulted from
the loss on the sale of the Company's managed care and outpatient surgery
business, which was discontinued in September 1995.
The net result of the above was that the Company recorded a net loss in
1996 of $2.9 million, compared to net income of $3.1 million in 1995, a decrease
of $6.0 million, or 193.5%. Pro forma net loss per share was $0.35 in 1996. The
loss per share for the year ended December 31, 1996 is computed using the
weighted average number of shares of Common Stock outstanding during the period,
including dilutive common equivalent shares from stock options and warrants. The
7,280,020 shares of Common Stock issued pursuant to the Recapitalization and the
Merger have been included in the pro forma calculations as if such transactions
had occurred as of the first day of 1996. All other Common Stock and common
equivalent shares issued by the Company at prices below the initial public
offering price during the twelve-month period prior to the public offering have
been included in the calculation as if they were outstanding for the full fiscal
year (treasury stock method).
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net operating revenue was $101.2 million in 1995, compared to $102.1
million in 1994, a decrease of $0.9 million, or less than 1.0%.
Net patient service revenue totaled $75.9 million in 1995, compared to
$78.1 million in 1994, a decrease of $2.2 million, or 2.8%, primarily due to the
sale of Fifth Avenue Hospital in May 1995. On a same hospital basis, net patient
service revenue increased by 1.4% to $74.1 million.
Management and professional services revenue totaled $19.6 million in 1995,
compared to $16.0 million in 1994, an increase of $3.6 million, or 22.5%. This
increase resulted primarily from an increase in consulting fees on special
projects.
Other revenue was $5.8 million in 1995, compared to $8.0 million in 1994, a
decrease of $2.2 million, or 27.5%. This decrease is the result of a decrease in
miscellaneous revenues at the hospitals of $0.9 million, primarily as a result
of the sale of Fifth Avenue Hospital $(0.5 million) in May 1995. Another $1.3
million related to decreased revenue at a subsidiary which invested in
outpatient surgery centers, and a decrease in other miscellaneous revenue.
Salaries, wages and benefits expenses totaled $55.3 million in 1995
compared to $53.7 million in 1994, an increase of $1.6 million, or 3.0%. This
increase is principally the result of increased rates of pay.
Purchased services expense totaled $14.4 million in 1995, compared to $16.9
million in 1994, a decrease of $2.5 million, or 14.8%. This decrease is
principally the result of the sale of Fifth Avenue Hospital.
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Supplies expense totaled $10.1 million in 1995, compared to $11.0 million
in 1994, a decrease of $0.9 million, or 8.2%. This decrease is principally the
result of decreased patient services revenue as a result of the sale of Fifth
Avenue Hospital.
Provision for doubtful accounts totaled $4.6 million in 1995, compared to
$5.1 million in 1994, a decrease of $0.5 million, or 9.8%. This decrease is the
result of decreased patient service revenue in 1995 and the sale of Fifth Avenue
Hospital.
Other operating expenses totaled $7.7 million in 1995, compared to $4.9
million in 1994, an increase of $2.8 million, or 57.1%. This increase is
principally the result of increased operating expense at the hospitals of $1.8
million, $0.5 million at the management company, and $0.5 million related to
merger activity in 1995.
EBITDAR totaled $9.0 million in 1995, compared to $10.5 million in 1994, a
decrease of $1.5 million, or 14.3%. This decrease is primarily due to the net
result of an increase in salaries and benefits, a decrease in purchased
services, a decrease in supplies, and a decrease in provision for doubtful
accounts.
Rentals and leases totaled $4.1 million in 1995, compared to $3.8 million
in 1994, an increase of $0.3 million, or 7.9%. This increase is the result of
scheduled rent increases in the long-term facilities leases at the hospitals of
$0.1 million and increases in other lease and rental obligations of $0.2
million.
Depreciation and amortization totaled $1.8 million in 1995, compared to
$1.5 million in 1994, an increase of $0.3 million, or 20.0%, which is primarily
attributable to increases in property and equipment.
Interest expense totaled $0.6 million in 1995, compared to $0.8 million in
1994, a decrease of $0.2 million, or 25.0%. This decrease resulted primarily
from a decrease in average debt balances.
The Company recorded a gain on sale of assets in 1995 of $2.8 million,
compared to a gain of $0.6 million in 1994. The sale of Fifth Avenue Hospital
resulted in $2.5 million of the gain in 1995.
The Company recorded income from continuing operations, before provision
for income taxes, of $5.4 million in 1995, compared to $5.1 million in 1994, an
increase of $0.3 million, or 5.9%. The Company recorded a provision for income
taxes of $2.0 million in 1995 (36.4% effective rate), compared to $2.1 million
in 1994 (41.3% effective rate). The difference in the effective rates for 1995
and 1994 relates principally to the tax effect of the change in the valuation
allowance for deferred tax assets.
Income from discontinued operations, net of income taxes, was $0.8 in 1995,
compared to a loss of $0.2 in 1994, which is the result of operations of the
senior living business sold in 1996.
Loss on disposal of discontinued operations, net of income taxes, in 1995
was $1.0 million dollars. The loss resulted from the loss on the sale of the
Company's managed care and outpatient surgery business, which was discontinued
in September 1995.
The net result of the above was that the Company recorded net income of
$3.1 million for the year ended December 31, 1995, compared to net income of
$2.8 million in 1994, an increase of $0.3 million, or 10.7%.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had working capital of $24.6 million,
including cash and cash equivalents of $6.0 million. The ratio of current assets
to current liabilities was 2.2 to 1.0 at June 30, 1997, compared to 2.0 to 1.0
at December 31, 1996.
As with the hospital industry in general, a major component of the
Company's working capital is accounts receivable arising from services provided
to patients of its owned and leased hospitals.
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<PAGE> 38
Payments on accounts receivable are made by third-party payors (Medicare,
Medicaid, and insurance plans) and directly by the patients. The Company
believes that the average collection period for its owned and leased hospitals
is consistent with the industry average. Fees for management and professional
services are generally paid monthly.
The Company's cash requirements, excluding acquisitions, have historically
been funded by cash generated from operations. Cash from operations was $2.7
million for the year ended December 31, 1994, $3.7 million for the year ended
December 31, 1995, and $1.8 million for the year ended December 31, 1996. The
decrease in 1996 is primarily due to the net loss of $2.9 million. Cash provided
by (used in) operations was $(1.5 million) for the six months ended June 30,
1997 and $7.4 million for the six months ended June 30, 1996.
The Company used cash for investing activities of $0.7 million, $1.5
million, $17.3 million and $5.7 million for the years ended December 31, 1994,
1995 and 1996, and for the six months ended June 30, 1997, respectively. These
amounts relate to acquisitions, divestitures of hospitals and purchases and
disposals of property, plant and equipment in each period.
Cash provided by (used in) financing activities totaled $(2.6 million),
$(1.7 million), $24.5 million and $2.0 million for the years ended December 31,
1994, 1995 and 1996, and for the six months ended June 30, 1997, respectively.
The 1996 amount results from the proceeds from long-term debt, net of debt
refinancing and recapitalization.
Capital expenditures for owned and leased hospitals may vary from year to
year depending on facility improvements and service enhancements undertaken by
the hospitals. Management services activities do not require significant capital
expenditures. Capital expenditures for the year ended December 31, 1996 were
$14.0 million, which included $1.4 million in connection with the renovation of
Colorado Plains Medical Center and $0.6 million in connection with the
information system installation at General Hospital. Capital expenditures for
the six months ended June 30, 1997 were $5.5 million. The Company expects to
make capital expenditures in 1997 of $8.5 million, exclusive of any
acquisitions. Planned capital expenditures for 1997 include capital improvements
at the Company's owned and leased hospitals $(6.5 million), as well as
expenditures for standardizing management information systems for the owned and
leased hospitals and the corporate office $(2.0 million).
The Company intends to purchase or lease additional acute care hospitals,
and is actively seeking such acquisitions. There can be no assurance that the
Company will not require additional debt or equity financing for any particular
acquisition, or that any needed financing will be available on favorable terms.
As part of the Recapitalization, the Company entered into a $100.0 million
Credit Agreement in December 1996, with First Union National Bank of North
Carolina, as agent for a syndicated group of lenders. The facility consists of a
revolving credit facility in an amount of up to $65.0 million and a term loan
facility in the amount of $35.0 million. Amounts outstanding under the Credit
Agreement at June 30, 1997 and December 31, 1996 were $74.0 million and $72.0
million, respectively, of which $35.0 million relates to the term loan portion
of the Credit Agreement. Borrowings under the Credit Agreement bear interest, at
the Company's option, at the adjusted base rate or at the adjusted LIBOR rate.
Interest ranged from 7.9% to 9.5% during the six-month period ended June 30,
1997, and 8.1% to 9.3% during the year ended December 31, 1996. In March 1997,
as required under the Credit Agreement, the Company entered into an interest
rate swap agreement, which effectively converted for a three-year period $35.0
million of floating-rate borrowings to fixed-rate borrowings, with a current
effective rate of 8.8%. The Company pays a commitment fee of one-half of one
percent on the unused portion of the revolving credit facility. The Company may
prepay the principal amount outstanding under the Credit Agreement at any time
before maturity. The revolving credit facility matures on December 16, 1999. The
term loan is payable in quarterly installments ranging from $1.3 million,
commencing in the second quarter of 1998, to $2.3 million in 2002, plus one
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<PAGE> 39
payment of $2.0 million in 2002. Borrowings under the revolver for acquisitions
require the consent of the lenders.
The Credit Agreement contains limitations on the Company's ability to incur
additional indebtedness, (including contingent obligations), sell material
assets, retire, redeem or otherwise reacquire its capital stock, acquire the
capital stock or assets of another business, and pay dividends. The Credit
Agreement also requires the Company to maintain a specified net worth and meet
or exceed certain coverage, leverage, and indebtedness ratios. Indebtedness
under the Credit Agreement is secured by substantially all assets of the
Company.
Management is discussing with its lenders potential amendments to the
Credit Agreement to increase the credit facility to $175.0 million to $200.0
million. There can be no assurances that such amendments will be made.
The Company believes that its cash flow from operations, together with
borrowings available under the Credit Agreement and the net proceeds of the
offering, will be sufficient to fund the Company's operating expenses, capital
expenditures and debt service requirements for the foreseeable future. The
Company will continue to pursue its acquisition strategy and in connection
therewith may pursue additional financings and incur additional indebtedness.
INFLATION
The health care industry is labor intensive. Wages and other expenses
increase, especially during periods of inflation and labor shortages. In
addition, suppliers pass along rising costs to the Company in the form of higher
prices. The Company has generally been able to offset increases in operating
costs by increasing charges for services and expanding services. The Company has
also implemented cost control measures to curb increases in operating costs and
expenses. In light of cost containment measures imposed by government agencies
and private insurance companies, the Company is unable to predict its ability to
offset or control future cost increases, or its ability to pass on the increased
costs associated with providing health care services to patients with government
or managed care payors, unless such payors correspondingly increase
reimbursement rates.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards (SFAS) No. 128, Earnings per Share
and SFAS No. 129, Disclosure of Information about Capital Structure. These
statements are effective for periods ending after December 15, 1997.
SFAS No. 128 establishes standards for computing and presenting earnings
per share. This Statement simplifies the standards for computing earnings per
share and requires dual presentation of basic and diluted earnings per share on
the face of the statement of operations and requires a reconciliation of the
numerator and denominator of the basic earnings per share computation to the
numerator and denominator of the diluted earnings per share computation. The
adoption of SFAS No. 128 would have had no impact on the calculation of earnings
per share assuming the calculation was modified to treat: (i) the 7,280,020
shares issued in the Recapitalization and the Merger in December 1996 as being
outstanding for the entire period presented; and (ii) to treat all other Common
Stock issued, and Common Stock options and warrants granted, by the Company at
prices below the initial public offering price during the twelve-month period
prior to the initial public offering as if they were outstanding for the entire
period presented.
SFAS No. 129 establishes standards for disclosing information about a
company's capital structure. The adoption of SFAS No. 129 is not expected to
materially alter disclosures presently being provided.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
The Statement establishes standards for the reporting and display of
comprehensive income and its components.
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<PAGE> 40
The Statement requires that all items that are income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. The Statement was only recently issued, and the Company has not yet
determined the impact of adoption on its disclosure requirements.
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information. The Statement changes the way public
companies report segment information in annual financial statements and also
requires those companies to report selected segment information in interim
financial reports to shareholders. The Statement is effective for financial
statements for fiscal years beginning after December 15, 1997. The Statement was
only recently issued, and the Company has not yet determined the impact of
adoption on its disclosure requirements.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this discussion, including without
limitation, statements containing the words "believes," "anticipates,"
"intends," "expects," and words of similar import, constitute forward-looking
statements. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company or industry results to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: general economic and business conditions, both nationally and in
regions where the Company operates; demographic changes; the effect of existing
or future governmental regulation and federal and state legislative and
enforcement initiatives on the Company's business, including the
recently-enacted Balanced Budget Act of 1997; changes in Medicare and Medicaid
reimbursement levels; the Company's ability to implement successfully its
acquisition and development strategy and changes in such strategy; the
availability and terms of financing to fund the expansion of the Company's
business, including the acquisition of additional hospitals; the Company's
ability to attract and retain qualified management personnel and to recruit and
retain physicians and other health care personnel to the non-urban markets it
serves; the effect of managed care initiatives on the non-urban markets served
by the Company's hospitals and the Company's ability to enter into managed care
provider arrangements on acceptable terms; the effect of liability and other
claims asserted against the Company; the effect of competition in the markets
served by the Company's hospitals; and other factors referenced in this
Prospectus. Certain of these factors are discussed in more detail elsewhere in
this Prospectus. Given these uncertainties, prospective investors are cautioned
not to place undue reliance on such forward-looking statements. The Company
disclaims any obligation to update any such factors or to publicly announce the
result of any revisions to any of the forward-looking statements contained
herein to reflect future events or developments. See "Risk Factors."
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<PAGE> 41
BUSINESS
OVERVIEW
Province Healthcare Company is a provider of health care services in
attractive non-urban markets in the United States. In developing a platform for
the provision of health care services within target markets, the Company seeks
to acquire hospitals which are the sole or primary providers of health care in
those communities. After acquiring a hospital, the Company seeks to improve the
hospital's operating performance and to broaden the range of services provided
to the community. The Company offers a wide range of inpatient and outpatient
medical services and also provides specialty services including skilled nursing,
geriatric psychiatry and rehabilitation. The Company currently owns or leases
eight general acute care hospitals in four states with a total of 570 licensed
beds. The Company also provides management services to 50 primarily non-urban
hospitals in 17 states with a total of 3,448 licensed beds. For the year ended
December 31, 1996, and the six months ended June 30, 1997, the Company had net
operating revenue of $129.9 million and $80.9 million, respectively.
The Company's objective is to be the leading provider of high quality
health care in selected non-urban markets. To achieve this end, the Company
seeks to acquire hospitals which are the primary providers of health care in
their markets and which present the opportunity to increase profitability and
market share. The Company targets acquisition candidates that: (i) have a
minimum service area population of 20,000 with a stable or growing employment
base; (ii) are the sole or primary providers of health care services in the
community; (iii) have annual net patient revenue of at least $12.0 million; and
(iv) have financial performance that will benefit from Province management's
proven operating skills. The Company's goal is to acquire two to four hospitals
each year of the approximately 1,100 non-urban hospitals that fit the Company's
acquisition profile.
Following the acquisition of a hospital, the Company implements its
systematic policies and procedures to improve the hospital's operating and
financial performance. Key elements of the Company's operating strategy are to:
(i) expand the breadth of services offered in the community to increase local
market share; (ii) improve hospital operations by implementing appropriate
expense controls, managing staffing levels, reducing supply costs and
renegotiating certain vendor contracts; (iii) recruit additional general
practitioners and specialty physicians to the community; and (iv) form
relationships with local employers and regional tertiary providers to solidify
the position of the Company's hospital as the focal point of the community's
health care delivery system.
Prior to its 1996 Recapitalization and Merger with PHC, the Company
operated under the name Brim, Inc. The current operations of the Company include
certain Brim operations and all of the operations of PHC. Brim and its
predecessors have provided health care services, including managing and
operating non-urban hospitals, since the 1970s. PHC was founded in February 1996
by GTCR Fund IV and Martin S. Rash to acquire and operate hospitals in
attractive non-urban markets. In December 1996, Brim was recapitalized.
Subsequently, the operations of Brim and PHC were combined in the Merger. In
connection with the Recapitalization, Mr. Rash and Richard D. Gore were elected
as the senior management of the Company.
The Company's management team has extensive experience in acquiring and
operating previously under-performing non-urban hospitals. Prior to co-founding
PHC, Mr. Rash was the Chief Operating Officer of Community, an acquiror and
operator of non-urban hospitals. During Mr. Rash's tenure, Community acquired
many non-urban hospitals and owned or leased 36 hospitals at December 31, 1995.
Mr. Gore was previously employed as Vice President and Controller of Quorum
Health Group, Inc., an owner, operator and manager of acute care hospitals. John
M. Rutledge, the Company's Chief Operating Officer, was previously employed as a
Regional Vice President/Group Director at Community, reporting directly to Mr.
Rash. Steven P. Taylor, the Company's Senior Vice President of Acquisitions and
Development, was previously President of Brim Healthcare, Inc., a subsidiary of
the Company.
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<PAGE> 42
THE NON-URBAN HEALTH CARE MARKET
According to United States Census data, 33.7% of the United States
population lives in counties with populations of less than 150,000. In these
non-urban communities, hospitals are typically the primary source of health
care, and, in many cases, a single hospital is the only provider of acute care
services. As of October 1996, there were approximately 1,500 non-urban hospitals
in the United States, over 1,100 of which were owned by not-for-profit or
governmental entities.
The Company believes that non-urban health care markets are attractive to
health care service providers. Because non-urban service areas have smaller
populations, there are generally only one or two hospitals in each non-urban
market, resulting in less competition. The relative dominance of the acute care
hospital in these smaller markets also limits the entry of alternate site
providers, which provide services such as outpatient surgery, rehabilitation or
diagnostic imaging. The demographic characteristics and the relative strength of
the local hospital also make non-urban markets less attractive to HMOs and other
forms of managed care. In addition, the Company believes that non-urban
communities are generally characterized by a high level of patient and physician
loyalty that fosters cooperative relationships among the local hospital,
physicians and patients.
Although the characteristics of the non-urban health care market present a
number of opportunities, hospitals in such markets have been under considerable
pressure. The not-for-profit and governmental entities that typically own and
operate these hospitals may have limited access to the capital required to keep
pace with advances in medical technology and to make needed capital
improvements. Non-urban hospitals also frequently lack the management resources
necessary to control hospital expenses, recruit physicians and expand health
care services. The increasingly dynamic and complex health care regulatory
environment compounds these pressures. Collectively, these factors frequently
lead to poor operating performance, a decline in the breadth of services
offered, dissatisfaction by community physicians and the perception of subpar
quality of care in the community. As a result, patients migrate to, or are
referred by local physicians to, hospitals in larger urban markets. Patient
migration further increases the financial pressure on non-urban physicians and
hospitals, thereby limiting their ability to address the issues which have led
to these pressures.
As a result of these pressures, not-for-profit and governmental owners of
non-urban hospitals have increasingly sought to sell or lease these hospitals to
companies, like Province, that have the access to capital and management
resources to better serve the community. The Company believes that a significant
opportunity for consolidation exists in the non-urban health care market.
BUSINESS STRATEGY
The Company's objective is to be the leading provider of high quality
health care in selected non-urban markets. The key elements of the Company's
strategy are to:
Acquire Hospitals in Attractive Non-Urban Markets. The Company seeks
to acquire hospitals which are the sole or primary provider of health care
in their markets and which present the opportunity to increase
profitability and local market share. Approximately 1,100 non-urban
hospitals fit the Company's acquisition profile, and the Company's goal is
to acquire two to four such hospitals each year.
Expand Breadth of Services to Increase Local Market Share. The
Company seeks to provide additional health care services and care programs
in response to the needs of the community. These services may include
specialty inpatient services, outpatient services, home health care and
mental health clinics. The Company may also make capital investments in
technology and the physical plant to further improve both the quality of
health care and the reputation of the hospital in the community. By
providing a broader range of services and a more attractive care setting,
the Company believes it can increase health care expenditures captured
locally and limit patient migration to larger urban facilities, thereby
increasing hospital revenue.
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Improve Hospital Operations. Following the acquisition of a hospital,
the Company augments local management with appropriate operational and
financial managers and installs its standardized information system. The
local management team implements appropriate expense controls, manages
staffing levels according to patient volumes, reduces supply costs by
requiring strict compliance with the Company's national supply arrangements
and renegotiates certain vendor contracts.
Recruit Physicians. The Company believes that recruiting physicians in
local communities is key to increasing the quality and breadth of health
care. The Company works with the local hospital board, management and
medical staff to determine the number and type of additional physicians
needed in the community. The Company's corporate physician recruiting staff
then assists the local management team in identifying and recruiting
specific physicians to the community to meet those needs.
Develop Health Care Networks. The Company plans to form networks to
address local employers' integrated health care needs and to solidify the
position of the Company's hospitals as the focal point of their respective
community's health care delivery system. As part of its efforts to develop
these networks, the Company seeks relationships with regional tertiary care
providers.
ACQUISITION PROGRAM
The Company's goal is to acquire two to four hospitals each year which are
primary providers of health care in attractive non-urban markets and which
present the opportunity to increase the hospitals' profitability and local
market share. The Company acquires hospital operations by purchasing hospitals
or by entering into long-term leases. The Company targets acquisition candidates
that: (i) have a minimum service area population of 20,000 with a stable or
growing employment base; (ii) are the sole or primary providers of health care
services in the community; (iii) have annual net patient revenue of at least
$12.0 million; and (iv) have financial performance that will benefit from
management's proven operating skills. There are approximately 1,100 hospitals in
the United States which meet the Company's target criteria. See "Risk
Factors -- Risks of Acquisition Strategy."
In addition to responding to requests for proposals from entities which are
seeking to sell or lease a hospital, the Company proactively identifies
acquisition targets through three sources. The Company: (i) seeks to acquire
selected hospitals to which it provides contract management services; (ii)
identifies attractive markets and hospitals and initiates meetings with hospital
owners to discuss the benefits to the community of a possible acquisition by the
Company; and (iii) seeks to acquire non-urban hospitals from, or form joint
ventures with, hospital systems comprised of one or more urban tertiary care
hospitals and a number of non-urban hospitals. Such joint ventures allow the
tertiary care hospital to maintain an affiliation to provide tertiary care for
the non-urban hospitals without the management responsibility.
The Company believes that it generally takes six to twelve months between
the hospital owner's decision to accept offers and the consummation of a sale or
lease. After a potential acquisition has been identified, the Company undertakes
a systematic approach to evaluating and closing the transaction. The Company
begins the acquisition process with a thorough due diligence review of the
target hospital. The Company utilizes its dedicated teams of experienced
personnel to conduct a formalized review of all aspects of the target's
operations, including Medicare reimbursement, purchasing, fraud and abuse
compliance, litigation, capital requirements, and environmental issues. During
the course of its due diligence review, the Company prepares an operating plan
for the target hospital, identifies opportunities for operating efficiencies and
physician recruiting needs, and assesses productivity and management information
systems. Throughout the process, the Company works closely with community
decision-makers in order to enhance both the community's understanding of the
Company's philosophy and abilities and the Company's knowledge of the needs of
the community.
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The competition to acquire non-urban hospitals is intense, and the Company
believes that often the acquiror will be selected for a variety of reasons, not
exclusively on the basis of price. The Company believes it is well positioned to
compete for acquisitions for several reasons. The Company's management team has
extensive experience in acquiring and operating previously under-performing
non-urban hospitals. The Company also benefits from access to capital, strong
financial and operating systems, a national purchasing organization, and
training programs. The Company believes its strategy of increasing the access
to, and the quality of, health care in the communities served by its hospitals
aligns its interests with those of the communities. The Company believes that
this alignment of interests, together with the Company's reputation for
providing market-specific, high quality health care, its focus on physician
recruiting and its proactive approach to identifying acquisition targets, enable
the Company to compete successfully for acquisitions.
During 1996, the Company purchased Memorial Mother Frances in Palestine,
Texas and leased Parkview in Mexia, Texas and Starke Memorial in Knox, Indiana.
In August 1997, the Company leased Needles in Needles, California. The Company
provided management services to Parkview and Needles prior to their respective
acquisitions.
HOSPITAL OPERATIONS
Following the acquisition of a hospital, the Company implements its
systematic policies and procedures to improve the hospital's operating and
financial performance. The Company implements an operating plan designed to
reduce costs by improving operating efficiency and increasing revenue through
the expansion of the breadth of services offered by the hospitals and the
recruitment of physicians to the community. The Company also plans to form
health care networks with employers in the community and regional tertiary care
hospitals. Management believes that the long-term growth potential of a hospital
is dependent on the Company's ability to add appropriate health care services
and effectively recruit physicians.
Each hospital management team is comprised of a chief executive officer,
chief financial officer and chief nursing officer. The Company believes that the
quality of the local management team at each hospital is critical to the
hospital's success, because the management team is responsible for implementing
the elements of the Company's operating plan. The operating plan is developed by
the local management team in conjunction with the Company's senior management
team and sets forth revenue enhancement strategies and specific expense
benchmarks. The Company has implemented a performance-based compensation program
for each local management team based upon the achievement of the goals set forth
in the operating plan. See "Risk Factors -- Dependence on Management."
While the local management team is responsible for the day-to-day
operations of the hospitals, the Company's corporate staff provides support
services to each hospital, including physician recruiting, corporate compliance,
reimbursement advice, standardized information systems, human resources,
accounting, cash management and other finance activities, tax and insurance
support. Financial controls are maintained through utilization of standardized
policies and procedures. The Company promotes communication among its hospitals
so that local expertise and improvements can be shared throughout the Company's
network.
As part of the Company's efforts to improve access to high quality health
care in the communities it serves, the Company adds appropriate services at its
hospitals. Services and care programs added may include specialty inpatient
services, such as cardiology, geriatric psychiatry, skilled nursing,
rehabilitation and subacute care, and outpatient services such as same-day
surgery, radiology, laboratory, pharmacy services and physical therapy. The
Company may also add home health care services and mental health clinics.
Management believes the establishment of quality emergency room departments and
obstetrics and gynecological services are particularly important, because they
are often the most visible services provided to the community. The Company also
makes capital investments in technology and facilities to increase the quality
and breadth of services
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available in the communities. By increasing the services provided at the
Company's hospitals and upgrading the technology used in providing such
services, the Company believes that it improves the quality of care and the
hospitals' reputation in each community, which in turn may increase patient
census and revenue.
To achieve the operating efficiencies set forth in the operating plan, the
Company: (i) evaluates existing hospital management; (ii) adjusts staffing
levels according to patient volumes using best demonstrated practices by
department; (iii) capitalizes on purchasing efficiencies and renegotiates
certain vendor contracts; and (iv) installs a standardized management
information system. The Company also enforces strict protocols for compliance
with the Company's supply contracts. The Company participates in a joint venture
with a large investor-owned hospital company pursuant to which all of the
Company's owned and leased hospitals purchase supplies and certain equipment at
prices which management believes are among the most favorable in the industry.
Vendor contracts are also evaluated, and based on cost comparisons, contracts
are either renegotiated or terminated. The Company prepares for the transition
of management information systems to its standardized system prior to the
completion of an acquisition, so that the newly-acquired hospital can typically
begin using the Company's management information systems immediately following
completion of the acquisition.
The Company works with local hospital boards, management and medical staff
to determine the number and type of additional physicians needed in the
community. The Company's corporate staff then assists the local management team
in identifying and recruiting specific physicians to the community to meet those
needs. The majority of physicians who relocate their practices to the
communities served by the Company's hospitals are identified by the Company's
internal physician recruiting staff, which is supplemented by the efforts of
independent recruiting firms. When recruiting a physician to a community, the
Company generally guarantees the physician a minimum level of revenue during a
limited initial period and assists the physician with his or her transition to
the community. The Company requires the physician to repay some or all of the
amounts expended for such assistance in the event the physician leaves the
community within a specified period. The Company prefers not to employ
physicians, and relocating physicians rarely become employees of the Company.
See "Risk Factors -- Dependence on Physicians" and " -- Health Care Regulation."
The Company plans to form networks to address local employers' health care
needs and to solidify the position of the Company's hospitals as the focal point
of their respective community's health care delivery system. As part of its
efforts to develop these networks, the Company also seeks relationships with
regional tertiary care providers.
Owned and Leased Hospitals
The Company currently owns or leases eight general acute care hospitals in
California, Texas, Colorado and Indiana with a total of 570 licensed beds. Six
of the Company's eight hospitals are the only hospital in the town in which they
are located. The owned and leased hospitals represented 80.3% and 86.1% of the
Company's net operating revenues for the year ended December 31, 1996 and the
six months ended June 30, 1997, respectively. Management believes that the
facilities at its owned and leased hospitals are generally suitable and adequate
for the services offered.
The Company's hospitals offer a wide range of inpatient medical services
such as operating/recovery rooms, intensive care units, diagnostic services and
emergency room services, as well as outpatient services such as same-day
surgery, radiology, laboratory, pharmacy services and physical therapy. The
Company's hospitals also frequently provide certain specialty services which
include skilled nursing, geriatric psychiatry, rehabilitation and home health
care services. The Company's hospitals do not provide highly specialized
surgical services such as organ transplants and open heart surgery and are not
engaged in extensive medical research or educational programs.
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The following table sets forth certain information with respect to each of
the Company's currently owned and leased hospitals.
<TABLE>
<CAPTION>
LICENSED OWNED/
HOSPITAL BEDS LEASED
- -------- -------- --------
<S> <C> <C>
Colorado Plains Medical Center
Fort Morgan, Colorado..................................... 40 Leased(1)
General Hospital
Eureka, California........................................ 83 Leased(2)
Memorial Mother Frances Hospital
Palestine, Texas.......................................... 97 Owned(3)
Needles Desert Community Hospital
Needles, California....................................... 53 Leased(4)
Ojai Valley Community Hospital
Ojai, California.......................................... 116(5) Owned
Palo Verde Hospital
Blythe, California........................................ 55 Leased(6)
Parkview Regional Hospital
Mexia, Texas.............................................. 77 Leased(7)
Starke Memorial Hospital
Knox, Indiana............................................. 49 Leased(8)
---
Total............................................. 570
</TABLE>
- ---------------
(1) The lease expires in April 2014 and is subject to a five-year renewal term.
The Company has a right of first refusal to purchase the hospital.
(2) The lease expires in December 2000. The Company has the option to purchase
the hospital at any time prior to termination of the lease, subject to
regulatory approval.
(3) The hospital is owned by a partnership of which the Company is the sole
general partner (with a 1.0% general partnership interest) and has a 94.0%
limited partnership interest, subject to an option by the other limited
partner to acquire an additional 5.0% interest.
(4) The lease expires in July 2012, and is subject to three five-year renewal
terms. The Company has a right of first refusal to purchase the hospital.
(5) Includes a 66-bed skilled nursing facility.
(6) The lease expires in December 2002, and is subject to a ten-year renewal
option. The Company has the option to purchase the hospital at any time
prior to termination of the lease, subject to regulatory approval.
(7) The lease expires in January 2011, and is subject to two five-year renewal
terms. The Company has a right of first refusal to purchase the hospital.
(8) The lease expires in September 2016, and is subject to two ten-year renewal
options. The Company has a right of first refusal to purchase the hospital.
Colorado Plains Medical Center is located approximately 70 miles northeast
of Denver and is the only hospital in town. The hospital is the only rural-based
Level III trauma center in Colorado, and one of only 10 such rural centers in
the United States. Colorado Plains recently completed an $8.5 million expansion
project which included expansion of surgery, recovery, emergency room and
radiology facilities as well as a new entrance. The Company is planning a
renovation of the hospital's obstetrical and medical/surgical units in 1998. The
closest competing hospitals are located approximately 50 miles away. Colorado
Plains is a sole community provider as designated under Medicare and has a
service area population of approximately 43,000.
General Hospital is located approximately 300 miles north of San Francisco.
The hospital also operates a newly-completed ambulatory surgery center located
near the hospital. The Company expects to complete a renovation of General
Hospital's obstetrical unit by December 1997. There is one other hospital in
Eureka, and two small hospitals located 15 and 20 miles away. The nearest
tertiary care hospitals are located approximately 160 miles away. General
Hospital's service area population is approximately 122,000.
45
<PAGE> 47
Memorial Mother Frances Hospital is located approximately halfway between
Dallas and Houston, and approximately 50 miles from Tyler, Texas. The hospital
recently added a six-bed inpatient rehabilitation unit and a ten-bed geriatric
psychiatry unit. Memorial Mother Frances has a relationship with a tertiary care
hospital in Tyler. The hospital's primary competitor is also located in
Palestine. The hospital's service area population is approximately 104,000.
Needles Desert Community Hospital is located approximately 100 miles south
of Las Vegas, Nevada and is the only hospital in town. The hospital's primary
competitor is located approximately 20 miles away. Needles is a sole community
provider as designated under Medicare and has a service area population of
approximately 47,000.
Ojai Valley Community Hospital is located approximately 85 miles northeast
of Los Angeles and is the only hospital in town. Along with its 50-bed acute
care hospital, Ojai Valley has a 66-bed skilled nursing facility. In 1997, Ojai
Valley purchased a home health business and opened a rural health clinic in a
neighboring town. The hospital's primary competitors are located 18 to 20 miles
away, but due to the geography and traffic conditions, such hospitals are 30 to
60 minutes away by car. The hospital's service area population is approximately
30,000.
Palo Verde Hospital is located in southeast California near the Arizona
border. It is 120 miles east of Palm Springs, California and is the only
hospital in town. The hospital's primary competitors are one small hospital
located 45 miles away and two large hospitals located approximately 100 miles
away. Palo Verde is a sole community provider as designated under Medicare and
has a service area population of approximately 20,000 that increases
substantially during the winter months due to a seasonal inflow of residents.
Parkview Regional Hospital is located approximately 40 miles east of Waco,
Texas and is the only hospital in town. The hospital recently completed a $5.7
million expansion and renovation project which included a new emergency room and
new radiology, surgery and inpatient rehabilitation departments. Parkview is
currently completing an outpatient rehabilitation center on the hospital campus.
The hospital's primary competitors are hospitals located 35 to 40 miles away.
The hospital's service area population is approximately 40,000.
Starke Memorial Hospital is located approximately 50 miles from South Bend,
Indiana and is the only hospital in town. The hospital opened a five-bed
geriatric psychiatry unit in April 1997 and is affiliated with a tertiary
hospital in South Bend. Starke Memorial's primary competitors are two large
hospitals, located approximately 30 and 35 miles away. The hospital's service
area population is approximately 25,000.
The Company also owns a 48,000 square foot office building in Portland,
Oregon and leases approximately 8,000 square feet of office space for its
corporate headquarters in Brentwood, Tennessee under a 3-year lease which
expires on December 31, 1999 and contains customary terms and conditions.
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<PAGE> 48
Operating Statistics
The following table sets forth certain operating statistics for the
Company's owned or leased hospitals (excluding Fifth Avenue Hospital in Seattle,
Washington, which was sold in May 1995) for each of the periods presented.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Hospitals owned or leased (at end of
period)................................... 4 4 7 5 7
Licensed beds (at end of period)............ 294 294 513 371 517
Beds in service (at end of period).......... 243 243 407 274 411
Admissions.................................. 8,868 8,839 11,460 5,101 7,446
Average length of stay (days)(1)............ 6.5 6.4 5.6 5.8 5.5
Patient days................................ 57,161 56,088 64,647 29,368 40,837
Adjusted patient days(2).................... 91,047 92,085 115,805 50,992 73,367
Occupancy rate (% of licensed beds)(3)...... 53.3 52.3 42.4 45.1 43.6
Occupancy rate (% of beds in service)(4).... 64.4 63.2 54.8 59.8 54.9
Net patient service revenue (in
thousands)................................ $71,335 $71,452 $101,573 $43,391 $69,581
Gross outpatient service revenue (in
thousands)................................ $46,312 $51,414 $ 78,561 $32,336 $53,680
</TABLE>
- ---------------
(1) Average length of stay is calculated based on the number of patient days
divided by the number of admissions.
(2) Adjusted patient days have been calculated based on an industry-accepted
revenue-based formula (multiplying actual patient days by the sum of gross
inpatient revenue and gross outpatient revenue and dividing the result by
gross inpatient revenue for each hospital) to reflect an approximation of
the volume of service provided to inpatients and outpatients by converting
total patient revenues to equivalent patient days.
(3) Percentages are calculated by dividing average daily census by average
licensed beds.
(4) Percentages are calculated by dividing average daily census by average beds
in service.
Sources of Revenue
The Company receives payments for patient care from private insurance
carriers, federal Medicare programs for elderly and disabled patients, HMOs,
preferred provider organizations ("PPOs"), state Medicaid programs, the Civilian
Health and Medical Program of the Uniformed Services ("CHAMPUS"), employers and
patients directly.
The following table sets forth the percentage of the patient days of the
Company's owned and leased hospitals (excluding Fifth Avenue Hospital and the
66-bed skilled nursing facility at Ojai Valley Community Hospital) from various
payors for the periods indicated. The data for the periods presented are not
strictly comparable due to the significant effect that acquisitions have had on
the Company. See "Management's Discussion and Analysis of Results of Operations
and Financial Condition."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------- -----------------
1994 1995 1996(1) 1996 1997(1)
----- ----- ------- ------ --------
<S> <C> <C> <C> <C> <C>
Medicare............................................. 49.1% 50.2% 54.9% 53.8% 59.8%
Medicaid............................................. 14.2 16.8 16.0 16.2 14.2
Private and other sources............................ 36.7 33.0 29.1 30.0 26.0
----- ----- ----- ----- -----
Total...................................... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) All percentages in this table exclude Fifth Avenue Hospital and the 66-bed
skilled nursing facility at Ojai Valley Community Hospital. Substantially
all of the revenue at the Ojai Valley skilled nursing facility is provided
by Medicaid. Including the Ojai Valley skilled nursing facility, the
percentage of revenue from Medicare, Medicaid and private and other sources
would have been 37.8%, 40.8% and 21.4%, for the year ended December 31,
1996, and 45.6%, 32.2% and 22.2% for the six months ended June 30, 1997.
47
<PAGE> 49
Quality Assurance
The Company's hospitals implement quality assurance procedures to ensure a
consistently high level of care. Each hospital has a medical director who
supervises and is responsible for the quality of medical care provided. In
addition, each hospital has a medical advisory committee comprised of physicians
who review the professional credentials of physicians applying for medical staff
privileges at the hospital. Medical advisory committees also review and monitor
surgical outcomes along with procedures performed and the quality of the
logistical, medical and technological support provided to the physician. The
Company surveys all of its patients either during their stay at the hospital or
subsequently by mail to identify potential areas of improvement. All of the
Company's hospitals are accredited by the Joint Commission on Accreditation of
Health Care Organizations other than Palo Verde, which is currently pursuing
accreditation.
Regulatory Compliance Program
The Company is developing a corporate-wide compliance program. In June
1997, the Company hired Starley Carr as its Vice President of Corporate
Compliance. Prior to joining the Company, Mr. Carr served with the Federal
Bureau of Investigation, where he investigated various white collar crimes,
including those related to the health care industry. The Company's compliance
program will focus on all areas of regulatory compliance, including physician
recruitment, reimbursement and cost reporting practices, laboratory and home
health care operations. See "Risk Factors -- Health Care Regulation" and
"-- Current Publicity."
MANAGEMENT SERVICES
The Company's management services division provides comprehensive
management services to 50 primarily non-urban hospitals in 17 states with a
total of 3,448 licensed beds. These services are provided under three- to
five-year contracts with the Company. The Company generally provides a chief
executive officer, who is an employee of the Company, and may also provide a
chief financial officer, but it does not typically employ other hospital
personnel. The Company provides a continuum of solutions to the problems faced
by these hospitals through services which may include instituting new financial
and operating systems and various management initiatives, such as establishing a
local or regional provider network to efficiently meet a community's health care
needs. Management believes the Company's contract management business provides a
competitive advantage in identifying and developing relationships with suitable
acquisition candidates and in understanding the local markets in which such
hospitals operate. This division represented 14.6% and 10.4% of net operating
revenue for the year ended December 31, 1996 and the six months ended June 30,
1997, respectively. See " -- Professional Liability."
COMPETITION
The primary bases of competition among hospitals in non-urban markets are
the quality and scope of medical services, strength of referral network,
location, and, to a lesser extent, price. With respect to the delivery of
general acute care services, most of the Company's hospitals face less
competition in their immediate patient service areas than would be expected in
larger communities. While the Company's hospitals are generally the primary
provider of health care services in their respective communities, its hospitals
face competition from larger tertiary care centers and, in some cases, other
non-urban hospitals. Some of the hospitals that compete with the Company are
owned by governmental agencies or not-for-profit entities supported by
endowments and charitable contributions, and can finance capital expenditures on
a tax-exempt basis.
The Company faces competition for acquisitions primarily from for-profit
hospital management companies as well as not-for-profit entities. Some of the
Company's competitors have greater financial and other resources than the
Company. Increased competition for the acquisition of non-urban acute care
hospitals could have an adverse impact on the Company's ability to acquire such
hospitals on favorable terms.
48
<PAGE> 50
EMPLOYEES AND MEDICAL STAFF
As of June 30, 1997, the Company had 1,647 "full-time equivalent"
employees, 19 of whom were corporate personnel. The remaining employees, most of
whom are nurses and office personnel, work at the hospitals. None of the
Company's employees is covered by a collective bargaining agreement. The Company
considers relations with its employees to be good.
The Company typically does not employ physicians and, as of June 30, 1997,
the Company employed only nine practicing physicians. Certain of the Company's
hospital services, including emergency room coverage, radiology, pathology and
anesthesiology services, are provided through independent contractor
arrangements with physicians.
GOVERNMENT REIMBURSEMENT
Medicare payments for general hospital inpatient care are based on a
prospective payment system ("PPS"). Under the PPS, a hospital receives a fixed
amount for operating costs based on the established fixed payment amount per
discharge for categories of hospital treatment, commonly known as a diagnosis
related group ("DRG"), for each Medicare inpatient. DRG payments do not consider
a specific hospital's costs, but are adjusted for area wage differentials. The
DRG payments do not include reimbursement for capital costs. Psychiatric
services, long-term care, rehabilitation, pediatric services and certain
designated research hospitals, and distinct parts of rehabilitation and
psychiatric units within hospitals, are currently exempt from PPS and are
reimbursed on a cost-based system, subject to specific reimbursement caps (known
as TEFRA limits). For the year ended December 31, 1996, the Company had only one
unit that was reimbursed under this methodology.
For several years, the percentage increases to the DRG rates have been
lower than the percentage increases in the cost of goods and services purchased
by general hospitals. The index used to adjust the DRG rates is based on the
cost of goods and services purchased by hospitals as well as those purchased by
non-hospitals (the "Market Basket"). The historical Market Basket rates of
increase were 2.0%, 1.5% and 2.0% for federal fiscal years 1995, 1996 and 1997,
respectively. The Company anticipates that future legislation may decrease the
future rate of increase for DRG payments, but is unable to predict the amount of
the final reduction. Medicare reimburses general hospitals' capital costs
separately from DRG payments.
Outpatient services provided at general hospitals typically are reimbursed
by Medicare at the lower of customary charges or approximately 90% of actual
cost, subject to additional limits on the reimbursement of certain outpatient
services.
The Company anticipates that future legislation may reduce the aggregate
reimbursement received, but is unable to predict the amount of the final
reduction.
Each state has its own Medicaid program that is funded jointly by the state
and federal government. Federal law governs how each state manages its Medicaid
program, but there is wide latitude for states to customize Medicaid programs to
fit the needs and resources of their citizens. As a result, each state Medicaid
plan has its own payment formula and recipient eligibility criteria. The
Company's current operations are in states that have historically had
well-funded Medicaid programs with adequate payment rates.
The Company owns or leases four hospitals in California. The Medicaid
program in California, known as Medi-Cal, reimburses hospital inpatient cost on
one of three methods: (i) cost-based, subject to various limits known as
MIRL/PIRL limits; (ii) negotiated rate per discharge or per diem for hospitals
under contract; or (iii) managed care initiatives, where payment rates tend to
be capitated and networks must be formed. Three of the Company's four California
hospitals are cost-based for Medi-Cal and the other is paid under the contract
method. None of the cost-based hospitals is currently subject to a MIRL/PIRL
limit, because their cost per discharge has historically been below the limit.
There can be no assurance that this will remain the case in the future. Medi-
49
<PAGE> 51
Cal currently has a managed care initiative that is primarily targeted at urban
areas. The Company does not expect that Medi-Cal will begin rural managed care
contracting in the near future.
Medicare has special payment provisions for "Sole Community Hospitals" or
SCHs. An SCH is generally the only hospital in at least a 35-mile radius.
Colorado Plains, Needles and Palo Verde qualify as SCHs under Medicare
regulations. Special payment provisions related to SCHs include a higher DRG
rate, which is based on a blend of hospital-specific costs and the national DRG
rate; and a 90% payment "floor" for capital costs, thereby guaranteeing the
hospital SCH capital reimbursement equal to 90% of capital cost. In addition,
the CHAMPUS program has special payment provisions for hospitals recognized as
SCHs for Medicare purposes.
The Omnibus Budget Reconciliation Act of 1993 provides for certain budget
targets through federal fiscal year 1997, which, if not met, may result in
adjustments in payment rates. In recent years, changes in Medicare and Medicaid
programs have resulted in limitations on, and reduced levels of, payment and
reimbursement for a substantial portion of hospital procedures and costs.
Congress recently enacted the Balanced Budget Act of 1997, which establishes a
plan to balance the federal budget by fiscal year 2002, and includes significant
additional reductions in spending levels for the Medicare and Medicaid programs.
The Medicare, Medicaid and CHAMPUS programs are subject to statutory and
regulatory changes, administrative rulings, interpretations and determinations,
requirements for utilization review and new governmental funding restrictions,
all of which may materially increase or decrease program payments as well as
affect the cost of providing services and the timing of payment to facilities.
The final determination of amounts earned under the programs often requires many
years, because of audits by the program representatives, providers' rights of
appeal and the application of numerous technical reimbursement provisions.
Management believes that adequate provision has been made for such adjustments.
Until final adjustment, however, significant issues remain unresolved and
previously determined allowances could become either inadequate or more than
ultimately required.
HEALTH CARE REFORM, REGULATION AND LICENSING
Certain Background Information
Health care, as one of the largest industries in the United States,
continues to attract much legislative interest and public attention. Medicare,
Medicaid, and other public and private hospital cost-containment programs,
proposals to limit health care spending, proposals to limit prices and industry
competitive factors are among the many factors which are highly significant to
the health care industry. In addition, the health care industry is governed by a
framework of federal and state laws, rules and regulations that are extremely
complex and for which the industry has the benefit of only limited regulatory or
judicial interpretation. Although the Company believes it is in compliance in
all material respects with such laws, rules and regulations, if a determination
is made that the Company was in violation of such laws, rules or regulations,
its business, financial condition and results of operations could be materially
adversely affected.
There continue to be federal and state proposals that would, and actions
that do, impose more limitations on government and private payments to providers
such as the Company and proposals to increase co-payments and deductibles from
program and private patients. The Company's facilities also are affected by
controls imposed by government and private payors designed to reduce admissions
and lengths of stay. Such controls, including what is commonly referred to as
"utilization review," have resulted in fewer of certain treatments and
procedures being performed. Utilization review entails the review of the
admission and course of treatment of a patient by a third party. Utilization
review by third-party peer review organizations ("PROs") is required in
connection with the provision of care paid for by Medicare and Medicaid.
Utilization review by third parties is also required under many managed care
arrangements.
50
<PAGE> 52
Many states have enacted, or are considering enacting, measures that are
designed to reduce their Medicaid expenditures and to make certain changes to
private health care insurance. Various states have applied, or are considering
applying, for a federal waiver from current Medicaid regulations to allow them
to serve some of their Medicaid participants through managed care providers.
These proposals also may attempt to include coverage for some people who
presently are uninsured, and generally could have the effect of reducing
payments to hospitals, physicians and other providers for the same level of
service provided under Medicaid.
Certificate of Need Requirements
Some states require approval for construction and expansion of health care
facilities, including findings of need for additional or expanded health care
facilities or services. Certificates of Need ("CONs"), which are issued by
governmental agencies with jurisdiction over health care facilities, are at
times required for capital expenditures exceeding a prescribed amount, changes
in bed capacity or services and certain other matters. However, Texas and
California, states in which the Company operates six of its eight hospitals, do
not currently require CONs for hospital construction or changes in the mix of
services. The Company is unable to predict whether it will be able to obtain any
CON that may be necessary to accomplish its business objectives in any
jurisdiction where such CONs are required.
Anti-kickback and Self-Referral Regulations
Sections of the Anti-Fraud and Abuse Amendments to the Social Security Act,
commonly known as the "anti-kickback" statute (the "Anti-kickback Amendments"),
prohibit certain business practices and relationships that might affect the
provision and cost of health care services reimbursable under Medicare and
Medicaid, including the payment or receipt of remuneration for the referral of
patients whose care will be paid for by Medicare or other government programs.
Sanctions for violating the Anti-kickback Amendments include criminal penalties
and civil sanctions, including fines and possible exclusion from government
programs such as the Medicare and Medicaid programs. Pursuant to the Medicare
and Medicaid Patient and Program Protection Act of 1987, the U.S. Department of
Health and Human Services has issued regulations that create Safe Harbors under
the Anti-kickback Amendments. A given business arrangement which does not fall
within a Safe Harbor is not per se illegal; however, business arrangements of
health care service providers that fail to satisfy the applicable Safe Harbor
criteria risk increased scrutiny by enforcement authorities. The "Health
Insurance Portability and Accountability Act of 1996," which became effective
January 1, 1997 broadened the scope of certain fraud and abuse laws, such as the
Anti-kickback Amendments, to include all health care services, whether or not
they are reimbursed under a federal program.
The Company provides financial incentives to recruit physicians into the
communities served by its hospitals, including loans and minimum revenue
guarantees. No Safe Harbor for physician recruitment is currently in force.
Although the Company is not subject to the Internal Revenue Service Revenue
Rulings and related authority addressing recruitment activities by tax-exempt
facilities, management believes that such IRS authority tends to set the
industry standard for acceptable recruitment activities. The Company believes
that its recruitment policies are being conducted in accordance with the IRS
authority and industry practice. The Company also enters into certain leases
with physicians and is a party to certain joint ventures with physicians. The
Company also participates in a group purchasing joint venture. The Company
believes that these arrangements do not violate the Anti-kickback Amendments.
There can be no assurance that regulatory authorities who enforce the
Anti-kickback Amendments will not determine that the Company's physician
recruiting activities, other physician arrangements, or group purchasing
activities violate the Anti-kickback Amendments or other federal laws. Such a
determination could subject the Company to liabilities under the Social Security
Act, including exclusion of the Company from participation in Medicare and
Medicaid. See "Business -- Health Care Reform, Regulation and Licensing."
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<PAGE> 53
The Company's operations necessarily involve financial relationships with
physicians on the medical staff. Such arrangements include professional services
agreements for services at its hospitals and physician recruitment incentives to
encourage physicians to establish private practices in markets served by the
Company's owned or leased hospitals. Although the Company believes that these
arrangements are lawful, no safe harbor provisions apply to physician
recruitment arrangements not involving physician employment. Evolving
interpretations of current, or the adoption of new, federal or state laws or
regulations could affect these arrangements.
There is increasing scrutiny by law enforcement authorities, the Office of
Inspector General ("OIG") of the Department of Health and Human Services
("HHS"), the courts, and Congress of arrangements between health care providers
and potential referral sources to ensure that the arrangements are not designed
as a mechanism to exchange remuneration for patient care referrals and
opportunities. Investigators have also demonstrated a willingness to look behind
the formalities of a business transaction to determine the underlying purpose of
payments between health care providers and potential referral sources.
Enforcement actions have increased, as evidenced by recent highly publicized
enforcement investigations of certain hospital activities. Although, to its
knowledge, the Company is not currently the subject of any investigation which
is likely to have a material adverse effect on its business, financial condition
or results of operations, there can be no assurance that the Company and its
hospitals will not be the subject of investigations or inquiries in the future.
See "Risk Factors--Current Publicity."
In addition, provisions of the Social Security Act restrict referrals by
physicians of Medicare and other government-program patients to providers of a
broad range of designated health services with which they have ownership or
certain other financial arrangements (the "Stark Laws"). A person making a
referral, or seeking payment for services referred, in violation of Stark would
be subject to the following sanctions: (i) civil money penalties of up to
$15,000 for each service; (ii) assessments equal to twice the dollar value for
each service; and/or (iii) exclusion from participation in the Medicare Program
(which can subject the person to exclusion from participation in state health
care programs). Further, if any physician or entity enters into an arrangement
or scheme that the physician or entity knows or should know has the principal
purpose of assuring referrals by the physician to a particular entity, and the
physician directly made referrals to such entity, then such physician or entity
could be subject to a civil money penalty of up to $100,000. Many states have
adopted or are considering similar legislative proposals, some of which extend
beyond the Medicaid program to prohibit the payment or receipt of remuneration
for the referral of patients and physician self-referrals regardless of the
source of the payment for the care. The Company's contracts with physicians on
the medical staff of its hospitals and its participation in and development of
joint ventures and other financial relationships with physicians could be
adversely affected by these amendments and similar state enactments.
The Company is unable to predict the future course of federal, state and
local regulation or legislation, including Medicare and Medicaid statutes and
regulations. Further changes in the regulatory framework or in the
interpretation of these laws, rules and regulations could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Environmental Regulations
The Company's health care operations generate medical waste that must be
disposed of in compliance with federal, state and local environmental laws,
rules and regulations. The Company's operations, as well as the Company's
purchases and sales of facilities, are also subject to various other
environmental laws, rules and regulations.
Health Care Facility Licensing Requirements
The Company's health care facilities are subject to extensive federal,
state and local legislation and regulation. In order to maintain their operating
licenses, health care facilities must comply with
52
<PAGE> 54
strict standards concerning medical care, equipment and hygiene. Various
licenses and permits also are required in order to dispense narcotics, operate
pharmacies, handle radioactive materials and operate certain equipment. The
Company's health care facilities hold all required governmental approvals,
licenses and permits. All licenses, provider numbers and other permits or
approvals required to perform the Company's business operations are held by
subsidiaries of the Company. Each of the Company's facilities that is eligible
for accreditation is fully accredited by the Joint Commission on Accreditation
of Health Care Organizations other than Palo Verde, which is currently pursuing
accreditation.
Utilization Review Compliance and Hospital Governance
The Company's health care facilities are subject to and comply with various
forms of utilization review. In addition, under the Medicare prospective payment
system, each state must have a PRO to carry out a federally mandated system of
review of Medicare patient admissions, treatments and discharges in general
hospital. Medical and surgical services and practices are extensively supervised
by committees of staff doctors at each health care facility, are overseen by
each health care facility's local governing board, the primary voting members of
which are physicians and community members, and are reviewed by the Company's
quality assurance personnel. The local governing boards also help maintain
standards for quality care, develop long-range plans, establish, review and
enforce practices and procedures and approve the credentials and disciplining of
medical staff members.
Governmental Developments Regarding Sales of Not-for-Profit Hospitals
In recent years, the legislatures and attorneys general of several states
have shown a heightened level of interest in transactions involving the sale of
non-profit hospitals. Although the level of interest varies from state to state,
the trend is to provide for increased governmental review, and in some cases
approval, of transactions in which not-for-profit corporations sell a health
care facility. Attorneys general in certain states, including California, have
been especially active in evaluating these transactions. Although the Company
has not yet been adversely affected as a result of these trends, such increased
scrutiny may increase the difficulty or prevent the completion of transactions
with not-for-profit organizations in certain states in the future.
California Seismic Standards
California recently adopted a law requiring standards and regulations to be
developed to ensure hospitals meet seismic performance standards. Within three
years after adoption of the standards by the California Building Standards
Commission, owners of subject properties are to evaluate their facilities and
develop a plan and schedule for complying with the standards. To date, the
Commission has adopted evaluation criteria but has not yet adopted the retrofit
standards. Therefore, the Company is unable, at this time, to evaluate its
facilities to determine whether the requirements or the cost of complying with
these requirements will have a material adverse effect on the Company's
business, financial condition or results of operations.
PROFESSIONAL LIABILITY
As part of its business, the Company is subject to claims of liability for
events occurring as part of the ordinary course of hospital operations. To cover
these claims, the Company maintains professional malpractice liability insurance
and general liability insurance in amounts which management believes to be
sufficient for its operations, although some claims may exceed the scope of the
coverage in effect. The Company also maintains umbrella coverage. At various
times in the past, the cost of malpractice and other liability insurance has
risen significantly. Therefore, there can be no assurance that such insurance
will continue to be available at a reasonable price for the Company to maintain
adequate levels of insurance.
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<PAGE> 55
Through its typical hospital management contract, the Company attempts to
protect itself from such liability by requiring the hospital to maintain certain
specified limits of insurance coverage, including professional liability,
comprehensive general liability, worker's compensation and fidelity insurance,
and by requiring the hospital to name the Company as an additional insured party
on the hospital's professional and comprehensive general liability policies. The
Company's management contracts also usually provide for the indemnification of
the Company by the hospital against claims that arise out of the actions of the
hospital employees, medical staff members and other non-Company personnel.
However, there can be no assurance the hospitals will maintain such insurance or
that such indemnities will be available.
LEGAL PROCEEDINGS
The Company is, from time to time, subject to claims and suits arising in
the ordinary course of business, including claims for damages for personal
injuries, breach of management contracts or for wrongful restriction of or
interference with physician's staff privileges. In certain of these actions,
plaintiffs request punitive or other damages that may not be covered by
insurance. The Company is currently not a party to any proceeding which, in
management's opinion, would have a material adverse effect on the Company's
business, financial condition or results of operations.
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<PAGE> 56
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the Company's
directors and executive officers as of October 1, 1997.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Martin S. Rash................... 42 President, Chief Executive Officer and Director
Richard D. Gore.................. 45 Executive Vice President and Chief Financial Officer
John M. Rutledge................. 39 Senior Vice President and Chief Operating Officer
Steven P. Taylor................. 45 Senior Vice President of Acquisitions and Development
James O. McKinney................ 43 Senior Vice President of Managed Operations
Howard T. Wall, III.............. 39 Senior Vice President and General Counsel
Brenda B. Rector................. 49 Vice President and Controller
Bruce V. Rauner.................. 41 Chairman of the Board and Director
Joseph P. Nolan.................. 33 Director
A.E. Brim........................ 67 Director
Michael T. Willis................ 53 Director
David L. Steffy.................. 54 Director
</TABLE>
Mr. Rash has served as the President and Chief Executive Officer and as a
director of the Company since the Recapitalization in December 1996. From
February 1996 to December 1996, Mr. Rash served as Chief Executive Officer of
PHC. Mr. Rash was employed by Community Health Systems, Inc., an operator of
non-urban acute care hospitals, from 1986 to February 1996, and served as its
Chief Operating Officer from February 1994 to February 1996.
Mr. Gore has served as Executive Vice President and Chief Financial Officer
of the Company since the Recapitalization in December 1996. From April 1996 to
December 1996, Mr. Gore served as Executive Vice President and Chief Financial
Officer of PHC. Mr. Gore served as Vice President and Controller of Quorum
Health Group, Inc., a hospital management company, from February 1990 to April
1996.
Mr. Rutledge has served as Senior Vice President and Chief Operating
Officer of the Company since December 1996. From 1986 to October 1996, Mr.
Rutledge served in several senior management positions with Community Health
Systems, Inc., most recently serving as a Regional Vice President/Group Director
from 1992 to October 1996.
Mr. Taylor has served as Senior Vice President of Acquisitions and
Development of the Company since the Merger in December 1996. From 1986 to
December 1996, Mr. Taylor served as President of Brim Healthcare, Inc., a
subsidiary of the Company ("Brim Healthcare"). Mr. Taylor is a Fellow of the
American College of Healthcare Executives.
Mr. McKinney has served as Senior Vice President of Managed Operations of
the Company and President of Brim Healthcare since January 1997. From 1994 to
1997, Mr. McKinney served as Senior Vice President of Brim Healthcare. He served
as a Vice President of Brim Healthcare from 1990 to 1994.
Mr. Wall has served as Senior Vice President and General Counsel of the
Company since September 1997. From 1990 to September 1997, Mr. Wall served as a
Partner of Waller Lansden Dorch & Davis a law firm based in Nashville,
Tennessee, and practiced in the health care group.
Ms. Rector has served as Vice President and Controller of the Company since
the Merger in December 1996. From October 1996 to December 1996, Ms. Rector
served as Vice President and
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<PAGE> 57
Controller of PHC. From October 1990 to October 1996, Ms. Rector served as a
partner in Ernst & Young LLP's health care industry practice.
Mr. Rauner has served as Chairman of the Board and as a director of the
Company since the Merger in December 1996, and served as a director of PHC from
its inception in February 1996 to December 1996. Mr. Rauner has been a Principal
with Golder, Thoma, Cressey, Rauner, Inc., a venture capital firm and the
general partner of GTCR Fund IV, since 1981. Mr. Rauner is also a director of
Lason, Inc., Polymer Group, Inc., Coinmach Laundry Corporation, Esquire
Communications Ltd. and COREStaff, Inc.
Mr. Nolan has served as a director of the Company since the
Recapitalization in December 1996, and served as a director of PHC from its
inception in February 1996 to December 1996. Mr. Nolan has been a Principal of
Golder, Thoma, Cressey, Rauner, Inc. since July 1996. Mr. Nolan joined Golder,
Thoma, Cressey, Rauner, Inc. in February 1994. From May 1990 to January 1994,
Mr. Nolan served as Vice President Corporate Finance at Dean Witter Reynolds
Inc. Mr. Nolan is also a director of Lason, Inc. and Esquire Communications Ltd.
Mr. Brim formed Brim, Inc. and has served as a director of the Company
since its formation. He has served as Chairman Emeritus since December 1996.
From the Company's formation until December 1996, he served as Chairman and
Chief Executive Officer of the Company.
Mr. Willis has served as a director of the Company since August 1997. Mr.
Willis has served as Chairman of the Board, Chief Executive Officer and
President of COREStaff, Inc., a diversified staffing services company, since
1993. Mr. Willis is also a director of Southwest Bank of Texas.
Mr. Steffy has served as a director of the Company since August 1997. Mr.
Steffy is a founder and director of Intensiva HealthCare Corporation, a
long-term acute care hospital company, Odyessy Healthcare Inc., a hospice health
care company and Arcadian Healthcare Management, an operator of rural healthcare
service networks. From 1985 to 1996, Mr. Steffy was Vice Chairman and Director
of Community Health Systems, Inc., a company he co-founded.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is currently composed of Messrs. Brim, Nolan and
Willis. Mr. Brim served as Chairman and Chief Executive Officer of the Company
until the Merger in December 1996, and he is currently an employee of the
Company. See "--Employment Agreements" for a description of Mr. Brim's
employment agreement. Mr. Nolan is a Principal of Golder, Thoma, Cressey,
Rauner, Inc., which is a party to a professional services agreement with the
Company which will terminate immediately prior to the consummation of the
offering. See "Certain Relationships and Related Transactions."
During 1996, the Board had no separate compensation committee and
compensation of executive officers was determined by the Board.
No executive officer of the Company served as a member of the compensation
committee or as a director of any other entity whose executive officer serves as
a director of the Company.
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<PAGE> 58
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid by the Company and its
subsidiaries to the Company's chief executive officer and four other most highly
compensated executive officers during the year ended December 31, 1996 (the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION ALL OTHER
----------------------------- COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) SATION($)(1)
- --------------------------- ---- --------- -------- ------------
<S> <C> <C> <C> <C>
Martin S. Rash(2)..................................... 1996 229,166 114,583 --
President and Chief Executive Officer
Richard D. Gore(3).................................... 1996 123,958 61,979 --
Executive Vice President and Chief Financial Officer
Steven P. Taylor...................................... 1996 196,027 48,180 6,436
Senior Vice President of Acquisitions and
Development
James O. McKinney..................................... 1996 141,036 20,974 4,760
Senior Vice President of Managed Operations
A.E. Brim............................................. 1996 228,947 53,521 6,111
Former Chief Executive Officer
</TABLE>
- ---------------
(1) Reflects Company contributions under a 401(k) plan.
(2) Mr. Rash was compensated at an annual salary of $250,000, and he joined PHC
upon its formation in February 1996 and became the Company's Chief Executive
Officer in December 1996.
(3) Mr. Gore was compensated at an annual salary of $175,000 and he joined PHC
in April 1996 and became the Company's Executive Vice President and Chief
Financial Officer in December 1996.
DIRECTOR COMPENSATION
Directors of the Company who are employees of the Company or its
subsidiaries are not entitled to receive any fees for serving as directors.
Following the consummation of the offering, non-employee directors of the
Company will receive a fee of $1,000 per board meeting attended and will be
reimbursed for out-of-pocket expenses related to the Company's business. In
addition, non-employee directors of the Company will be eligible to participate
in the Company's 1997 Long-Term Equity Incentive Plan.
EMPLOYMENT AGREEMENTS
The Company entered into Senior Management Agreements with Messrs. Rash and
Gore effective as of December 17, 1996. Messrs. Rash and Gore will be the
Company's Chief Executive Officer and Chief Financial Officer, respectively, and
will receive annual base salaries determined by the Company's Board of Directors
(the "Board"). Mr. Rash's annual base salary may not be less than $250,000 and
Mr. Gore's salary may not be less than $175,000. Each will be eligible to
receive a bonus each year of up to 50% of his annual base salary for such year,
based on the achievement of certain operational and financial objectives. Their
employment periods continue until their resignation, disability, or death, or
until the Board determines that termination of their employment is in the best
interests of the Company. In the event Mr. Rash's or Mr. Gore's employment is
terminated by the Company without cause or as a result of death or disability,
the Company has agreed to pay to such executive an amount equal to twice his
annual base salary; provided that such severance payments cease upon acceptance
of employment with an entity which owns and operates rural hospitals. Messrs.
Rash and Gore have agreed not to compete with the Company or solicit Company
employees following the termination of their employment for a period of two
years in the case of Mr. Rash, or one year the case of Mr. Gore.
The Company entered into Employment Agreements with Messrs. Taylor and Brim
effective as of December 17, 1996. Mr. Taylor will serve as a Senior Vice
President of the Company and will
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<PAGE> 59
receive an annual base salary of $176,000. Mr. Brim will receive an annual base
salary of $121,680. The base salaries of Messrs. Taylor and Brim will be
increased in accordance with increases in the salary of similarly situated
executives of the Company. Mr. Taylor is entitled to a bonus each year equal to
50% of his annual base salary contingent upon the Company's achievement of
budget targets. The Company has agreed to pay the interest on a $200,000 loan
made to Mr. Taylor by U.S. Bank of Oregon, provided that such loan must be
repaid no later than the effective date of the Registration Statement of which
this Prospectus is a part. Mr. Brim is entitled to an automobile and expense
allowance and the Company pays certain club dues on his behalf. Each employment
agreement terminates on the earliest to occur of the executive's death,
permanent disability, termination for cause, voluntary termination and December
17, 1999. In the event the employment of Mr. Taylor or Mr. Brim is terminated
without cause, the Company has agreed to pay such executive an amount equal to
his base salary and, in the case of Mr. Taylor, the maximum bonus payment, for
the unexpired portion of the term of such executive's employment. Messrs. Taylor
and Brim have agreed not to compete with the Company or solicit Company
employees during the term of their employment, and have agreed not to disclose
confidential information regarding the Company.
LONG-TERM EQUITY INCENTIVE PLAN
In March 1997 the Board adopted the 1997 Long-Term Equity Incentive Plan,
and in September 1997 the Board and the stockholders approved an increase in the
number of shares available pursuant to the plan (as amended, the "1997 Plan").
The 1997 Plan provides for grants of stock options, stock appreciation rights
("SARs") in tandem with options, restricted stock, performance awards and any
combination of the foregoing to certain directors, officers and key employees of
the Company and its subsidiaries. A total of 1,300,000 shares of Common Stock
will be available for issuance pursuant to the 1997 Plan.
The 1997 Plan will be administered by the Compensation Committee. As grants
to be awarded under the 1997 Plan will be made entirely in the discretion of the
Compensation Committee, the recipients, amounts and values of future benefits to
be received pursuant to the 1997 Plan are not determinable. In March 1997 the
Company granted options to purchase an aggregate of 385,765 shares of Common
Stock, including grants of options to purchase 18,519 shares to Mr. Taylor,
7,408 shares to Mr. McKinney and 9,260 shares to Mr. Brim. All of the options
granted in March 1997 have an exercise price of $3.38 per share, and all of such
options are subject to vesting in five equal annual installments.
Pursuant to the 1997 Plan, the Compensation committee may award grants of
incentive stock options conforming to the provisions of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code") ("incentive options"),
and other stock options ("non-qualified options"), subject to a maximum award of
155,556 options or SARs to any one grantee in any calendar year. The exercise
price of any option will be determined by the Compensation Committee in its
discretion, provided that the exercise price of an incentive option may not be
less than 100% of the fair market value of a share of Common Stock on the date
of grant of the option, and the exercise price of an incentive option awarded to
a person who owns stock constituting more than 10% of the voting power of the
Company may not be less than 110% of such fair market value on such date.
The term of each option will be established by the Compensation Committee,
subject to a maximum term of 10 years from the date of grant in the case of a
non-qualified option or an incentive option and of five years from the date of
grant in the case of an incentive option granted to a person who owns stock
constituting more than 10% of the voting power of the Company. In addition, the
1997 Plan provides that all options generally cease vesting on, and terminate 90
days after, the date on which a grantee ceases to be a director, officer or
employee of the Company or its subsidiaries, although the 1997 Plan allows
certain exceptions depending upon the circumstances of cessation. In the case of
the grantee's death or disability, all of the grantee's options become fully
vested and exercisable and remain so for one year after the date of death or
disability. In the event of retirement, only the options vested on the date of
retirement remain exercisable, for a period of three years after
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<PAGE> 60
retirement, so long as the grantee does not compete with the Company during such
period. Upon termination for cause, all options terminate immediately. In
addition, immediately prior to a change in control of the Company, all options
become fully vested and exercisable.
The Compensation Committee may grant SARs in tandem with stock options to
any optionee pursuant to the 1997 Plan. SARs become exercisable only when, to
the extent and on the conditions that the related options are exercisable, and
they expire at the same time the related options expire. The exercise of an
option results in the immediate forfeiture of any related SAR to the extent the
option is exercised, and the exercise of an SAR results in the immediate
forfeiture of any related option to the extent the SAR is exercised.
Upon exercise of an SAR, the grantee will receive an amount in cash and/or
shares of Common Stock equal to the difference between the fair market value of
a share of Common Stock on the date of exercise and the exercise price of the
option to which it relates, multiplied by the number of shares as to which the
SAR is exercised.
Under the 1997 Plan, the Compensation Committee may award restricted stock
subject to such conditions and restrictions, and for such duration (which shall
be at least six months except as otherwise described below), as it determines in
its discretion. A grantee will be required to pay the Company at least the
aggregate par value of any shares of restricted stock within ten days of the
date of grant, unless such shares are treasury shares. Except as otherwise
provided by the Compensation Committee, all restrictions on a grantee's
restricted stock will lapse immediately prior to a change in control of the
Company or at such time as the grantee ceases to be a director, officer or
employee of the Company and its subsidiaries due to death, disability or
retirement. If a grantee ceases to serve as such a director, office or employee
for any other reason, all his or her restricted stock as to which the applicable
restrictions have not lapsed will be forfeited immediately.
Pursuant to the 1997 Plan, the Compensation Committee may grant performance
awards contingent upon achievement of set goals and objectives with respect to
specified performance criteria. Performance awards may include specific
dollar-value target awards, performance units, the value of which is established
by the Compensation Committee at the time of grant, and/or performance shares,
the value of which is equal to the fair market value of a share of Common Stock
on the date of grant. The value of a performance award may be fixed or fluctuate
on the basis of specified performance criteria. Unless the Compensation
Committee determines otherwise, no award under the 1997 Plan may vest and become
exercisable within six months of the date of grant; provided that all awards
vest immediately prior to a change in control of the Company and in certain
other circumstances upon a participant's termination of employment or
performance of services for the Company as described above. Unless the
Compensation Committee determines otherwise, no award made pursuant to the 1997
Plan will be transferable otherwise than by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order, and each award
may be exercised only by the grantee or his or her guardian or legal
representative.
The Board may amend or terminate the 1997 Plan in its discretion, except
that no amendment will become effective without prior approval of the Company's
stockholders if such approval is necessary for continued compliance with the
performance-based compensation exception of Section 162(m) of the Code or any
stock exchange listing requirements. If not previously terminated by the Board,
the 1997 Plan will terminate on March 3, 2007.
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<PAGE> 61
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
REDEMPTION OF SENIOR PREFERRED STOCK AND COMMON STOCK CONVERSION AND REPURCHASE
Of the estimated $73.0 million in net proceeds from the offering, $21.9
million will be used to redeem all of the outstanding shares of the Senior
Preferred Stock, which are held by Leeway & Co. In addition, in connection with
the offering, all outstanding shares of Junior Preferred Stock will be converted
into shares of Common Stock based on the liquidation value of the Junior
Preferred Stock and the initial public offering price, and the Company will use
a portion of the proceeds from the offering to repurchase from GTCR Fund IV and
Leeway & Co. the shares of Common Stock which are issued upon conversion of
13,636 of their shares of Junior Preferred Stock for an aggregate purchase price
of $14.5 million (based on an assumed initial offering price of $14.00).
Dividends have accrued daily at a rate of 11.0% per annum on the Senior
Preferred Stock and 8.0% per annum on the Junior Preferred Stock since the date
of issuance.
RECENT STOCK PURCHASES
In connection with the Recapitalization, the stockholders of the Company
entered into a Stockholders Agreement with the Company (the "Stockholders
Agreement"). On July 15, 1997, pursuant to the terms of the Stockholders
Agreement and a Purchase Agreement dated as of July 15, 1997 between the Company
and the Investors, the Company sold 2,733 shares of Junior Preferred Stock and
607,334 shares of Common Stock to GTCR Fund IV; 794 shares of Junior Preferred
Stock and 176,445 shares of Common Stock to Leeway & Co.; 64 shares of Junior
Preferred Stock and 97,112 shares of Common Stock to Mr. Rash; 119 shares of
Junior Preferred Stock and 67,334 shares of Common Stock to Mr. Gore; and 22.5
shares of Junior Preferred Stock and 5,000 shares of Common Stock to each of the
two other Investors for a purchase price of $1,000 per share of Junior Preferred
Stock and $0.45 per share of Common Stock, resulting in an aggregate purchase
price of $4.2 million. Mr. Rash is a Director and executive officer of the
Company, and Mr. Gore is an executive officer of the Company. The two other
Investors are affiliated with banks which are lenders to the Company under its
bank credit facility. In addition, in September 1997, Leeway & Co. exercised its
warrant to purchase 343,265 shares of Common Stock for an aggregate exercise
price of $15,447.
EXECUTIVE NOTES
In connection with the Recapitalization, the Company loaned $112,956 to Mr.
Rash and $67,768 to Mr. Gore pursuant to promissory notes (the "Executive
Notes"). In addition, in connection with the Recapitalization, Mr. Gore borrowed
an additional $211,200 from the Company pursuant to a demand note (the "Demand
Note") which was subsequently repaid. The Company loaned such amounts to Messrs.
Rash and Gore to finance a portion of their purchase of the Company's securities
pursuant to the Recapitalization. The Executive Notes and the Demand Note bear
interest at a rate per annum equal to the lesser of: (i) the rate designated in
The Wall Street Journal as the "prime rate;" and (ii) the highest rate permitted
by applicable law. The principal amount of the Executive Notes and all interest
accrued thereon mature on December 17, 2002. The Executive Notes may be prepaid
in whole or in part at any time.
PROFESSIONAL SERVICES AGREEMENT
The Company has a Professional Services Agreement with Golder, Thoma,
Cressey, Rauner, Inc. pursuant to which Golder, Thoma, Cressey, Rauner, Inc.
provides financial and management consulting services. Under this agreement,
Golder, Thoma, Cressey, Rauner, Inc. receives an annual management fee of
$200,000 and a fee of 1.25% of the amount of debt and equity investments, for
their assistance in obtaining such investments. During 1996 and through June 30,
1997, the Company had paid or accrued $1.4 million and $99,179, respectively, in
fees under the agreement. An additional $52,274 is payable in connection with
the Company's sale of securities in July 1997.
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<PAGE> 62
The agreement will be terminated immediately prior to the consummation of the
offering, and no fee is payable with respect to the issuance of Common Stock in
the offering. Messrs. Rauner and Nolan will continue to serve as directors of
the Company, however, and they will be compensated as non-employee directors.
See "Management -- Director Compensation."
STOCKHOLDERS AGREEMENT AND SENIOR MANAGEMENT AGREEMENTS
In connection with the Recapitalization, and in addition to becoming
parties to the Stockholders Agreement, Messrs. Rash and Gore entered into Senior
Management Agreements with the Company, GTCR Fund IV and Leeway & Co. (as
amended, the "Executive Agreements"). The Executive Agreements provide that a
portion of the Common Stock purchased by each of Messrs. Rash and Gore is
subject to vesting (the "Vesting Shares"). Upon completion of the offering, 50%
of the Vesting Shares will become vested, and the remaining Vesting Shares will
become vested in equal installments on the first three anniversaries of the
completion of the offering. Unvested shares are subject to repurchase by the
Company (or, if the Company does not elect to repurchase such shares, by GTCR
Fund IV) at their original cost upon termination of executive's employment with
the Company for any reason. For purposes of determining earnings per share, 100%
of the Common Stock purchased by Messrs. Rash and Gore is considered
outstanding. The Executive Agreements entitle the Company and GTCR Fund IV to
repurchase from each of Messrs. Rash and Gore upon the termination of his
employment: (i) Junior Preferred Stock and vested Common Stock at a price equal
to fair market value; and (ii) unvested Common Stock at a price equal to
original cost. The Stockholders Agreement entitles the Company and GTCR Fund IV
to repurchase shares of the Common Stock and Junior Preferred Stock from an
employee stockholder upon the termination of such employee's employment by the
Company at a price equal to fair market value. The Stockholders Agreement and
the Executive Agreements also contain restrictions on the transfer of the
Company's securities. Pursuant to the Stockholders Agreement, the stockholders
agree to consent to and participate in any sale of the Company approved by the
Board and by the holders of a majority of the Common Stock. Upon the completion
of the offering, the Stockholders Agreement will be terminated, and the portions
of the Executive Agreements which restrict the transfer of the Company's
securities will be terminated.
REGISTRATION AGREEMENT
At the time of the Recapitalization the Company entered into a Registration
Agreement with its stockholders. See "Shares Eligible for Future
Sale -- Registration Agreement."
SENIOR LIVING DIVESTITURE
Prior to the Recapitalization in December 1996, Brim divested its senior
living business through a series of transactions. In connection therewith, Mr.
Brim and certain other persons who were officers and directors of Brim invested
an aggregate of $5.8 million in the purchasers of Brim's senior living business.
In addition, in connection with the divestiture of the senior living business, a
limited liability company whose members included Mr. Brim, Mr. Taylor and
certain other persons who were officers and directors of Brim at such time
purchased from Brim three medical buildings for a purchase price of $406,500
plus the assumption of approximately $800,000 of indebtedness.
OPTION SETTLEMENTS
In connection with the Recapitalization, all outstanding stock options of
Brim, Inc. were bought out. Pursuant to this option buyout, Messrs. Brim,
McKinney and Taylor received $861,326, $144,498 and $861,326, respectively, in
respect of their Brim, Inc. stock options.
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<PAGE> 63
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of July 31, 1997 and immediately following the
offering by: (i) each person who is known by the Company to own beneficially
more than five percent of the Common Stock; (ii) each director and Named
Executive Officer of the Company; and (iii) all directors and executive officers
of the Company as a group. To the knowledge of the Company, each of the persons
named in the table has sole voting and investment power as to the shares shown
unless otherwise noted. Unless otherwise noted, the address of each holder of
five percent or more of the Common Stock is the Company's corporate address.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR OWNED AFTER
TO OFFERING OFFERING(1)
------------------- -------------------
NAME NUMBER PERCENT NUMBER PERCENT
- ---- --------- ------- --------- -------
<S> <C> <C> <C> <C>
Golder, Thoma, Cressey, Rauner Fund IV, L.P.(2)...... 5,050,446 58.9% 5,912,791 37.7%
Bruce V. Rauner(2)................................... 5,050,446 58.9 5,912,791 37.7
Joseph P. Nolan(2)................................... 5,050,446 58.9 5,912,791 37.7
Leeway & Co.(3)...................................... 1,353,488 15.8 1,525,557 9.7
Martin S. Rash....................................... 799,217 9.3 828,297 5.3
Richard D. Gore...................................... 507,197 5.9 561,572 3.6
Steven P. Taylor..................................... 149,778 1.7 201,203 1.3
James O. McKinney.................................... 23,112 * 31,047 *
A.E. Brim(4)......................................... 149,778 1.7 201,203 1.3
Michael T. Willis.................................... -- -- -- --
David L. Steffy...................................... -- -- -- --
All executive officers and directors as a group (11
persons)........................................... 6,679,528 77.8% 7,736,113 49.3%
</TABLE>
- ---------------
* Less than 1%.
(1) Gives effect to the Preferred Stock Conversion and the repurchase of Shares
of Common Stock with a portion of the proceeds of the offering, in each case
at an assumed initial public offering price of $14.00 per share and an
assumed conversion date of October 15, 1997.
(2) All of such shares are held of record by GTCR Fund IV. Golder, Thoma,
Cressey, Rauner, Inc. is the general partner of GTCR IV, L.P., which is the
general partner of GTCR Fund IV. Messrs. Rauner and Nolan are Principals of
Golder, Thoma, Cressey, Rauner, Inc., and may be deemed to share the power
to vote and dispose of such shares. The address of GTCR Fund IV is 6100
Sears Tower, Chicago, Illinois 60606. Each of Messrs. Rauner and Nolan
disclaims beneficial ownership of the shares of Common Stock owned by GTCR
Fund IV.
(3) The address of Leeway & Co. is c/o State Street Bank and Trust Company,
Master Trust Division -- Q4W, P.O. Box 1992, Boston, Massachusetts 02101.
(4) All of such shares are held of record by Brim Capital Corporation.
DESCRIPTION OF CAPITAL STOCK
Upon consummation of the Reincorporation, the Company's authorized capital
stock will consist of 25.0 million shares of Common Stock, par value $0.01 per
share, 25,000 shares of Senior Preferred Stock, 50,000 shares of Junior
Preferred Stock and 100,000 shares of Preferred Stock. At July 31, 1997, there
were 8,238,245 shares of Common Stock, 20,000 shares of Senior Preferred Stock,
32,295 shares of Junior Preferred Stock and no shares of Preferred Stock
outstanding. Upon completion of the offering and after giving effect to the use
of proceeds therefrom and the Preferred Stock Conversion in connection with the
offering, 15,698,314 shares of Common Stock will be issued and outstanding, and
no shares of Senior Preferred Stock, Junior Preferred Stock or Preferred Stock
will be outstanding. The following summary of certain provisions of the
Company's capital stock describes all material provisions of, but does not
purport to be complete, and is subject to, and qualified in its entirety by, the
Certificate of Incorporation and the Bylaws of the Company that are
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<PAGE> 64
included as exhibits to the Registration Statement of which this Prospectus
forms a part and by the provisions of applicable law.
COMMON STOCK
The issued and outstanding shares of Common Stock are, and the shares of
Common Stock being offered will be upon payment therefor, validly issued, fully
paid and nonassessable. Subject to the prior rights of the holders of any
Preferred Stock, the holders of outstanding shares of Common Stock are entitled
to receive dividends out of assets legally available therefor at such time and
in such amounts as the Board of Directors may from time to time determine. See
"Dividend Policy." The shares of Common Stock are not redeemable or convertible,
and the holders thereof have no preemptive or subscription rights to purchase
any securities of the Company. Upon liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to receive pro rata the
assets of the Company which are legally available for distribution, after
payment of all debts and other liabilities and subject to the prior rights of
any holders of Preferred Stock then outstanding. Each outstanding share of
Common Stock is entitled to vote on all matters submitted to a vote of
stockholders.
Application has been made for approval and trading of the Common Stock on
the Nasdaq National Market under the symbol "PRHC."
PREFERRED STOCK
The Board may, without any further vote or action by the Company's
stockholders, from time to time, direct the issuance of shares of Preferred
Stock in one or more series with such designations, rights, preferences and
limitations as the Board may determine, including the consideration received
therefor. The Board also has the authority to determine the number of shares
comprising each series, dividend rates, redemption provisions, liquidation
preferences, sinking fund provisions, conversion rights and voting rights
without the approval by the holders of Common Stock. Although it is not possible
to state the effect that any issuance of Preferred Stock might have on the
rights of holders of Common Stock, the issuance of Preferred Stock may have one
or more of the following effects: (i) to restrict Common Stock dividends if
Preferred Stock dividends have not been paid; (ii) to dilute the voting power
and equity interest of holders of Common Stock to the extent that any series of
Preferred Stock has voting rights or is convertible into Common Stock; or (iii)
to prevent current holders of Common Stock from participating in the
distribution of the Company's assets upon liquidation until any liquidation
preferences granted to holders of Preferred Stock are satisfied. In addition,
the issuance of Preferred Stock may, under certain circumstances, have the
effect of discouraging a change in control of the Company by, for example,
granting voting rights to holders of Preferred Stock that require approval by
the separate vote of the holders of Preferred Stock for any amendment to the
Company's Certificate of Incorporation or any reorganization, consolidation,
merger or other similar transaction involving the Company. As a result, the
issuance of the Preferred Stock may discourage bids for the Common Stock at a
premium over the market price therefor, and could have a materially adverse
effect on the market value of the Common Stock. Upon consummation of the
offering and the redemption in full of the Senior Preferred Stock and conversion
of the Junior Preferred Stock, there will be no shares of Preferred Stock
outstanding. The Board of Directors does not presently intend to issue any
shares of Preferred Stock.
CERTAIN PROVISIONS OF DELAWARE LAW
Following the Reincorporation, the Company will be governed by the
provisions of Section 203 of the Delaware General Corporation Law. In general,
the law prohibits a public Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
"Business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to
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<PAGE> 65
the stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years, did own) 15% or more of
the corporation's voting stock. The statute could prohibit or delay mergers or
other takeover or change in control attempts with respect to the Company and,
accordingly, may discourage attempts to acquire the Company.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Following the Reincorporation, the Company's Certificate of Incorporation
will limit the liability of directors to the fullest extent permitted by the
Delaware law. Delaware law provides that directors of a corporation will not be
personally liable for monetary damages for breach of their fiduciary duties as
directors, including gross negligence, except liability for: (i) breach of the
director's duty of loyalty; (ii) acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of the law; (iii) the
unlawful payment of a dividend or unlawful stock purchase or redemption; and
(iv) any transaction from which the director derives an improper personal
benefit. This provision of the Company's Certificate of Incorporation has no
effect on the availability of equitable remedies such as injunction or
rescission. Additionally, this provision will not limit liability under state or
federal securities laws. The Certificate of Incorporation also provides that the
Company shall indemnify directors and officers of the Company to the fullest
extent permitted by such law. The Company believes that these provisions will
assist the Company in attracting and retaining qualified individuals to serve as
directors.
CERTIFICATE OF INCORPORATION AND BY-LAW PROVISIONS AFFECTING CHANGE OF CONTROL
The Company's Certificate of Incorporation and By-laws include certain
restrictions on who may call a special meeting of stockholders and prohibit
certain actions by written consent of the holders of the Common Stock. The
effect of these provisions may be the delaying, deterring or preventing of a
future takeover or change in control of the Company unless such takeover or
change in control is approved by the Board.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is First Union
National Bank.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, the Company will have 15,698,314 shares of
Common Stock outstanding (16,553,314 shares if Underwriter's over-allotment
option is exercised in full). Of these shares, the 5,700,000 shares of Common
Stock sold in the offering will be tradeable without restriction under the
Securities Act, except for any such shares which may be acquired by an
"affiliate" of the Company (an "Affiliate"), as that term is defined in Rule 144
under the Securities Act ("Rule 144"), which shares will be subject to the
resale limitations of Rule 144.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, if a period of at least one year has elapsed since
the later of the date the "restricted securities" (as that phrase is defined in
Rule 144) were acquired from the Company and the date they were acquired from an
Affiliate, then the holder of such restricted securities (including an
Affiliate) is entitled to sell a number of shares within any three-month period
that does not exceed the greater of 1% of the then outstanding shares of the
Common Stock (approximately 157,000 shares immediately after this offering) or
the average weekly reported volume of trading of the Common Stock on the Nasdaq
National Market during the four calendar weeks preceding such sale. The holder
may only sell such shares through unsolicited brokers' transactions. Sales under
Rule 144 are also subject to certain requirements pertaining to the manner of
such sales, notices of such sales and the availability of current public
information concerning the Company. Affiliates may sell shares not constituting
restricted shares in accordance with the foregoing volume limitations and other
requirements but without regard to the one-year period. Commencing 90 days after
the
64
<PAGE> 66
completion of the offering, 7,280,020 shares of Common Stock will be eligible
for sale in the public market under Rule 144, subject to the volume limitations
and other requirements described above, without consideration of the contractual
restrictions described below.
Under Rule 144(k), if a period of at least two years has elapsed between
the later of the date restricted shares were acquired from the Company and the
date they were acquired from an Affiliate, as applicable, a holder of such
restricted shares who is not an Affiliate at the time of the sale and has not
been an Affiliate for at least three months prior to the sale would be entitled
to sell the shares immediately without regard to the volume limitations and
other conditions described above. Ninety days after the date of this Prospectus,
no shares of Common Stock will be eligible for sale without restriction under
Rule 144(k).
Notwithstanding the foregoing, the Company, its directors and executive
officers have agreed that for a period of 180 days after the date of the
offering they will not, without the prior written consent of Alex. Brown & Sons
Incorporated, offer, sell, contract to sell or otherwise dispose of any shares
of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock except pursuant to the Underwriting Agreement. Of
the approximately 7,280,020 shares of Common Stock otherwise eligible for sale
as discussed above, substantially all are subject to such agreements.
Prior to the offering there has been no market for the Common Stock. The
Company can make no predictions as to the effect, if any, that sales of shares
or the availability of shares for sale will have on the market price prevailing
from time to time. Nevertheless, sales of significant amounts of the Common
Stock in the public market, or the perception that such sales may occur, could
adversely affect prevailing market prices. See "Risk Factors -- Shares Eligible
for Future Sale; Registration Rights."
REGISTRATION AGREEMENT
In connection with the Recapitalization in December 1996, the stockholders
of the Company at such time (the "Original Stockholders") entered into a
Registration Agreement with the Company (the "Registration Agreement"). The
Registration Agreement provides for certain demand registration rights to the
Original Stockholders, and to subsequent holders of the Common Stock acquired by
the Original Stockholders in connection with the Recapitalization. The demand
registration rights commence from and after the 180th day after the closing of
the Company's initial public offering of its securities. The holders of a
majority of the registrable securities held by the Original Stockholders (and
their permitted transferees) other than Leeway & Co. are entitled to request two
long-form registrations in which the Company pays all registration expenses and
an unlimited number of short-form registrations in which the Company pays all
registration expenses. Such holders are also entitled to request an unlimited
number of long-form registrations in which holders of registrable securities pay
their pro-rata share of registration expenses. The holders of a majority of the
registrable securities held by Leeway & Co. (and their permitted transferees)
are entitled to request one long-form registration in which the Company pays all
registration expenses and an unlimited number of long-form registrations in
which the holders of registrable securities pay their share of registration
expenses. The Company is entitled to postpone a demand registration for up to
one year under certain circumstances, and is not required to effect a demand
registration within one year of a previous registration in which holders of
registrable securities participated without reduction of the number of their
included shares.
The Registration Agreement also provides that, subject to certain
limitations, the Original Stockholders (and their permitted transferees) may
request inclusion of their shares in a registration of securities by the Company
(other than pursuant to the initial public offering of Common Stock or a demand
registration). Expenses incurred in connection with the exercise of such
piggyback registration rights are borne by the Company.
65
<PAGE> 67
UNDERWRITING
Subject to the terms and conditions contained in the Underwriting
Agreement, the Underwriters named below (the "Underwriters") through their
Representatives, BT Alex. Brown Incorporated, BancAmerica Robertson Stephens,
Goldman, Sachs & Co., and The Robinson-Humphrey Company, LLC 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>
BT Alex. Brown Incorporated.................................
BancAmerica Robertson Stephens..............................
Goldman, Sachs & Co.........................................
The Robinson-Humphrey Company, LLC..........................
---------
Total............................................. 5,700,000
=========
</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 of the Underwriters
that the Underwriters propose to offer the shares of Common Stock to the public
at the initial public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession 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 of the Underwriters.
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 855,000
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 5,700,000, 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 Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the 5,700,000 shares are being offered.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
Subject to certain exceptions, the Company has agreed not to issue, offer,
sell, sell short or otherwise dispose of any shares of Common Stock for a period
of 180 days from the date of this Prospectus without the prior written consent
of BT Alex. Brown Incorporated. In addition, stockholders of the Company holding
in the aggregate shares of Common Stock and options to purchase
shares of Common Stock, have agreed not to offer or otherwise dispose
of any such Common Stock for a period of 180 days from the date of this
Prospectus without the prior written consent of BT Alex. Brown Incorporated. See
"Shares Eligible for Future Sale."
66
<PAGE> 68
The Representatives have advised the Company that, pursuant to Regulation M
under the Securities Exchange Act of 1934, as amended, certain persons
participating in this offering may engage in transactions, including stabilizing
bids, syndicate covering transactions or the imposition of penalty bids which
may have the effect of stabilizing, maintaining or otherwise affecting the
market price of the Common Stock at a level above that which might otherwise
prevail in the open market. A "stabilizing bid" is a bid for or the purchase of
Common Stock on behalf of the Underwriters for the purpose of fixing or
maintaining the price of the Common Stock. A "syndicate covering transaction" is
the bid for or the purchase of the Common Stock on behalf of the Underwriters to
reduce a short position incurred by the Underwriters in connection with the
offering. A "penalty bid" is an arrangement permitting the Representatives to
reclaim the selling concession otherwise accruing to an Underwriter or syndicate
member in connection with the offering if the Common Stock originally sold by
such Underwriter or syndicate member is purchased by the Underwriters in a
syndicate covering transaction and has therefore not been effectively placed by
such Underwriter or syndicate member. The Representatives have advised the
Company that such transactions may be effected on the Nasdaq National Market or
otherwise and, if commenced, may be discontinued at any time.
The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the Common Stock will
be determined by negotiations among the Company and the Representatives of the
Underwriters. Among the factors to be considered in such negotiations are
prevailing market conditions, the results of operations of the Company in recent
periods, the market capitalizations and stages of development of other companies
which the Company and the Representatives of the Underwriters believe to be
comparable to the Company, estimates of the business potential of the Company,
the present state of the Company's development and other factors deemed
relevant.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Kirkland & Ellis, a partnership including professional
corporations, Chicago, Illinois. Certain legal matters will be passed upon for
the Underwriters by Alston & Bird LLP, Atlanta, Georgia. Certain matters
relating to the conduct of the Company's business will be passed upon by Waller
Lansden Dortch & Davis, A Professional Limited Liability Company, Nashville,
Tennessee.
EXPERTS
The consolidated financial statements of Province Healthcare Company at
December 31, 1996, and for the year then ended, appearing in this Prospectus and
Registration Statement, and the related supplemental schedule included elsewhere
in the Registration Statement, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon appearing elsewhere
herein, and are included in reliance upon such reports given upon the authority
of such firm as experts in accounting and auditing.
The consolidated financial statements and schedule of Province Healthcare
Company (formerly Brim, Inc.) as of December 31, 1995 and for the years ended
December 31, 1994 and 1995 have been included herein and in the registration
statement in reliance upon the reports of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
The consolidated financial statements of Memorial Hospital Foundation for
the years ended May 31, 1995 and 1996 and for the period June 1, 1996 through
July 25, 1996 included in this Prospectus have been audited by Harrell, Rader,
Bonner & Bolton, independent auditors, as set forth
67
<PAGE> 69
in their report thereon appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
CHANGE IN ACCOUNTANTS
In connection with the Recapitalization, the Company's board of directors
approved the appointment of Ernst & Young LLP, independent auditors, as
independent accountants for the Company, to replace KPMG Peat Marwick LLP,
independent certified public accountants, whom the Company dismissed on December
18, 1996.
During 1994 and 1995, and the period from January 1, 1996 through December
18, 1996, there were no disagreements with KPMG Peat Marwick LLP on any matter
of accounting principles or practices, financial statement disclosure or
auditing scope or procedure nor did KPMG Peat Marwick LLP's reports on the
financial statements for such periods contain an adverse opinion or disclaimer
of opinion, nor were such reports qualified or modified as to uncertainty, audit
scope or accounting.
In connection with the filing of the Company's Registration Statement on
Form S-1, KPMG Peat Marwick LLP was provided with a copy of this disclosure and
was requested by the Company to furnish a letter addressed to the Commission
stating whether they agree with the above statements. A copy of KPMG Peat
Marwick LLP's letter to the Commission is filed as an exhibit to the
Registration Statement on Form S-1.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 pursuant to the Securities
Act with respect to the Common Stock offered hereby. This Prospectus does not
contain all the information set forth in the Registration Statement, certain
items of which are omitted as permitted by the rules and regulations of the
Commission. Statements contained in this Prospectus as to the contents of any
contract, agreement or other document filed with the Registration Statement as
exhibits are necessarily summaries of such documents, and each such statement is
qualified in its entirety by reference to the copy of the applicable document
filed as an exhibit to the Registration Statement. For further information about
the Company and the securities offered hereby, reference is made to the
Registration Statement and to the consolidated financial statements, schedules
and exhibits filed as a part thereof.
Upon completion of the offering, the Company will be subject to the
information requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and, in accordance therewith, will file reports and other
information with the Commission. The Registration Statement, the exhibits and
schedules forming a part thereof and the reports and other information filed by
the Company with the Commission in accordance with the Exchange Act may be
inspected without charge at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
following regional offices of the Commission: 7 World Trade Center, Suite 1300,
New York, New York 10048; and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois, 60661-2511. Copies of such materials or
any part thereof may also be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Commission also maintains an Internet web site at http://www.sec.gov that
contains reports, proxy statements and other information.
68
<PAGE> 70
INDEX TO FINANCIAL STATEMENTS
PROVINCE HEALTHCARE COMPANY
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-2
Independent Auditors' Report................................ F-3
Consolidated Balance Sheets at December 31, 1995 and 1996... F-4
Consolidated Statements of Operations for the Years Ended
December 31, 1994, 1995 and 1996.......................... F-5
Consolidated Statements of Changes in Common Stockholders'
Equity (Deficit) for the Years Ended December 31, 1994,
1995 and 1996............................................. F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1995 and 1996.......................... F-7
Notes to Consolidated Financial Statements.................. F-8
Condensed Consolidated Balance Sheet at June 30, 1997
(Unaudited)............................................... F-24
Condensed Consolidated Statements of Income for the Six
Months Ended June 30, 1996 and 1997 (Unaudited)........... F-25
Condensed Consolidated Statement of Changes in Common
Stockholders' Equity (Deficit) for the Six Months Ended
June 30, 1997 (Unaudited)................................. F-26
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1996 and 1997 (Unaudited)........... F-27
Notes to Condensed Consolidated Financial Statements
(Unaudited)............................................... F-28
MEMORIAL HOSPITAL FOUNDATION -- PALESTINE, INC.
Independent Auditors' Report................................ F-31
Consolidated Statements of Operations for the Years Ended
May 31, 1995 and 1996 and for the period June 1, 1996 to
July 25, 1996............................................. F-32
Consolidated Statements of Cash Flows for the Years Ended
May 31, 1995 and 1996 and for the period June 1, 1996 to
July 25, 1996............................................. F-33
Notes to the Consolidated Financial Statements.............. F-34
Independent Auditors' Report................................ F-38
Consolidated Balance Sheet at May 31, 1994.................. F-39
Consolidated Statement of Revenues and Expenses for the Year
Ended May 31, 1994........................................ F-40
Consolidated Statement of Changes in Fund Balances for the
Year Ended May 31, 1994................................... F-41
Consolidated Statement of Cash Flows for the Year Ended May
31, 1994.................................................. F-42
Notes to the Consolidated Financial Statements.............. F-43
</TABLE>
F-1
<PAGE> 71
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Province Healthcare Company
We have audited the accompanying consolidated balance sheet of Province
Healthcare Company (formerly known as Brim, Inc. until January 16, 1997 and as
Principal Hospital Company from January 16, 1997 until October , 1997) and
subsidiaries as of December 31, 1996, and the related consolidated statements of
operations, changes in common stockholders' equity (deficit), and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1996 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Province Healthcare Company and subsidiaries as of December 31, 1996, and the
consolidated results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
Ernst & Young LLP
Nashville, Tennessee
April 30, 1997,
except for Note 16, and Notes 1 and 17, as to which the dates are
May 8, 1997 and October , 1997, respectively
The foregoing report is in the form that will be signed upon the completion
of the reincorporation described in Note 17 to the consolidated financial
statements.
Ernst & Young LLP
Nashville, Tennessee
October 8, 1997
F-2
<PAGE> 72
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Province Healthcare Company
We have audited the accompanying consolidated balance sheet of Province
Healthcare Company (formerly Brim, Inc.) and subsidiaries as of December 31,
1995, and the related consolidated statements of operations, changes in common
stockholders' equity (deficit), and cash flows for the years ended December 31,
1994 and 1995. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Province
Healthcare Company (formerly Brim, Inc.) and subsidiaries as of December 31,
1995, and the results of their operations and their cash flows for the years
ended December 31, 1994 and 1995, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Portland, Oregon
March 8, 1996
F-3
<PAGE> 73
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,287 $ 11,256
Accounts receivable, less allowance for doubtful accounts
of $2,078 in 1995 and $4,477 in 1996................... 18,286 22,829
Inventories............................................... 1,754 2,883
Prepaid expenses and other................................ 6,403 8,355
------- --------
Total current assets.............................. 28,730 45,323
Property, plant and equipment, net.......................... 10,201 35,865
Other assets:
Unallocated purchase price................................ -- 7,265
Investments in other health care-related businesses....... 4,564 423
Other..................................................... 3,580 5,149
------- --------
8,144 12,837
------- --------
$47,075 $ 94,025
======= ========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND COMMON
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 4,065 $ 7,915
Accrued salaries and benefits............................. 3,661 7,772
Accrued expenses.......................................... 2,128 5,359
Current maturities of long-term obligations............... 839 1,489
------- --------
Total current liabilities......................... 10,693 22,535
Long-term obligations, less current maturities.............. 5,519 76,633
Third-party settlements..................................... 6,472 6,604
Other liabilities........................................... 909 3,349
------- --------
12,900 86,586
Mandatory redeemable preferred stock........................ 8,816 46,227
Common stockholders' equity (deficit):
Common stock -- no par value; authorized 10,000,000 shares
in 1995 and 20,000,000 in 1996; issued and outstanding
813,529 in 1995 and 7,280,020 in 1996.................. 414 3,276
Notes receivable for common stock......................... -- (391)
Common stock warrant...................................... -- 139
Retained earnings (deficit)............................... 14,252 (64,347)
------- --------
14,666 (61,323)
------- --------
$47,075 $ 94,025
======= ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 74
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue:
Net patient service revenue............................... $ 78,109 $ 75,871 $104,325
Management and professional services...................... 15,969 19,567 18,937
Other..................................................... 7,989 5,776 6,593
-------- -------- --------
Net operating revenue............................. 102,067 101,214 129,855
-------- -------- --------
Expenses:
Salaries, wages and benefits.............................. 53,659 55,289 65,704
Purchased services........................................ 16,879 14,411 19,485
Supplies.................................................. 11,035 10,143 13,115
Provision for doubtful accounts........................... 5,056 4,601 9,578
Other operating expenses.................................. 4,930 7,729 12,762
Rentals and leases........................................ 3,781 4,133 5,232
Depreciation and amortization............................. 1,530 1,771 2,813
Interest expense.......................................... 760 589 2,523
Costs of recapitalization................................. -- -- 11,570
Loss (gain) on sale of assets............................. (635) (2,814) 442
-------- -------- --------
Total expenses.................................... 96,995 95,852 143,224
-------- -------- --------
Income (loss) from continuing operations before provision
for income taxes.......................................... 5,072 5,362 (13,369)
Provision (benefit) for income taxes........................ 2,097 1,953 (4,464)
-------- -------- --------
Income (loss) from continuing operations.................... 2,975 3,409 (8,905)
Discontinued operations:
(Loss) Income from discontinued operations, less applicable
income taxes.............................................. (157) 783 537
(Loss) gain on disposal of discontinued operations -- to
related parties in 1996, less applicable income taxes..... -- (1,047) 5,478
-------- -------- --------
Total discontinued operations................ (157) (264) 6,015
-------- -------- --------
Net income (loss)........................................... $ 2,818 $ 3,145 $ (2,890)
======== ======== ========
Preferred stock dividends and accretion..................... (172)
--------
Net loss applicable to common and common equivalent shares.. $ (3,062)
========
Pro forma income (loss) per common and common equivalent
share:
Loss from continuing operations........................... $ (1.03)
Income from discontinued operations....................... 0.68
--------
Net loss per common and common equivalent share........... $ (0.35)
========
Pro forma number of common and common equivalent shares..... 8,843
========
</TABLE>
See accompanying notes.
F-5
<PAGE> 75
PROVINCE HEALTHCARE COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON
STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
NOTES
NO PAR VALUE RECEIVABLE
COMMON STOCK FOR COMMON RETAINED
------------------ COMMON STOCK EARNINGS
SHARES AMOUNT STOCK WARRANT (DEFICIT) TOTAL
--------- ------ ---------- ------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994...... 837,154 $ 824 $ -- $ -- $ 8,289 $ 9,113
Issuance of stock............. 33,490 546 -- -- -- 546
Retirement of stock........... (52,922) (837) -- -- -- (837)
Net income.................... -- -- -- -- 2,818 2,818
--------- ------ ----- ---- -------- --------
Balance at December 31, 1994.... 817,722 533 -- -- 11,107 11,640
Issuance of stock............. 12,328 245 -- -- -- 245
Retirement of stock........... (16,521) (364) -- -- -- (364)
Net income.................... -- -- -- 3,145 3,145
--------- ------ ----- ---- -------- --------
Balance at December 31, 1995.... 813,529 414 -- -- 14,252 14,666
Recapitalization
transaction................ 6,466,491 2,862 (391) 139 (75,537) (72,927)
Dividends and accretion....... -- -- -- -- (172) (172)
Net loss...................... -- -- -- -- (2,890) (2,890)
--------- ------ ----- ---- -------- --------
Balance at December 31, 1996.... 7,280,020 $3,276 $(391) $139 $(64,347) $(61,323)
========= ====== ===== ==== ======== ========
</TABLE>
See accompanying notes.
F-6
<PAGE> 76
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1995 1996
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $ 2,818 $ 3,145 $ (2,890)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................. 1,962 2,438 2,813
Other amortization........................................ -- -- 62
Provision for doubtful accounts........................... 5,076 4,734 9,578
Loss (income) from investments............................ 64 (86) 272
Deferred income taxes..................................... 278 (112) 4,628
Gain on sale of assets.................................... (361) (2,608) (8,519)
Provision for professional liability...................... -- -- 1,700
Changes in operating assets and liabilities, net of
effects from acquisitions and disposals:
Accounts receivable..................................... (9,493) (5,269) (9,142)
Inventories............................................. 124 (140) 43
Prepaid expenses and other current assets............... (408) 3,178 (6,587)
Accounts payable and accrued expenses................... 1,044 (1,880) 5,610
Accrued salaries and benefits........................... -- -- 3,977
Third-party settlements................................. 1,693 62 244
Other liabilities....................................... (136) 232 (23)
------- -------- --------
Net cash provided by operating activities................... 2,661 3,694 1,766
INVESTING ACTIVITIES
Purchase of property, plant and equipment................... (5,271) (1,398) (14,017)
Net capital contributions and withdrawals -- investments.... (1,489) (2,063) 1,775
Purchase of acquired companies.............................. (4,364) (15,765) (24,946)
Proceeds from sale of assets................................ 5,688 20,607 21,948
Sale of marketable securities............................... 1,031 -- --
Escrow deposit on facility purchase......................... 3,829 (3,829) --
Other....................................................... (138) 921 (2,104)
------- -------- --------
Net cash used in investing activities....................... (714) (1,527) (17,344)
FINANCING ACTIVITIES
Proceeds from long-term debt................................ 2,871 39 90,779
Repayments of debt.......................................... (5,185) (1,619) (31,875)
Additions to deferred loan costs............................ -- -- (2,959)
Issuance of common stock.................................... 546 245 --
Repurchase of common stock.................................. (837) (364) --
Recapitalization............................................ -- -- (31,398)
------- -------- --------
Net cash (used in) provided by financing activities......... (2,605) (1,699) 24,547
------- -------- --------
Net (decrease) increase in cash and cash equivalents........ (658) 468 8,969
Cash and cash equivalents at beginning of year.............. 2,477 1,819 2,287
------- -------- --------
Cash and cash equivalents at end of year.................... $ 1,819 $ 2,287 $ 11,256
======= ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid during the year............................... $ 750 $ 1,435 $ 1,450
======= ======== ========
Income taxes paid during the year........................... $ 1,842 $ 4,183 $ 2,288
======= ======== ========
ACQUISITIONS
Fair value of assets acquired............................... $ 4,632 $ 15,784 $ 37,228
Liabilities assumed......................................... (268) (19) (12,282)
------- -------- --------
Cash paid................................................... $ 4,364 $ 15,765 $ 24,946
======= ======== ========
SALE OF ASSETS
Assets sold................................................. $ 5,364 $ 17,791 $ 13,274
Liabilities released........................................ -- 505 155
Debt assumed by purchaser................................... (37) (297) --
Gain on sale of assets...................................... 361 2,608 8,519
------- -------- --------
Cash received............................................... $ 5,688 $ 20,607 $ 21,948
======= ======== ========
NONCASH TRANSACTIONS
Property, plant and equipment acquired through capital
leases.................................................... $ -- $ -- $ 2,761
======= ======== ========
Noncash issuance of stock in connection with
recapitalization.......................................... $ -- $ -- $ 4,118
======= ======== ========
Dividends and accretion..................................... $ -- $ -- $ 172
======= ======== ========
</TABLE>
See accompanying notes.
F-7
<PAGE> 77
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION
Province Healthcare Company (formerly known as Brim, Inc. until January 16,
1997 and as Principal Hospital Company from January 16, 1997 until October ,
1997) and subsidiaries (the Company) are engaged in the business of owning,
leasing and managing hospitals in non-urban communities principally in the
northwestern and southwestern United States. As more fully described in Note 3,
Brim, Inc. consummated a leveraged recapitalization on December 18, 1996.
2. ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company,
its majority-owned subsidiaries and partnerships in which the Company or one of
its subsidiaries is a general partner and has a controlling interest. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
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.
CASH EQUIVALENTS
Cash equivalents include all highly liquid investments with an original
maturity of three months or less when acquired. The Company places its cash in
financial institutions that are federally insured and limits the amount of
credit exposure with any one financial institution.
PATIENT ACCOUNTS RECEIVABLE
The Company's primary concentration of credit risk is patient accounts
receivable, which consist of amounts owed by various governmental agencies,
insurance companies and private patients. The Company manages the receivables by
regularly reviewing its accounts and contracts and by providing appropriate
allowances for uncollectible amounts. Significant concentrations of gross
patient accounts receivable at December 31, 1996, consist of receivables from
Medicare and Medicaid of 29% and 17%, respectively. Concentration of credit risk
relating to accounts receivable is limited to some extent by the diversity and
number of patients and payors and the geographic dispersion of the Company's
operations.
INVENTORIES
Inventories are stated at the lower of cost, determined by the first-in,
first-out method, or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated on the basis of cost. Routine
maintenance and repairs are charged to expense as incurred. Expenditures that
increase values, change capacities or extend useful lives are capitalized.
Depreciation is computed by the straight-line method over the estimated useful
lives of the assets, which range from 3 to 40 years. Amortization of equipment
under capital leases is included in the provision for depreciation.
F-8
<PAGE> 78
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OTHER ASSETS
Deferred loan costs are included in other noncurrent assets and are
amortized over the term of the related debt by the interest method. At December
31, 1996, deferred loan costs and accumulated amortization were $2,959,000 and
$62,000, respectively.
RISK MANAGEMENT
The Company maintains self-insured medical and dental plans for employees.
Claims are accrued under these plans as the incidents that give rise to them
occur. Unpaid claim accruals are based on the estimated ultimate cost of
settlement, including claim settlement expenses, in accordance with an average
lag time and past experience. The Company has entered into reinsurance
agreements for certain plans with independent insurance companies to limit its
losses on claims. Under the terms of these agreements, the insurance companies
will reimburse the Company based on the level of reinsurance which ranges from
$30,000 per individual claim up to $1,000,000. These reimbursements are included
in salaries, wages and benefits in the accompanying consolidated statements of
operations.
The Company is insured for professional liability based on a claims-made
policy purchased in the commercial insurance market. The provision for
professional liability and comprehensive general liability claims include
estimates of the ultimate costs for claims incurred but not reported, in
accordance with actuarial projections based on past experience. Management is
aware of no potential professional liability claims whose settlement, if any,
would have a material adverse effect on the Company's consolidated financial
position or results of operations.
OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities consist primarily of insurance liabilities,
including an estimated liability for incurred but not reported professional
liability claims, supplemental deferred compensation liability and minority
interests in net assets of subsidiaries.
PATIENT SERVICE REVENUE
Net patient service revenue is reported at the estimated net realizable
amounts from patients, third-party payors, and others for services rendered,
including estimated retroactive adjustments under reimbursement agreements with
third-party payors. Estimated settlements under third-party reimbursement
agreements are accrued in the period the related services are rendered and
adjusted in future periods as final settlements are determined.
Approximately 61%, 61% and 62% of gross patient service revenue for the
years ended December 31, 1994, 1995 and 1996, is from participation in the
Medicare and state sponsored Medicaid programs. Laws and regulations governing
the Medicare and Medicaid programs are complex and subject to interpretation.
The Company believes that it is in compliance with all applicable laws and
regulations and is not aware of any pending or threatened investigations
involving allegations of potential wrongdoing. While no such regulatory
inquiries have been made, compliance with such laws and regulations can be
subject to future government review and interpretation as well as significant
regulatory action including fines, penalties, and exclusion from the Medicare
and Medicaid programs.
MANAGEMENT AND PROFESSIONAL SERVICES
Management and professional services is comprised of fees from management
and professional consulting services provided to third-party hospitals pursuant
to management contracts and
F-9
<PAGE> 79
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
consulting arrangements. Also included are reimbursable expenses which relate to
salaries and benefits paid by the Company on behalf of the managed hospitals.
Fees are recognized as revenue as services are performed. Reimbursable expenses
are included in salaries, wages and benefits in the accompanying consolidated
statements of operations. Management and professional services, excluding
reimbursable expenses, were $9,048, $10,652 and $9,623 for the years ended
December 31, 1994, 1995 and 1996, respectively. The Company does not maintain
any ownership interest in these managed hospitals.
STOCK BASED COMPENSATION
The Company, from time to time, grants stock options for a fixed number of
common shares to employees. The Company accounts for stock option grants in
accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees,
and accordingly, recognizes no compensation expense for the stock option grants
when the exercise price of the options equals, or is greater than, the market
price of the underlying stock on the date of grant.
INTEREST RATE SWAP AGREEMENTS
The Company enters into interest rate swap agreements as a means of
managing its interest rate exposure. The differential to be paid or received is
recognized over the life of the agreement as an adjustment to interest expense.
PRO FORMA NET (LOSS) INCOME PER SHARE
Pro forma net loss per share for the year ended December 31, 1996 is
computed using the weighted average number of shares of common stock outstanding
during the period, including dilutive common equivalent shares from stock
options and warrants (using the treasury stock method). The 7,280,020 common
shares issued in the recapitalization and the merger of a subsidiary of Brim
into PHC of Delaware, Inc. (see Note 3) in December 1996 have been included in
the pro forma calculation as if the recapitalization had occurred as of the
first day of 1996. Pursuant to the Securities and Exchange Commission Staff
Accounting Bulletins, all other common stock issued, and common stock options
and warrants granted, by the Company at prices below the initial public offering
price during the twelve-month period prior to the initial public offering have
been included in the calculation as if they were outstanding for the full fiscal
year (using the treasury stock method).
Historical net (loss) income per share has not been presented in these
financial statements, since the historical capitalization of the Company is not
meaningful due to the change in the capital structure of the Company resulting
from the recapitalization (see Note 3).
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards (SFAS) No. 128, Earnings per Share
and SFAS No. 129, Disclosure of Information about Capital Structure. These
statements are effective for periods ending after December 15, 1997.
SFAS No. 128 establishes standards for computing and presenting earnings
per share. This Statement simplifies the standards for computing earnings per
share and requires dual presentation of basic and diluted earnings per share on
the face of the statement of operations and requires a reconciliation of the
numerator and denominator of the basic earnings per share computation to the
numerator and denominator of the diluted earnings per share computation. The
adoption of SFAS No. 128 would have had no impact on the calculation of earnings
per share assuming the calculation
F-10
<PAGE> 80
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
was modified (i) to treat the 7,280,020 shares issued in the recapitalization
and the merger in December 1996 as being outstanding for the entire period
presented, and (ii) to treat all other common stock issued, and common stock
options and warrants granted, by the Company at prices below the initial public
offering price during the twelve-month period prior to the initial public
offering as if they were outstanding for the entire period presented.
SFAS No. 129 establishes standards for disclosing information about a
company's capital structure. The adoption of SFAS No. 129 is not expected to
materially alter disclosures presently being provided.
RECLASSIFICATIONS
Certain reclassifications have been made in the 1994 and 1995 consolidated
financial statements to conform to the 1996 presentation. These
reclassifications had no effect on the results of operations previously
reported.
3. RECAPITALIZATION
On December 18, 1996, Brim was recapitalized pursuant to an Investment
Agreement dated November 21, 1996, by and between Brim and Golder, Thoma,
Cressey, Rauner Fund IV, L.P. (GTCR) and PHC of Delaware, Inc. (PHC). Prior to
the recapitalization, Brim was owned by certain of its officers and employees.
PHC was founded in February 1996 by GTCR and Mr. Martin Rash, and was controlled
by GTCR through an 82.1% common stock ownership. Following the recapitalization
of Brim, GTCR controlled both Brim and PHC, and merged a subsidiary of Brim into
PHC as discussed below. The combination of Brim and PHC was accounted for as a
merger of businesses under common control.
The basic elements of the December 1996 recapitalization of the Company
included the following: GTCR Fund IV and other investors purchased new shares of
the Company's common and preferred stock. The Company sold its senior living
business and entered into a new credit facility to, along with the proceeds from
the sale of the new shares, provide financing for the redemption of a portion of
the pre-existing common and preferred stock; this pre-existing common and
preferred stock was redeemed; and certain pre-existing debt was repaid. The
recapitalization was accounted for as such and, accordingly, did not result in a
new basis of accounting. Upon completion of the recapitalization, GTCR Fund IV
controlled the Company and also controlled PHC, a company unrelated to Brim that
GTCR Fund IV founded in February 1996. Since both companies are engaged in the
business of owning, leasing and managing hospitals in non-urban communities,
GTCR Fund IV then merged PHC into Brim so that the two companies would be under
the same corporate structure and management.
The principal elements of the recapitalization included the following:
- Brim sold for cash its two wholly-owned subsidiaries engaged in senior
living activities for a gross sales price of $19.7 million, and sold for
cash certain real estate properties for a price of $406,500.
- GTCR purchased 1,425,333 shares, Mr. Rash purchased 22,889 shares, Mr.
Richard Gore purchased 42,667 shares, two banks purchased 21,333 shares,
and Leeway & Co., a subsidiary of AT&T, purchased 833,778 shares of Brim
newly-designated common stock for cash of approximately $1.1 million.
Messrs. Rash and Gore purchased 399,902 shares of Brim newly-designated
common stock for notes of $179,956.
- Through a series of transactions, Brim pre-transaction shareholders who
were to remain shareholders after the recapitalization received 3,580
shares of newly-designated junior
F-11
<PAGE> 81
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
preferred stock and 795,562 shares of Brim newly-designated common stock
in exchange for their common stock of Brim.
- GTCR purchased 6,414 shares, Mr. Rash purchased 103 shares, Mr. Gore
purchased 192 shares, two banks purchased 96 shares and Leeway & Co.
purchased 3,752 shares of newly-designated redeemable junior preferred
stock for cash of approximately $10.6 million.
- Leeway & Co. purchased 20,000 shares of newly designated redeemable
senior preferred stock and was issued a warrant to purchase 343,265 shares
of newly-designated common stock for total cash consideration of $20.0
million. A value of $139,000 was assigned to the warrant.
- Brim entered into a $100.0 million credit facility with First Union
National Bank and borrowed $35.0 million under the term loan portion of
the facility, and $37.0 million under the $65.0 million revolving credit
portion of the facility.
- The outstanding common stock of all Brim shareholders who were not to
remain as shareholders after the recapitalization was exchanged for
redeemable junior preferred stock. The preferred stock was then redeemed
for cash of approximately $42.3 million, and outstanding stock options
were settled for cash of approximately $8.0 million.
- Brim redeemed pre-existing Series A preferred stock held by General
Electric Credit Corporation for cash of approximately $29.9 million.
- Existing Brim debt of $5.4 million was paid.
- An aggregate of approximately $6.5 million was deposited into escrow
accounts for possible breaches of representations and warranties in
connection with the transactions for sale of the Senior Living
subsidiaries and the stock redemption. Escrow funds not used for
settlement of breaches within 18 months of the recapitalization will be
released to the purchasers of the Senior Living subsidiaries and the
redeemed Brim shareholders.
The principal elements of transactions occurring immediately after the
recapitalization included the following:
- A subsidiary of Brim was merged into PHC. In exchange for their shares in
PHC, the PHC shareholders received newly-designated redeemable junior
preferred stock and newly designated common stock as follows: GTCR
received 13,580 and 3,017,779 shares, Mr. Rash received 217 and 429,252
shares, Mr. Gore received 407 and 247,258 shares, and two banks received
199 and 44,267 shares, respectively.
- Existing PHC debt of $19.6 million was repaid.
- First Additional Investment -- An agreement was entered into granting
GTCR the right to acquire, at its sole discretion, up to 2,733 shares of
the Company's redeemable junior preferred stock at a price of $1,000 per
share, and up to 607,334 shares of the Company's common stock at a price
of $0.45 per share, at any time through December 17, 1999. The agreement
provides that Leeway & Co., Mr. Rash, Mr. Gore, and the two banks are
obligated to purchase redeemable junior preferred stock and common stock
in specified amounts at the same per share prices in the event GTCR
exercises its right to acquire junior preferred and common stock. (See
Note 17.)
- Second Additional Investment -- The agreement discussed immediately above
also granted GTCR the right to acquire up to 4,545 shares of the Company's
redeemable junior preferred stock at a price of $1,000 per share, and up
to 1,010,000 shares of the Company's common stock at a price of $0.45 per
share, at any time after the date upon which the investment
F-12
<PAGE> 82
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
discussed above was completed and before December 17, 1998. The agreement
also granted Leeway & Co. the right to acquire senior preferred stock,
redeemable junior preferred stock, common stock, and a common stock
warrant, and granted Mr. Rash and Mr. Gore the right to acquire common
stock, in specified amounts at the same per share prices in the event GTCR
exercises its right to acquire junior preferred and common stock. (See
Note 17.)
- Brim changed its name to Principal Hospital Company.
The common stock ownership subsequent to the recapitalization and the
merger of a subsidiary of Brim into PHC consists of a 10.9% interest held by
certain of the pre-recapitalization Brim shareholders, 61.0% held by GTCR, 11.5%
held by Leeway & Co., 15.7% held by Messrs. Rash and Gore, and 0.9% held by two
banks.
Total financing fees and legal, accounting and other related costs of the
recapitalization amounted to approximately $16,850,000. Costs totaling
$11,570,000 were charged to operations at the date of the recapitalization,
consisting of cash paid to buy-out stock options of $7,995,000, severance costs
of $2,190,000, and transaction-related costs of $1,385,000. Costs of $2,321,000
associated with the sale of common and preferred stock were allocated to
retained earnings (deficit) as to the common stock, and were netted against the
proceeds as to the preferred stock. Financing costs of $2,959,000 associated
with the credit facility with First Union National Bank were recorded as
deferred loan costs.
As part of the recapitalization, the Company approved a plan in December
1996, to terminate certain employees, which included approximately 200 corporate
and hospital operating personnel. The Company accrued approximately $2,190,000
of severance liability relating to these approved terminations as of December
31, 1996 and included these costs in the costs of the recapitalization in the
accompanying consolidated statements of operations. The majority of the
terminations occurred subsequent to year-end and were paid.
4. ACQUISITIONS AND DIVESTITURES
In February 1995, the Company acquired two senior living residences for
approximately $15,800,000. In September 1995, the Company sold the real property
of the two facilities and leased them back under an operating lease agreement
for a minimum lease term of 15 years. The gain on the sale of $138,000 was
deferred and will be recognized over the lease term.
In May 1995, the Company sold a hospital facility for approximately
$6,000,000. Cash proceeds from the sale were approximately $5,200,000 and the
Company recorded a gain on this transaction of approximately $2,500,000.
In February 1996, the Company acquired Parkview Regional Hospital by
entering into a 15-year operating lease agreement with two five-year renewal
terms and by purchasing certain assets totaling $3,092,000 and assuming certain
liabilities totaling $1,329,000, for a purchase price of $1,763,000.
In July 1996, the Company purchased certain assets totaling $26,394,000 and
assumed certain liabilities totaling $3,211,000 of Memorial Mother Frances
Hospital for a purchase price of $23,183,000.
In October 1996, the Company acquired Starke Memorial Hospital by assuming
certain liabilities and entering into a capital lease agreement and by
purchasing certain net assets for a purchase price of $7,742,000. The Company is
waiting for the final appraisal on certain assets acquired, thereby resulting in
the allocation of the purchase price not being finalized. The Company
anticipates this to be completed in the third-quarter of 1997. Management does
not expect the final
F-13
<PAGE> 83
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
allocation of the purchase price to have a significant impact on the Company's
consolidated financial position or results of operations.
In December 1996, the Company sold its senior living business (see Note
11).
All of the foregoing acquisitions were accounted for using the purchase
method of accounting. The operating results of the acquired companies have been
included in the accompanying consolidated statements of operations from the
respective dates of acquisition.
The following pro forma information related to continuing operations
reflects the operations of the entities acquired in 1995 and 1996, and divested
in 1995, as if the respective transactions had occurred as of the first day of
the fiscal year immediately preceding the year of the transactions. The pro
forma results of continuing operations do not purport to represent what the
Company's results of continuing operations would have been had such transactions
in fact occurred at the beginning of the years presented or to project the
Company's results of operations in any future period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994(1) 1995(2) 1996(3)
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Total revenue............................................... $101,976 $151,215 $153,136
Income (loss) from continuing operations.................... 3,363 (704) (10,332)
</TABLE>
- ---------------
(1) Excludes the hospital divested in 1995.
(2) Includes Parkview Regional Hospital, Memorial Mother Frances Hospital and
Starke Memorial Hospital, and excludes the hospital divested in 1995.
(3) Includes Parkview Regional Hospital, Memorial Mother Frances Hospital and
Starke Memorial Hospital.
The Company has minority interests in various health care related
businesses. These investments are accounted for by the equity method. The
assets, liabilities and results of operations of these businesses are not
material to the consolidated financial statements.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................ $ 823 $ 1,340
Leasehold improvements...................................... 1,315 4,475
Buildings and improvements.................................. 3,300 19,121
Equipment................................................... 8,654 15,217
------- -------
14,092 40,153
Less allowances for depreciation and amortization........... (4,609) (4,818)
------- -------
9,483 35,335
Construction-in-progress (estimated cost to complete at
December 31, 1996 -- $1,427).............................. 718 530
------- -------
$10,201 $35,865
======= =======
</TABLE>
Assets under capital leases were $2,400,000 and $13,385,000 net of
accumulated amortization of $750,000 and $1,462,000 at December 31, 1995 and
1996, respectively.
F-14
<PAGE> 84
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
------ -------
(IN THOUSANDS)
<S> <C> <C>
Revolving credit agreement.................................. $ 400 $37,000
Term loan................................................... -- 35,000
Other debt obligations...................................... 111 87
Mortgage notes paid in full in 1996, interest ranging from
7.5% - 8.0%............................................... 3,401 --
Various notes paid in full in 1996, interest ranging from
7.0% - 10.0%.............................................. 478 --
------ -------
4,390 72,087
Obligations under capital leases (see Note 12).............. 1,968 6,035
------ -------
6,358 78,122
Less current maturities..................................... (839) (1,489)
------ -------
$5,519 $76,633
====== =======
</TABLE>
In connection with the recapitalization (see Note 3), the Company entered
into a $100 million credit facility in December 1996, consisting of a revolving
credit agreement in an amount of up to $65,000,000 and a term loan in the amount
of $35,000,000. There was $37,000,000 of borrowings outstanding under the
revolving credit agreement and $35,000,000 under the term loan at December 31,
1996. Future borrowings under the revolver are limited, in certain instances, to
acquisitions of identified businesses. At December 31, 1996, the Company had
additional borrowing capacity available under the revolver of approximately
$6,250,000.
The loans under the credit agreement bear interest, at the Company's
option, at the adjusted base rate or at the adjusted LIBOR rate. Interest ranged
from 8.09% to 9.25% during 1996. The Company pays a commitment fee of one-half
of one percent on the unused portion of the revolving credit agreement. The
Company may prepay the principal amount outstanding under the revolving credit
agreement at any time before the maturity date of December 16, 1999. The term
loan is payable in quarterly installments ranging from $1,250,000 commencing in
the second quarter of 1998 to $2,250,000 in 2002, plus one payment of $2,000,000
in 2002.
The Company has a standby letter of credit issued and outstanding with the
bank totaling $603,000. Amounts outstanding are applied against the credit
availability under the Company's revolving credit agreement.
In certain circumstances, the Company is required to make mandatory
prepayments of the term loan and revolver to the extent of (i) 100% of net
proceeds from the issuance of equity securities in excess of $25,000,000,
provided however that in connection with a qualified initial public offering of
the Company's common stock, the Company shall only be required to make a
mandatory prepayment in an amount equal to the first $20,000,000 of net cash
proceeds; (ii) 100% of the net proceeds of any debt issued; and (iii) 100% of
net proceeds from asset sales other than sales of obsolete equipment in the
ordinary course of business or insurance proceeds.
The credit facility limits, under certain circumstances, the Company's
ability to incur additional indebtedness, including contingent obligations; sell
material assets; retire, redeem or otherwise reacquire its capital stock;
acquire the capital stock or assets of another business; or pay dividends. The
credit facility also requires the Company to maintain a specified net worth and
meet or exceed
F-15
<PAGE> 85
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
certain coverage, leverage, and indebtedness ratios. Indebtedness under the
credit facility is secured by substantially all assets of the Company.
Subsequent to year end, as required by the credit facility, the Company
entered into an interest rate swap agreement, which effectively converted for a
three-year period $35.0 million of floating-rate borrowings to fixed-rate
borrowings. This interest rate swap agreement will be used to manage the
Company's interest rate exposure. The agreement is a contract to periodically
exchange floating interest rate payments for fixed interest rate payments over
the life of the agreement. The Company secured a 8.77% fixed interest rate. The
Company is exposed to credit losses in the event of non-performance by the
counterparty to its financial instruments. The Company anticipates that the
counterparty will be able to fully satisfy its obligations under the contract.
Aggregate maturities of long-term obligations at December 31, 1996,
excluding capital leases, are as follows (in thousands):
<TABLE>
<S> <C>
1997........................................................ $ 47
1998........................................................ 3,790
1999........................................................ 42,750
2000........................................................ 6,750
2001........................................................ 7,750
Thereafter.................................................. 11,000
-------
$72,087
=======
</TABLE>
7. MANDATORY REDEEMABLE PREFERRED STOCK
Redeemable preferred stock consists of the following:
<TABLE>
<CAPTION>
1995 1996
------ -------
(IN THOUSANDS)
<S> <C> <C>
Series A redeemable senior preferred stock -- $1,000 per
share stated value, authorized no shares in 1995 and
25,000 in 1996, issued and outstanding no shares in 1995
and 20,000 in 1996, net of issuance costs of $892,000 and
a warrant of $139,000 in 1996............................. $ -- $18,969
Series B redeemable junior preferred stock -- $1,000 per
share stated value, authorized no shares in 1995 and
50,000 in 1996, issued and outstanding no shares in 1995
and 28,540 shares in 1996, net of issuance costs of
$1,282,000 in 1996........................................ -- 27,258
Redeemable Series A preferred stock, no par value,
authorized, issued and outstanding 96,000 shares in 1995
and no shares in 1996, net of issuance costs of $784,000
in 1995................................................... 8,816 --
------ -------
$8,816 $46,227
====== =======
</TABLE>
As described in Note 3, the Company redeemed all of the existing preferred
stock and issued two new categories of preferred stock as part of the
recapitalization on December 18, 1996.
The issued and outstanding shares of Series A redeemable senior preferred
stock are held by Leeway & Co., who purchased 20,000 shares and a warrant to
purchase 343,265 shares of common stock for $20.0 million in connection with the
recapitalization (see Note 3). Issuance costs totaled $892,000. Series A
redeemable preferred stock pays cumulative preferential dividends which accrue
on a daily basis at the rate of 11% and are payable in cash when and as declared
by the board of directors. The issue is senior to all other classes of equity
and has a liquidation preference equal to
F-16
<PAGE> 86
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the purchase price plus all accrued dividends. The issue requires mandatory
redemption after nine years for par value plus accrued but unpaid dividends. The
Company may redeem part or all of the issue at any time for a liquidation
preference of 105% for years one through five, 103% for year six, and 100%
thereafter. Notwithstanding the foregoing, the redemption price is the stated
value, plus accrued but unpaid dividends, for redemptions in connection with an
initial public offering.
The issued and outstanding Series B redeemable junior preferred stock
consists of 19,994 shares issued to GTCR, 320 shares issued to Mr. Rash, 599
shares issued to Mr. Gore, and 295 shares issued to two banks for consideration
of $21,208,000; 3,752 shares purchased by Leeway & Co. for $3,752,000; and 3,580
shares issued to Brim pre-recapitalization shareholders with a value of
$3,580,000. Issuance costs totaled $1,282,000. Series B redeemable junior
preferred stock pays cumulative preferential dividends which accrue on a daily
basis at the rate of 8% and are payable in cash when and as declared by the
board of directors. The issue is senior to all other classes of equity other
than the senior preferred stock, and has a liquidation preference equal to the
purchase price plus all accrued but unpaid dividends. The issue requires
mandatory redemption after 10 years for the stated value plus accrued but unpaid
dividends.
The preferred stock does not have voting rights, and the Series A senior
preferred stock is fully transferable in whole or in part to other financial
institutions. The purchase agreements for preferred stock restrict the Company's
ability to incur additional indebtedness, and restrict payment of dividends,
redemption of securities, acquisition and merger activity, sale of a majority of
assets, and the creation of unrelated businesses.
8. STOCKHOLDERS' EQUITY AND STOCK OPTIONS
STOCK OPTIONS
In prior years, the Company had granted nonstatutory stock options to
employees under plans existing in those years. The 161,941 stock options
outstanding under these plans were cashed-out for $7,995,000 in connection with
the recapitalization (see Note 3) in December 1996. Details of stock option
activity and pro forma information related to stock options granted in prior
years have not been presented in these financial statements since such
information would not be meaningful due to the change in the capital structure
of the Company resulting from the recapitalization.
At December 31, 1996, the Company did not have a stock option plan in
place, and no stock options were outstanding. Subsequent to year-end, stock
options were granted to certain officers and employees (see Note 17).
WARRANT
In connection with the recapitalization in December 1996, the Company
issued a warrant to purchase 343,265 shares of its common stock. The warrant has
an exercise price of $0.045 per share and has a twelve-year term.
9. PATIENT SERVICE REVENUE
The Company has agreements with third-party payors that provide for
payments to the Company at amounts different from its established rates. A
summary of the payment arrangements with major third-party payors follows:
- Medicare -- Inpatient acute care services rendered to Medicare program
beneficiaries are paid at prospectively determined rates per diagnosis.
These rates vary according to a patient classification system that is
based on clinical, diagnostic, and other factors. Inpatient nonacute
F-17
<PAGE> 87
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
services, certain outpatient services and medical education costs related
to Medicare beneficiaries are paid based on a cost reimbursement
methodology. The Company is reimbursed for cost reimbursable items at a
tentative rate with final settlement determined after submission of annual
cost reports by the Company and audits thereof by the Medicare fiscal
intermediary. The Company's classification of patients under the Medicare
program and the appropriateness of their admission are subject to an
independent review. The Company's Medicare cost reports have been audited
by the Medicare fiscal intermediary through December 31, 1993.
- Medicaid -- Inpatient and outpatient services rendered to Medicaid
program beneficiaries are reimbursed either under contracted rates or
reimbursed for cost reimbursable items at a tentative rate with final
settlement determined after submission of annual cost reports by the
Company and audits thereof by Medicaid. The Company's Medicaid cost
reports have been audited by the Medicaid fiscal intermediary through
December 31, 1993.
- Other -- The Company also has entered into payment agreements with
certain commercial insurance carriers, health maintenance organizations
and preferred provider organizations. The basis for payment to the Company
under these agreements includes prospectively determined rates per
discharge, discounts from established charges, and prospectively
determined daily rates.
Final determination of amounts earned under the Medicare and Medicaid
programs often occur in subsequent years because of audits by the programs,
rights of appeal and the application of numerous technical provisions.
Adjustments from finalization of prior year cost reports from both Medicare and
Medicaid resulted in an increase in patient service revenue of $788,000 for the
year ended December 31, 1996.
10. INCOME TAXES
The provision for income tax expense (benefit) attributable to income from
continuing operations consists of the following amounts:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995 1996
------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal............................................. $1,519 $1,580 $ 586
State............................................... 300 334 139
------ ------ -------
1,819 1,914 725
Deferred:
Federal............................................. 238 31 (4,190)
State............................................... 40 8 (999)
------ ------ -------
278 39 (5,189)
------ ------ -------
$2,097 $1,953 $(4,464)
====== ====== =======
</TABLE>
F-18
<PAGE> 88
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The differences between the Company's effective income tax rate of 41.3%,
36.4% and 33.4% from continuing operations for 1994, 1995 and 1996,
respectively, and the statutory federal income tax rate of 34.0% are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995 1996
------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory federal rate................................ $1,724 $1,823 $(4,545)
State income taxes, net of federal income tax
benefit............................................. 224 226 (568)
Amortization of goodwill.............................. 61 69 16
Change in valuation allowance......................... 54 (141) (1)
Nondeductible merger costs............................ -- -- 298
Other................................................. 34 (24) 336
------ ------ -------
$2,097 $1,953 $(4,464)
====== ====== =======
</TABLE>
The components of the Company's deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1995 1996
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets -- current:
Accounts and notes receivable........................ $ 491 $ 544 $3,305
Accrued vacation liability........................... 674 692 710
Accrued liabilities.................................. 187 121 1,924
Other................................................ -- 2 --
------ ------ ------
Net deferred tax assets--current....................... $1,352 $1,359 $5,939
====== ====== ======
Deferred tax assets--noncurrent:
Depreciation of property, plant and equipment........ $ 107 $ 232 $ 464
Net operating losses from separate return
subsidiary........................................ 421 280 278
Accrued liabilities.................................. 204 218 41
Deferred revenue..................................... -- 42 --
------ ------ ------
732 772 783
Less valuation allowance............................... (421) (280) (278)
------ ------ ------
Deferred tax assets -- noncurrent...................... 311 492 505
Deferred tax liabilities -- other...................... -- (76) (41)
------ ------ ------
Net deferred tax assets -- noncurrent.................. $ 311 $ 416 $ 464
====== ====== ======
</TABLE>
In the accompanying consolidated balance sheets, net current deferred tax
assets and net noncurrent deferred tax assets are included in prepaid expenses
and other, and other assets, respectively.
The decrease in the valuation allowance for deferred tax assets for the
years ended December 31, 1994, 1995 and 1996 was $54,000, $141,000 and $2,000,
respectively. The Company had net operating loss carryforwards (NOLs) of
approximately $714,000 at December 31, 1996 related to a subsidiary that has not
been included in the consolidated federal income tax return. These NOLs will
expire beginning in 2009. Due to restrictions on the use of the NOLs under the
Internal Revenue Code, management believes there is a risk they may expire
unused and, accordingly, has established a valuation reserve against the tax
benefit of the NOLs. Management believes it is more likely than not that the
remaining deferred tax assets will ultimately be realized through future taxable
income from operations.
F-19
<PAGE> 89
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Internal Revenue Service is in the process of finalizing its
examination of the Company's federal income tax returns for the 1993 and 1994
years. The examination resulted in temporary differences with a tax effect of
approximately $2,148,000 being reclassified from deferred taxes to currently
payable liabilities in the December 31, 1996 balance sheet. Finalization of the
examination is not expected to have a significant impact on the results of
operations of the Company.
11. DISCONTINUED OPERATIONS
During May 1995, the Company adopted a plan to dispose of its business of
providing managed care administration and organization infrastructure to
physician groups taking health care payment risk. Revenue from this business
segment was $2,169,000 and $1,126,000 for the years ended December 31, 1994 and
1995, respectively. Loss from operations of this business segment was $678,000
and $146,000 for the years ended December 31, 1994 and 1995, respectively, net
of taxes. The loss on the disposal of this business segment was $670,000 net of
taxes.
During September 1995, the Company adopted a plan to dispose of its
stand-alone business of providing surgery on an outpatient basis. Revenue from
this business segment was $91,000 and $155,000 for the years ended December 31,
1994 and 1995, respectively. Loss from operations of this business segment was
$221,000 and $249,000 for the years ended December 31, 1994 and 1995,
respectively, net of taxes. Loss on disposal of this business was $377,000, net
of taxes.
During November 1996, the Company adopted a plan to sell its senior living
business to companies whose shareholders included unrelated third parties and
certain shareholders, officers, and employees of Brim. This business segment was
sold on December 18, 1996. Revenue from this business segment was $12,478,000,
$19,422,000 and $18,598,000 for the years ended December 31, 1994, 1995 and
1996, respectively. Income from operations was $742,000, $1,178,000 and
$537,000, net of taxes, for the years ended December 31, 1994, 1995 and 1996,
respectively. The gain on the disposal of this business segment was $5,478,000,
net of taxes.
For financial reporting purposes, the results of operations and cash flows
of the discontinued businesses are included in the consolidated financial
statements as discontinued operations. The income (loss) from discontinued
operations may be summarized as follows:
<TABLE>
<CAPTION>
1994 1995 1996
----- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
(Loss) income from discontinued operations........... $(256) $ 1,284 $ 891
Applicable income taxes.............................. (99) 501 354
----- ------- ------
(157) 783 537
(Loss) gain on disposal of discontinued operations... -- (1,715) 8,961
Applicable income taxes.............................. -- (668) 3,483
----- ------- ------
- (1,047) 5,478
----- ------- ------
Total...................................... $(157) $ (264) $6,015
===== ======= ======
</TABLE>
12. LEASES
The Company leases various buildings, office space and equipment. The
leases expire at various times and have various renewal options. These leases
are classified as either capital leases or operating leases based on the terms
of the respective agreements.
F-20
<PAGE> 90
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum payments at December 31, 1996, by year and in the aggregate,
under capital leases and noncancellable operating leases with terms of one year
or more consist of the following:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
<S> <C> <C>
1997........................................................ $ 1,830 $ 4,043
1998........................................................ 1,819 3,371
1999........................................................ 1,531 2,666
2000........................................................ 642 2,278
2001........................................................ 663 1,784
Thereafter.................................................. 1,139 5,831
------- -------
Total minimum lease payments................................ 7,624 $19,973
=======
Amount representing interest................................ (1,589)
-------
Present value of net minimum lease payments
(including $1,442 classified as current)........ $ 6,035
=======
</TABLE>
13. CONTINGENCIES
The Company is involved in litigation and regulatory investigations arising
in the ordinary course of business. In the opinion of management, after
consultation with legal counsel, these matters will be resolved without material
adverse effect on the Company's consolidated financial position or results of
operations.
14. RETIREMENT PLANS
The Company sponsors defined contribution employee benefit plans which
cover substantially all employees. Employees may contribute a percentage of
eligible compensation subject to Internal Revenue Service limits. The plans call
for the Company to make matching contributions, based on either a percentage of
employee contributions or a discretionary amount as determined by the Company.
Contributions by the Company to the plans totaled $355,000, $394,000 and
$497,000 for the years ended December 31, 1994, 1995 and 1996, respectively.
In January 1995, the Company adopted a nonqualified supplemental deferred
compensation plan for selected management employees. As determined by the Board
of Directors, the Plan provides a benefit of 1% to 3% of the employee's
compensation. The participant's amount is fully vested, except in those
instances where the participant's employment terminates for any reason other
than retirement, death or disability, in which case the participant forfeits a
portion of the employer's contribution depending on length of service. Plan
expense totaled $80,000 and $99,000 for the years ended December 31, 1995 and
1996, respectively.
15. FAIR VALUES OF FINANCIAL INSTRUMENTS
Cash and Cash Equivalents:--The carrying amount reported in the balance
sheet for cash and cash equivalents approximates fair value.
Accounts Receivable and Accounts Payable:--The carrying amount reported in
the balance sheet for accounts receivable and accounts payable approximates fair
value.
Long-Term Debt:--The carrying amount reported in the balance sheet for
long-term obligations approximates fair value. The fair value of the Company's
long-term obligations is estimated using
F-21
<PAGE> 91
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
discounted cash flow analyses, based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements.
16. STOCK SPLIT
On May 8, 1997, the Company declared a three-for-one stock split of the
outstanding common stock and common stock options and warrant to shareholders of
record on May 8, 1997. All post-recapitalization common share and per share
data, included in the accompanying consolidated financial statements and
footnotes thereto, have been restated to reflect this stock split.
17. SUBSEQUENT EVENTS
STOCK OPTIONS
In March 1997, the Company's Board of Directors approved a stock option
plan (the Plan) under which options to purchase common stock may be granted to
officers, employees, and directors. Options are granted at no less than market
price on the date of grant.
Under the Plan, 1,300,000 shares have been reserved for grant. The
Company's Board of Directors approved the issuance of options to acquire 385,765
common shares in March 1997, at an exercise price of $3.375 per share. The
options granted vest and are exercisable ratably over a five-year period. Shares
available for grant total 914,235.
STOCK SALE
In July 1997, GTCR exercised its right, obtained in December 1996, as a
part of the recapitalization transaction (see Note 3), to make the First
Additional Investment and purchase shares of the Company's redeemable junior
preferred stock at $1,000 per share and common stock at $0.45 per share. GTCR
acquired 2,733 shares of redeemable junior preferred stock and 607,334 shares of
common stock thereunder. As discussed in Note 3, Leeway & Co., Mr. Rash, Mr.
Gore, and the two banks were obligated to purchase specified amounts of
redeemable junior preferred stock and common stock at the same per share prices
in the event GTCR exercised its right to acquire redeemable junior preferred
stock and common stock and, accordingly, purchased 1,022 shares of redeemable
junior preferred stock and 350,891 shares of common stock. Net proceeds from the
stock sale totaled $4,182,000.
In connection with the anticipated public offering of its common stock, the
rights of GTCR, Leeway & Co., Mr. Rash, and Mr. Gore, to purchase stock of the
Company pursuant to the Second Initial Investment will be terminated with no
purchases being made. (See Note 3.)
NOTES RECEIVABLE FOR COMMON STOCK
In July 1997, the Company was paid $211,200 of the notes receivable for
common stock with a balance of $391,000 at December 31, 1996.
ACQUISITIONS
Effective August 1, 1997, the Company acquired Needles Desert Community
Hospital by entering into a 15-year lease agreement with three five-year renewal
terms and by purchasing assets totaling $1,840,000 and assuming certain
liabilities totaling $583,000 for a purchase price of $1,257,000.
F-22
<PAGE> 92
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PUBLIC OFFERING OF COMMON STOCK
On August 27, 1997, the Company filed a Registration Statement under the
Securities Act of 1933 for a public offering of common stock. The net proceeds
from the offering are planned to be used to reduce the balance of the
outstanding term and revolving credit loans, redeem the outstanding balance of
the Series A redeemable senior preferred stock plus accrued dividends, and
repurchase approximately 1,000,000 shares of common stock held by GTCR and
Leeway & Co. In connection with the offering, the Series B redeemable junior
preferred stock will be converted into common stock. The conversion will be
effected at the public offering price of the common stock.
EXERCISE OF WARRANT
On September 12, 1997, Leeway & Co. exercised its warrant to purchase
343,265 shares of the Company's common stock. The warrant had an exercise price
of $0.045 per share, resulting in total proceeds to the Company of $15,447. (See
Note 8.)
REINCORPORATION
On October , 1997, the Company changed its jurisdiction of incorporation
to Delaware, changed its name to Province Healthcare Company, and exchanged 1.35
shares of its no par common stock for each share of its $0.01 par value common
stock. All post-recapitalization common share and per share data, included in
the consolidated financial statements and footnotes thereto, have been restated
to reflect this reincorporation.
F-23
<PAGE> 93
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
1997
--------------
(IN THOUSANDS)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 6,016
Accounts receivable, less allowance for doubtful accounts
of $6,816.............................................. 28,292
Inventories............................................... 3,203
Prepaid expenses and other................................ 7,274
--------
Total current assets.............................. 44,785
Property, plant and equipment, net.......................... 39,066
Other assets:
Unallocated purchase price................................ 6,822
Investments in other health care-related businesses....... 544
Other..................................................... 5,636
--------
13,002
--------
$ 96,853
========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND COMMON
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 7,982
Accrued salaries and benefits............................. 5,085
Accrued expenses.......................................... 5,451
Current maturities of long-term obligations............... 1,640
--------
Total current liabilities......................... 20,158
Long-term obligations, less current maturities.............. 78,436
Third-party settlements..................................... 5,984
Other liabilities........................................... 6,243
--------
90,663
Mandatory redeemable preferred stock........................ 46,340
Common stockholders' equity (deficit):
Common stock, no par value, authorized 20,000,000; issued
and outstanding 7,280,020.............................. 3,276
Notes receivable for common stock......................... (391)
Common stock warrant...................................... 139
Retained deficit.......................................... (63,332)
--------
(60,308)
--------
$ 96,853
========
</TABLE>
See accompanying notes.
F-24
<PAGE> 94
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Revenue:
Net patient service revenue............................... $43,391 $69,581
Management and professional services...................... 9,630 8,398
Other..................................................... 5,269 2,882
------- -------
Net operating revenue....................................... 58,290 80,861
------- -------
Expenses:
Salaries, wages and benefits.............................. 28,784 33,802
Purchased services........................................ 8,518 10,314
Supplies.................................................. 5,256 7,832
Provision for doubtful accounts........................... 2,804 5,901
Other operating expenses.................................. 4,655 8,377
Rentals and leases........................................ 2,556 2,881
Depreciation and amortization............................. 893 2,492
Interest expense.......................................... 847 3,941
Loss (gain) on sale of assets............................. 106 (159)
------- -------
Total expenses.............................................. 54,419 75,381
------- -------
Income from continuing operations before provision for
income taxes.............................................. 3,871 5,480
Provision for income taxes.................................. 1,846 2,081
------- -------
Income from continuing operations........................... 2,025 3,399
Income from discontinued operations, less applicable income
taxes..................................................... 182 --
------- -------
Net income.................................................. $ 2,207 $ 3,399
======= =======
Preferred stock dividends and accretion..................... -- (2,384)
------- -------
Net income applicable to common and common equivalent
shares.................................................... $ 2,207 $ 1,015
======= =======
Pro forma net income per common and common equivalent share:
Income from continuing operations......................... $ 0.23 $ 0.11
Income from discontinued operations....................... .02 --
------- -------
Net income per common and common equivalent share......... $ 0.25 $ 0.11
======= =======
Pro forma number of common and common equivalent shares..... 8,843 8,843
======= =======
</TABLE>
See accompanying notes.
F-25
<PAGE> 95
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN COMMON
STOCKHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)
<TABLE>
<CAPTION>
NO PAR VALUE NOTES
COMMON STOCK RECEIVABLE FOR COMMON RETAINED
------------------ COMMON STOCK EARNINGS
SHARES AMOUNT STOCK WARRANT (DEFICIT) TOTAL
--------- ------ -------------- ------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996...................... 7,280,020 $3,276 $(391) $139 $(64,347) $(61,323)
Net income................ -- -- -- -- 3,399 3,399
Dividends and accretion... -- -- -- -- (2,384) (2,384)
--------- ------ ----- ---- -------- --------
Balance at June 30, 1997.... 7,280,020 $3,276 $(391) $139 $(63,332) $(60,308)
========= ====== ===== ==== ======== ========
</TABLE>
See accompanying notes.
F-26
<PAGE> 96
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES......... $ 7,442 $(1,543)
INVESTING ACTIVITIES
Purchase of property, plant and equipment................... (3,184) (5,530)
Net capital contributions and withdrawals -- investments.... (1,721) (121)
Purchase of acquired companies.............................. (1,763) --
------- -------
Net cash used in investing activities....................... (6,668) (5,651)
FINANCING ACTIVITIES
Proceeds from long-term debt................................ 622 2,833
Repayments of debt.......................................... (714) (879)
Issuance of common stock.................................... 587 --
Repurchase of common stock.................................. (166) --
------- -------
Net cash provided by financing activities................... 329 1,954
------- -------
Net increase (decrease) in cash and cash equivalents........ 1,103 (5,240)
Cash and cash equivalents at beginning of period............ 2,287 11,256
------- -------
Cash and cash equivalents at end of period.................. $ 3,390 $ 6,016
======= =======
ACQUISITIONS
Fair value of assets acquired............................... $ 3,092 $ --
Liabilities assumed......................................... (1,329) --
------- -------
Cash paid................................................... $ 1,763 $ --
======= =======
SALE OF ASSETS
Assets sold................................................. $ -- $ 399
Liabilities released........................................ -- (582)
Gain on sale of assets...................................... -- 183
------- -------
Cash paid................................................... $ -- $ --
======= =======
NONCASH TRANSACTIONS
Property, plant and equipment acquired through capital
leases.................................................... $ 322 $ --
======= =======
</TABLE>
See accompanying notes.
F-27
<PAGE> 97
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1997
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six months ended June 30, 1997, are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997. For further information, refer to the consolidated financial
statements and footnotes thereto included herein.
2. PRO FORMA NET INCOME PER SHARE
Pro forma net income per share is computed using the weighted average
number of shares of common stock outstanding during the period, including
dilutive common equivalent shares from stock options and warrants (using the
treasury stock method). The 7,280,020 common shares issued in the
recapitalization and the merger in December 1996 have been included in the pro
forma calculation as if the recapitalization had occurred as of the first day of
1996. Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletins, all other common stock issued, and common stock options and warrants
granted, by the Company at prices below the initial public offering price during
the twelve-month period prior to the initial public offering have been included
in the calculation as if they were outstanding for the full fiscal year (using
the treasury stock method).
Historical net income per share has not been presented in these financial
statements for the six months ended June 30, 1996 since the historical
capitalization of the Company is not meaningful due to the change in the capital
structure of the Company resulting from the recapitalization.
3. CONTINGENCIES
Management continually evaluates contingencies based on the best available
evidence and believes that adequate provision for losses has been provided to
the extent necessary. In the opinion of management, the ultimate resolution of
the following contingencies will not have a material effect on the Company's
results of operations or financial position.
GENERAL AND PROFESSIONAL LIABILITY RISKS
The reserve for the self-insured portion of general and liability and
professional liability risks is included in "Other liabilities" and is based on
actuarially determined estimates.
LITIGATION
The Company currently, and from time to time, is expected to be subject to
claims and suits arising in the ordinary course of business.
NET PATIENT SERVICE REVENUE
Final determination of amounts earned under the Medicare and Medicaid
programs often occurs in subsequent years because of audits by the programs,
rights of appeal and the application of numerous technical provisions.
F-28
<PAGE> 98
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
FINANCIAL INSTRUMENTS
On March 10, 1997, as required by the credit facility, the Company entered
into an interest rate swap agreement, which effectively converted for a
five-year period $35 million of floating rate borrowings to fixed rate
borrowings. Interest rate swap agreements are used on a limited basis to manage
the Company's interest rate exposure. The agreements are contracts to
periodically exchange fixed and floating interest rate payments over the life of
the agreements. The floating-rate payments are based on LIBOR and fixed-rate
payments are dependent upon market levels at the time the swap agreement was
consummated. For the six months ended June 30, 1997 the Company received a
weighted average rate of 5.56% and paid a weighted average rate of 6.27%.
4. STOCK OPTIONS
In March 1997, the Company's Board of Directors approved a stock option
plan (the Plan) under which options to purchase common stock may be granted to
officers, employees, and directors. Options are granted at no less than market
price on the date of grant.
Under the Plan, 1,300,000 shares have been reserved for grant. The
Company's Board of Directors approved the issuance of options to acquire 385,765
common shares in March 1997, at an exercise price of $3.375 per share. The
options granted vest and are exercisable ratably over a five-year period. Shares
available for grant total 914,235.
5. SUBSEQUENT EVENTS
STOCK SALE
In July 1997, GTCR exercised its right, obtained in December 1996, as a
part of the recapitalization transaction, to make the First Additional
Investment and purchase shares of the Company's redeemable junior preferred
stock at $1,000 per share and common stock at $0.45 per share. GTCR acquired
2,733 shares of redeemable junior preferred stock and 607,334 shares of common
stock thereunder. As discussed in Note 3, Leeway & Co., Mr. Rash, Mr. Gore, and
the two banks were obligated to purchase specified amounts of redeemable junior
preferred stock and common stock at the same per share prices in the event GTCR
exercised its right to acquire redeemable junior preferred stock and common
stock and, accordingly, purchased 1,022 shares of redeemable junior preferred
stock and 350,891 shares of common stock. Net proceeds from the stock sale
totaled $4,182,000.
In connection with the anticipated public offering of its common stock, the
rights of GTCR, Leeway & Co., Mr. Rash, and Mr. Gore, to purchase stock of the
Company pursuant to the Second Initial Investment will be terminated with no
purchases being made.
NOTES RECEIVABLE FOR COMMON STOCK
In July 1997, the Company was paid $211,200 of the notes receivable for
common stock with a balance of $391,000 at December 31, 1996.
ACQUISITIONS
Effective August 1, 1997, the Company acquired Needles Desert Community
Hospital by entering into a 15-year lease agreement with three five-year renewal
terms and by purchasing assets totaling $1,840,000 and assuming certain
liabilities totaling $583,000 for a purchase price of $1,257,000.
F-29
<PAGE> 99
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
PUBLIC OFFERING OF COMMON STOCK
On August 27, 1997, the Company filed a Registration Statement under the
Securities Act of 1933 for a public offering of common stock. The net proceeds
from the offering are planned to be used to reduce the balance of the
outstanding term and revolving credit loans, redeem the outstanding balance of
the Series A redeemable senior preferred stock plus accrued dividends, and
repurchase approximately 1,000,000 shares of common stock held by GTCR and
Leeway & Co. In connection with the offering, the Series B redeemable junior
preferred stock will be converted into common stock. The conversion will be
effected at the public offering price of the common stock.
EXERCISE OF WARRANT
On September 12, 1997, Leeway & Co. exercised its warrant to purchase
343,265 shares of the Company's common stock. The warrant had an exercise price
of $0.045 per share, resulting in total proceeds to the Company of $15,447.
REINCORPORATION
On October , 1997, the Company changed its jurisdiction of incorporation
to Delaware, changed its name to Province Healthcare Company, and exchanged 1.35
shares of its no par common stock for each share of its $0.01 par value common
stock. All post-recapitalization common share and per share data, included in
the consolidated financial statements and footnotes thereto, have been restated
to reflect this reincorporation.
F-30
<PAGE> 100
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Memorial Hospital Foundation -- Palestine, Inc.
We have audited the accompanying consolidated statements of operations and
cash flows for the years ended May 31, 1995 and 1996 and the period June 1, 1996
to July 25, 1996, of Memorial Hospital Foundation -- Palestine, Inc. and
subsidiaries. These consolidated financial statements are the responsibility of
the Foundation's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated 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 results of operations
and cash flows of Memorial Hospital Foundation -- Palestine, Inc. and
subsidiaries for the years ended May 31, 1995 and 1996 and the period June 1,
1996 to July 25, 1996, in conformity with generally accepted accounting
principles.
HARRELL, RADER, BONNER & BOLTON, LLP
Palestine, Texas
July 25, 1997
F-31
<PAGE> 101
MEMORIAL HOSPITAL FOUNDATION -- PALESTINE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MAY 31, PERIOD
-------------------------- JUNE 1, 1996
1995 1996 TO JULY 25, 1996
----------- ----------- ----------------
<S> <C> <C> <C>
Revenue:
Net patient service revenue.................. $27,964,228 $24,882,638 $3,565,113
Other........................................ 610,515 704,921 100,876
----------- ----------- ----------
Total revenue........................ 28,574,743 25,587,559 3,665,989
Expenses:
Salaries, wages and benefits................. 11,885,884 10,579,605 1,439,896
Purchased services........................... 2,351,178 2,642,919 312,960
Supplies..................................... 3,138,923 2,602,732 338,320
Professional services........................ 2,003,004 1,590,450 242,199
Rentals and leases........................... 508,653 531,669 69,252
Depreciation and amortization................ 2,615,183 3,293,552 431,964
Interest expense............................. 1,445,917 1,604,811 227,696
Provision for doubtful accounts.............. 3,677,053 3,410,640 584,387
Litigation settlements....................... 3,784,554 1,737,963 52,671
Other expense................................ 4,523,566 3,785,922 621,554
----------- ----------- ----------
Total expenses....................... 35,933,915 31,780,263 4,320,899
----------- ----------- ----------
Excess of expenses over revenue...... $(7,359,172) $(6,192,704) $ (654,910)
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-32
<PAGE> 102
MEMORIAL HOSPITAL FOUNDATION -- PALESTINE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MAY 31, PERIOD
------------------------- JUNE 1, 1996
1995 1996 TO JULY 25, 1996
----------- ----------- ----------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Excess of expenses over revenue..................... $(7,359,172) $(6,192,704) $(654,910)
Adjustments to reconcile excess of expenses over
revenue to net cash provided (used) by operating
activities:
Depreciation and amortization..................... 2,615,183 3,293,552 431,964
Provision for doubtful accounts................... 3,677,053 3,410,640 584,387
Noncash litigation settlement..................... 1,757,157 -- --
Changes in operating assets and liabilities:
Accounts receivable............................. (3,777,174) (1,379,544) (832,103)
Inventories..................................... (20,037) 151,318 24,548
Prepaid expenses and other...................... 29,978 166,558 (178,515)
Accounts payable................................ 1,458,165 128,492 542,093
Accrued salaries and benefits................... 183,309 286,469 92,698
Third party settlements......................... (1,569,855) 1,213,444 384,578
Litigation settlements.......................... 1,975,000 (100,000) --
Other liabilities............................... 134,003 432,508 378,802
----------- ----------- ---------
Net cash provided (used) by operating activities.... (896,390) 1,410,733 773,542
INVESTING ACTIVITIES
Purchases of property, plant and equipment.......... (3,542,689) (430,683) (119,084)
(Purchase) sale of marketable securities............ (323,394) 323,394 --
Increase in other assets............................ (994,300) (124,491) --
Reduction (increase) in cash invested in assets
whose use is limited.............................. 4,829,978 249,302 (216,182)
----------- ----------- ---------
Net cash provided (used) by investing activities.... (30,405) 17,522 (335,266)
FINANCING ACTIVITIES
Proceeds from long-term debt........................ 1,505,435 140,255 --
Principal payments on long-term debt................ (126,752) (388,928) (59,528)
Principal payments on capital leases................ (1,190,028) (1,025,043) (190,198)
Decrease in retainage and construction payable...... (1,544,649) -- --
----------- ----------- ---------
Net cash provided (used) by financing activities.... (1,355,994) (1,273,716) (249,726)
=========== =========== =========
Net increase (decrease) in cash and cash
equivalents....................................... (2,282,789) 154,539 188,550
Cash and cash equivalents at beginning of year...... 2,486,450 203,661 358,200
----------- ----------- ---------
Cash and cash equivalents at end of year............ $ 203,661 $ 358,200 $ 546,750
=========== =========== =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid during the period................... $ 1,691,602 $ 1,718,399 $ 45,731
=========== =========== =========
NONCASH TRANSACTIONS:
Property, plant and equipment acquired through
capital leases.................................. $ 2,662,290 $ -- $ --
=========== =========== =========
Property, plant and equipment transferred to
Anderson County -- net.......................... $ 1,757,157 $ -- $ --
=========== =========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-33
<PAGE> 103
MEMORIAL HOSPITAL FOUNDATION -- PALESTINE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 1995 AND 1996 AND
THE PERIOD JUNE 1, 1996 TO JULY 25, 1996
1. ORGANIZATION
Memorial Hospital Foundation -- Palestine, Inc. (Foundation) is a
not-for-profit corporation which provides hospital and related health care
services to citizens of Anderson County and the immediate surrounding area. The
Foundation has two wholly owned for profit subsidiaries.
In September 1988, the Foundation leased from Anderson County the County's
hospital facilities. The lease term was for fifteen years and provided for the
transfer of all assets and liabilities of the County hospital for a nominal fee.
In July 1994, the Foundation moved from the County facility into a new hospital
facility.
See Note 9, Subsequent Events, for a discussion of the July 1996 sale of
all health care facilities, the return of the County hospital, and termination
of the County lease. The accompanying financial statements reflect the results
of operations and cash flows of the Foundation prior to the July 26, 1996 sale.
2. ACCOUNTING POLICIES
Basis of Consolidation. The consolidated financial statements of the
Foundation include the accounts of Memorial Hospital Foundation -- Palestine,
Inc. and its wholly owned subsidiaries. All significant intercompany
transactions and accounts have been eliminated in consolidation.
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.
Cash and Cash Equivalents. For purposes of the statement of cash flows,
the Foundation considers certificates of deposit having a maturity of three
months or less to be cash equivalents.
Depreciation and amortization. Depreciation is computed by the
straight-line method over the estimated useful lives of the assets, which range
from 10 to 40 years for buildings and improvements and an average of 10 years
for equipment. Amortization of equipment under capital leases is included in the
provision for depreciation and amortization.
When assets are sold or otherwise disposed of, the cost and related
accumulated depreciation is eliminated from the respective accounts and any
related gain or loss is included in operations.
Compensated absences. In accordance with the Financial Accounting
Standards Board Statement No. 43, Accounting For Compensated Absences, the
Foundation accrues vacations, holidays, sick days and personal days when earned
by the employees.
Risk management. The Foundation is insured for professional liability and
general liability based on a claims-made policy purchased in the commercial
insurance market. The provision for professional liability and comprehensive
general liability claims includes estimates of the ultimate costs for claims
incurred but not reported, in accordance with actuarial projections based on
past experience. Management is aware of no potential liability claims whose
settlement, if any, would have a material adverse effect on the Foundation's
financial position or results of operations.
The Foundation maintains self-insured medical and dental plans for
employees. Claims are accrued under these plans as the incidents that give rise
to them occur. Unpaid claim accruals are based on the estimated ultimate cost of
settlement, in accordance with an average lag time and past
F-34
<PAGE> 104
MEMORIAL HOSPITAL FOUNDATION -- PALESTINE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
experience. The Foundation has entered into reinsurance agreements with
independent insurance companies to limit its losses on claims.
Patient service revenue. Patient service revenue is reported at the
estimated net realizable amounts from patients, third-party payors, and others
for services rendered, including estimated retroactive adjustments under
reimbursement agreements with third-party payors. Estimated settlements under
third-party reimbursement agreements are accrued in the period the related
services are rendered and adjusted in future periods as final settlements are
determined.
Income taxes. The Foundation is a not-for-profit corporation as described
in Section 501(c)(3) of the Internal Revenue Code and is exempt from Federal
income taxes on related income.
East Texas Medical Management, Inc. and Benefit Solutions, Inc. are
for-profit corporations and are subject to Federal income taxes on their taxable
income.
3. THIRD-PARTY PAYOR SETTLEMENTS
The Foundation has agreements with third-party payors that provide for
payments to the Foundation at amounts different from its established rates. A
summary of the payment arrangements with major third-party payors follows:
- Medicare -- Inpatient acute care services rendered to Medicare program
beneficiaries are paid at prospectively determined rates per diagnosis.
These rates vary according to a patient classification system that is
based on clinical, diagnostic, and other factors. Inpatient nonacute
services and certain outpatient services are paid based on a cost
reimbursement methodology. The Foundation is reimbursed for cost
reimbursable items at a tentative rate with final settlement determined
after submission of annual cost reports and audits thereof by the
Medicare fiscal intermediary. Classification of patients under the
Medicare program and the appropriateness of their admission are subject
to an independent review. Medicare cost reports have been audited by
the Medicare fiscal intermediary through May 31, 1994.
- Medicaid -- Inpatient and outpatient services rendered to Medicaid
program beneficiaries are reimbursed either under contracted rates or
reimbursed for cost reimbursable items at a tentative rate with final
settlement determined after submission of annual cost reports and
audits thereof by Medicaid. Medicaid cost reports have been audited by
the Medicaid fiscal intermediary through May 31, 1994.
- Other -- The Foundation also has entered into payment agreements with
certain commercial insurance carriers and preferred provider
organizations. The basis for payment under these agreements includes
prospectively determined rates per discharge, discounts from
established charges, and prospectively determined daily rates.
4. RETIREMENT PLAN
The Foundation has a qualified employee retirement savings plan covering
all eligible employees. The Foundation makes "non-elective" contributions equal
to 3% of compensation for eligible participants. In addition, the Foundation
matches 100% of eligible participant contributions up to 3% of compensation.
The Foundation reserves the right to change the amount of the employer
contribution at any time.
F-35
<PAGE> 105
MEMORIAL HOSPITAL FOUNDATION -- PALESTINE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Employee retirement plan expense for the years ended May 31, 1995 and 1996
and the period June 1, 1996 to July 25, 1996 was $263,649, $267,482 and $32,206,
respectively.
5. LEASES
The Foundation leases medical office space and equipment under
noncancellable operating leases.
At the date of sale (see Note 9), all capital and operating leases were
either assumed by the purchaser or paid off shortly thereafter.
6. CHARITY CARE
The Foundation provides medically necessary care to all patients who meet
certain criteria under its charity care policy regardless of the patient's
ability to pay. For the years ended May 31, 1995 and 1996 and the period June 1,
1996 to July 25, 1996, the Foundation provided $1,873,991, $1,591,300 and
$298,445, respectively of uncompensated care based on charges foregone.
7. RELATED PARTY TRANSACTIONS
In 1992, ETCHS, Inc., a non-profit corporation, was created and funded by
the Foundation to provide community clinical health services. In 1996, $93,180
of the original funding was returned to the Foundation and ETCHS, Inc. was
liquidated.
In May 1995, the Foundation purchased, for its rural health clinics, the
medical practice of a retiring physician who is a member of the Foundation Board
of Trustees. The purchase price was $275,000.
8. LITIGATION AND CONTINGENCIES
Prior to the sale of the health care facilities (see Note 9), the
Foundation settled several claims as follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31, PERIOD
----------------------- JUNE 1, 1996
1995 1996 TO JULY 25, 1996
---------- ---------- ----------------
<S> <C> <C> <C>
Class action relating to termination of a
pension plan in 1988..................... $1,275,000 $ -- $ --
Claims relating to termination of
professional services and other
contracts................................ -- 1,240,000 --
Claim by Anderson County relating to the
lease of the former County hospital
(includes net book value of plant,
property and equipment transferred to the
County).................................. 2,257,157 -- --
Claim challenging the Foundation's tax
exempt status for property taxes......... 252,397 497,963 52,671
---------- ---------- -------
Total............................ $3,784,554 $1,737,963 $52,671
========== ========== =======
</TABLE>
The Foundation is involved in additional litigation and regulatory
investigations arising in the normal course of business. In the opinion of
management, after consultation with legal counsel,
F-36
<PAGE> 106
MEMORIAL HOSPITAL FOUNDATION -- PALESTINE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
these matters will be resolved without material adverse effect on the
Foundation's consolidated financial position or results of operations.
9. SUBSEQUENT EVENTS
On July 26, 1996, the Foundation completed the sale of all of its health
care facilities, (except its West Oak Plaza medical office building), equipment,
and inventories to Palestine Principal Healthcare Limited Partnership for
$23,183,000, subject to adjustment. In 1997, the final adjustment was made
resulting in a sales price of $22,957,000. In a separate but simultaneous
transaction, the Foundation sold the West Oak Plaza medical office building and
equipment to Mother Frances Regional Healthcare Center for $1,264,000. The
purchasers paid cash or assumed certain Foundation liabilities.
In related transactions, the Foundation (1) paid off all bond indebtedness
at a discount of $758,224 and (2) returned the former County hospital facility
to Anderson County and terminated the County lease.
After July 25, 1996, the Foundation ceased operations as a healthcare
provider and will use proceeds from the sale and from collection of receivables
to liquidate the Foundation's liabilities.
The Foundation has also terminated operations of its subsidiaries.
F-37
<PAGE> 107
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Memorial Hospital Foundation -- Palestine, Inc.
We have audited the accompanying consolidated balance sheet of Memorial
Hospital Foundation -- Palestine, Inc. and subsidiaries as of May 31, 1994, and
the related consolidated statements of revenues and expenses, changes in fund
balances and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Foundation's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audit
provides 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
Memorial Hospital Foundation -- Palestine, Inc. and subsidiaries as of May 31,
1994, and the results of its operations and its cash flows for the year then
ended, in conformity with generally accepted accounting principles.
HARRELL, RADER, BONNER & BOLTON, LLP
Palestine, Texas
August 23, 1994
F-38
<PAGE> 108
MEMORIAL HOSPITAL FOUNDATION -- PALESTINE, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MAY 31, 1994
------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 2,486,450
Assets whose use is limited -- required for current
liabilities............................................. 564,354
Accounts receivable (less allowance for doubtful accounts
of $2,836,779).......................................... 4,860,977
Inventories............................................... 607,173
Prepaid expenses.......................................... 45,650
Other assets.............................................. 78,106
-----------
Total current assets............................... $ 8,642,710
ASSETS WHOSE USE IS LIMITED OR RESTRICTED:
Under indenture agreement................................. 6,824,308
Less assets whose use is limited and that are required for
current liabilities..................................... 564,354
-----------
Noncurrent assets whose use is limited or
restricted......................................... 6,259,954
PROPERTY, PLANT AND EQUIPMENT (at cost):
Land...................................................... 190,119
Building.................................................. 4,604,194
Leasehold improvement..................................... 149,861
Equipment................................................. 11,862,969
Construction in progress.................................. 11,560,469
-----------
Total.............................................. 28,367,612
Less accumulated depreciation............................. 9,997,297
-----------
Net property, plant and equipment.................. 18,370,315
OTHER ASSETS:
Notes receivable.......................................... 172,572
Deposits.................................................. 90,934
Certificates of deposit -- restricted..................... 100,000
Debt issue costs (less accumulated amortization of
$34,117)................................................ 1,043,256
Start-up costs for new ventures (less accumulated
amortization of $9,931)................................. 176,801
-----------
Total other assets................................. 1,583,563
-----------
Total assets....................................... $34,856,542
===========
LIABILITIES AND FUND BALANCE
CURRENT LIABILITIES:
Accounts payable.......................................... $ 1,038,135
Accrued expenses:
Salaries and fees....................................... 774,063
Payroll taxes........................................... 32,219
Other................................................... 246,444
Retainage and construction accounts payable............... 1,544,649
Construction period interest payable...................... 379,113
Health insurance programs payable......................... 1,017,414
Current portion of long-term debt......................... 777,556
Current installments of obligations under capital
leases.................................................. 830,547
-----------
Total current liabilities.......................... $ 6,640,140
Long-term debt -- less current portion...................... 16,267,349
Obligations under capital leases -- less current portion.... 894,399
Fund Balance................................................ 11,054,654
-----------
Total liabilities and fund balance................. $34,856,542
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-39
<PAGE> 109
MEMORIAL HOSPITAL FOUNDATION -- PALESTINE, INC.
CONSOLIDATED STATEMENT OF REVENUES AND EXPENSES
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
MAY 31, 1994
<S> <C>
GROSS PATIENT REVENUES...................................... $40,539,349
Less provisions for:
Contractual allowance under health insurance programs..... $13,325,275
Uncollectible accounts.................................... 2,976,979
Charity allowances........................................ 1,209,347
-----------
Total revenue deductions.......................... 17,511,601
-----------
Net patient service revenue....................... 23,027,748
OTHER OPERATING REVENUE:
Rent income............................................... 15,934
Insurance sales........................................... 13,111
Other income.............................................. 175,784
-----------
Total other operating revenue..................... 204,829
-----------
Total operating revenue........................... 23,232,577
OPERATING EXPENSES:
Nursing services.......................................... 6,436,401
Other professional services............................... 6,364,052
General services.......................................... 1,742,113
Fiscal and administrative services........................ 6,622,316
Depreciation.............................................. 1,831,069
Rent property expense..................................... 29,158
Insurance sales expense................................... 63,014
-----------
Total operating expenses.......................... 23,088,123
-----------
Excess revenues over expenses from operations..... 144,454
NON OPERATING INCOME........................................ 95,783
-----------
Excess revenues over expenses..................... $ 240,237
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-40
<PAGE> 110
MEMORIAL HOSPITAL FOUNDATION -- PALESTINE, INC.
CONSOLIDATED STATEMENT OF CHANGES IN FUND BALANCES
FOR THE YEAR ENDED MAY 31, 1994
<TABLE>
<CAPTION>
UNRESTRICTED RESTRICTED
FUNDS FUNDS TOTAL
------------ ---------- -----------
<S> <C> <C> <C>
BALANCE, MAY 31, 1993.................................. $10,814,417 $ -- $10,814,417
Excess revenues over expenses for year ending May 31,
1994.............................................. 240,237 -- 240,237
----------- -------- -----------
BALANCE, MAY 31, 1994.................................. $11,054,654 $ -- $11,054,654
=========== ======== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-41
<PAGE> 111
MEMORIAL HOSPITAL FOUNDATION -- PALESTINE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
MAY 31, 1994
------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Excess revenues over expenses............................. $ 240,237
Non-cash expenses:
Depreciation........................................... 1,831,069
Amortization........................................... 9,931
(Increase) Decrease in:
Accounts and notes receivable.......................... 168,173
Inventories............................................ (1,172)
Prepaid expenses....................................... 152,913
Increase (Decrease) in:
Accounts payable....................................... 223,038
Accrued expenses....................................... 227,734
Health insurance programs payable...................... (351,717)
------------
Net Cash provided by Operating Activities......... 2,500,206
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in mutual fund................................. (78,106)
Purchase of property, plant and equipment................. (12,480,673)
Start-up costs for new ventures........................... (186,732)
Increase in deposits...................................... (2,844)
Investment of loan proceeds:
Cash invested in assets whose use is limited........... (6,824,308)
------------
Net Cash used by Investing Activities............. (19,572,663)
CASH FLOWS FROM FINANCING ACTIVITIES:
SHORT-term borrowing -- retainage and construction
accounts payable....................................... 1,923,762
Proceeds from issue of long-term debt net of $389,623
discount............................................... 16,020,377
Proceeds from bank loan................................... 734,882
Proceeds from capital leases.............................. 34,766
Payment of bond issue costs............................... (1,077,374)
Principal payments on notes and bank loans................ (119,481)
Principal payments on capital leases...................... (1,166,566)
------------
Net cash provided by financing activities......... 16,350,366
------------
Net decrease in cash.............................. (722,091)
------------
Cash at beginning of period....................... 3,208,541
------------
Cash at end of period............................. $ 2,486,450
============
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest............................................... $ 870,523
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-42
<PAGE> 112
MEMORIAL HOSPITAL FOUNDATION -- PALESTINE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED MAY 31, 1994
SIGNIFICANT ACCOUNTING POLICIES
Organization. Memorial Hospital Foundation -- Palestine, Inc. (Foundation)
is a not-for-profit acute care hospital. The Foundation renders care to patients
primarily from Anderson County and the immediate surrounding area. The
Foundation grants credit to patients who qualify according to the Foundation's
criteria.
On September 21, 1988, Anderson County entered into a 15 year lease
agreement with the Foundation that provided for the Foundation to lease and
operate Anderson County Memorial Hospital (Hospital). The lease was effective as
of September 22, 1988, and provided for the transfer of all Hospital assets and
liabilities to the Foundation in exchange for a nominal fee. The lease also
contains a 10 year renewal option exercisable at the sole discretion of the
Foundation.
The consolidated financial statements of the Foundation include the
accounts of East Texas Medical Management, Inc. and Benefit Solutions, Inc.
Benefit Solutions, Inc. is a wholly owned subsidiary of East Texas Medical
Management, Inc., which is a wholly owned subsidiary of the Foundation. All
significant intercompany transactions and accounts have been eliminated in
consolidation.
Concentrations of credit risk. Financial instruments that potentially
subject the Foundation to concentrations of credit risk consist principally of
temporary cash investments and accounts receivable. The Foundation places its
temporary cash accounts and investments with local financial institutions. As of
May 31, 1994, the Foundation had $1,332,995 on deposit in excess of federally
insured limits. Concentrations of credit risk with respect to accounts
receivable are derived from providing services and granting credit to patients,
substantially all of whom are area residents.
Cash and cash equivalents. For purposes of the statement of cash flows,
the Foundation considers certificates of deposit having a maturity of three
months or less to be cash equivalents.
Allowance for doubtful accounts. The allowance for doubtful accounts and
the corresponding provision for uncollectible accounts charged against earnings
is based on prior years' history and an evaluation of current year receivables.
Recoveries of amounts written off in prior years are shown as a reduction of the
provision for uncollectible accounts in the year of recovery.
Inventories. Inventories, consisting of materials and expendable supplies,
are valued at the lower of cost or market, determined on the first-in, first-out
basis.
Property, plant and equipment. Depreciation on these assets is calculated
using the straight-line method over the estimated useful life of the asset which
ranges from 3 to 50 years. Depreciation expense was $1,831,069 in 1994.
Expenditures for additions, major renewals and betterments are capitalized
and expenditures for maintenance and repairs are charged against income as
incurred.
When assets are sold or otherwise disposed of, the cost and related
accumulated depreciation is eliminated from the respective accounts and any
related gain or loss is included in income.
Amortizable assets. Amortization on deferred costs is calculated using the
straight-line method. Bond issue costs are amortized over 25 years and are being
capitalized during the construction period as part of the cost of constructing a
new primary health care facility. Bond issue cost capitalized during the year
was $34,117.
Start-up costs are generally amortized using the straight-line method over
60 months. Start-up cost expensed in 1994 was $9,931.
F-43
<PAGE> 113
MEMORIAL HOSPITAL FOUNDATION -- PALESTINE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Compensated absences. In accordance with the Financial Accounting
Standards Board Statement No. 43, Accounting for Compensated Absences, the
Foundation accrues vacations, holidays, sick days and personal days when earned
by the employees.
Medical malpractice. The Foundation is covered for medical malpractice by
a claims-made insurance policy. The potential exists for losses above the limits
established in the policy. However, any potential losses cannot be reasonably
estimated and no provision is made for such loss accruals.
The Foundation intends to maintain its coverage for medical malpractice by
continued renewal of the claims-made policy.
The Foundation has also purchased a tail-coverage policy to cover Anderson
County for any claims made related to incidents occurring prior to the transfer
of the Hospital to the Foundation.
Income taxes. The Foundation is a not-for-profit corporation as described
in Section 501(c)(3) of the Internal Revenue Code and is exempt from Federal
income taxes on related income pursuant to Section 501(a) of the Code. The
Foundation is classified by the Internal Revenue Service as one that is not a
private foundation and qualifies for the charitable contribution deduction under
Section 170(b)(1)(A)(iii) of the Internal Revenue Code.
East Texas Medical Management, Inc. and Benefit Solutions, Inc. are
for-profit corporations and are subject to Federal income taxes on their taxable
income. Provisions are made for deferred income tax as a result of timing
differences between financial and taxable income. There are presently no
differences between financial and taxable income.
HEALTH INSURANCE PROGRAMS RECEIVABLE/PAYABLE
Health Insurance Programs Receivable/Payable are amounts due from or to
third-party payers under Title XVIII -- Medicare and Title XIX -- Medicaid
reimbursement agreements. Such amounts are determined using a Statement of
Reimbursable Costs as follows:
<TABLE>
<S> <C>
Title XVIII -- Medicare -- (payable)........................ $(1,140,277)
Title XIX -- Medicaid -- receivable......................... 122,863
-----------
Payable........................................... $(1,017,414)
===========
</TABLE>
The total unallowable charges to health insurance program patients are
adjusted by the amount determined on the Statement of Reimbursable Costs and
shown as contractual allowance under health insurance programs on the Statements
of Revenues and Expenses.
The amounts due under these programs are subject to audit and retroactive
adjustments by the third-party payers.
ASSETS WHOSE USE IS LIMITED OR RESTRICTED
At May 31, 1994, the Foundation had certain funds whose use is limited, as
follows:
<TABLE>
<S> <C>
Construction fund........................................... $4,654,575
Interest fund............................................... 564,354
Reserve fund................................................ 1,605,379
----------
6,824,308
Less funds required for current liabilities................. 564,354
----------
Net............................................... $6,259,954
==========
</TABLE>
F-44
<PAGE> 114
MEMORIAL HOSPITAL FOUNDATION -- PALESTINE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The construction fund is limited to payment of construction costs of a new
primary health care facility the Foundation is constructing.
The interest fund is limited to payment of interest as it comes due on the
indebtedness undertaken for the construction of the new primary health care
facility.
The reserve fund is limited to payment of principal and interest as they
come due on the indebtedness in the event other available funds, including the
interest fund, are insufficient to meet the payments due.
CERTIFICATE OF DEPOSIT -- PLEDGED
Pursuant to the Foundation's agreement with the City of Palestine to
operate the City's ambulance service, the Foundation is required to post a
$100,000 ambulance performance bond. In lieu of that bond, the Foundation
purchased a certificate of deposit at First State Bank in Frankston, Texas and
has pledged the certificate of deposit, which matures August 30, 1994, to the
City of Palestine. The Foundation plans to continue to renew this arrangement.
LONG-TERM DEBT -- LESS CURRENT PORTION
Long-term debt at May 31, 1994, consisted of the following:
<TABLE>
<S> <C>
Note payable to bank, interim financing, due August 1, 1994,
including interest at an adjustable rate of the Wall
Street Journal prime plus 1.5%, collateralized by a
building. ................................................ $ 734,882
Note payable to corporation, dated August 15, 1993,
principal due each August 15, beginning in 1996 in varying
amounts, interest due at February 15 and August 15 of each
year beginning in 1994 at 7.25% through August 15, 2003
and at 7.8% beginning February 15, 2004 till final
maturity at August 15, 2018. Collateralized by
substantially all assets of the Foundation, excluding real
property not on the site of the new primary health care
facility being constructed from the proceeds of the note
payable. ................................................. 16,032,066
Note payable to individual, in monthly installments of
$1,969 including interest at 8.5%, with the final
installment due at August 17, 2007, collateralized by a
building. ................................................ 187,531
Note payable to supplier, in monthly installments of $3,544
including interest at 10.5%, with the final installment
due at October 29, 1996, collateralized by equipment. .... 90,426
-----------
Total long-term debt.............................. 17,044,905
Less current portion........................................ 777,556
-----------
LONG-TERM DEBT -- less current portion............ $16,267,349
===========
</TABLE>
F-45
<PAGE> 115
MEMORIAL HOSPITAL FOUNDATION -- PALESTINE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Maturities of long-term debt in each of the next five years and thereafter
are as follows:
<TABLE>
<S> <C>
1995....................................................... $ 777,556
1996....................................................... 47,198
1997....................................................... 311,741
1998....................................................... 320,315
1999....................................................... 341,227
Thereafter................................................. 15,246,868
-----------
Total............................................ $17,044,905
===========
</TABLE>
During August 1993, East Texas Hospital Facilities Development Corporation,
an organization created for the purpose of issuing tax exempt revenue bonds,
issued bonds in the amount of $16,410,000. East Texas Hospital Facilities
Development Corporation in turn loaned the proceeds from the bond issue to the
Foundation to finance the construction of the Foundation's new primary health
care facility.
Total interest incurred for the year ended May 31, 1994, was $1,249,635, of
which $1,010,936 was capitalized and $238,699 was expensed.
RETIREMENT PLAN
On November 1, 1988, the Foundation established a qualified employee
retirement savings plan covering all eligible employees. The Foundation makes
"non-elective" contributions equal to 3% of compensation for eligible
participants. In addition, the Foundation matches 100% of eligible participant
contributions up to 3% of compensation.
The Foundation reserves the right to change the amount of the employer
contribution at any time.
Employee retirement plan expense for the year ended May 31, 1994 was
$292,329.
LEASE COMMITMENTS
Capital leases
The Foundation has entered into agreements to lease certain hospital
equipment. The leases, which expire over the next four years, are noncancelable
and are classified as capital leases.
At May 31, 1994, property recorded under capitalized leases was as follows:
<TABLE>
<S> <C>
Equipment................................................... $4,870,604
Less accumulated amortization............................... 3,198,851
----------
Total property.................................... $1,671,753
==========
</TABLE>
Noncancelable operating lease
The Foundation leases medical office space and equipment and the leases are
classified as noncancelable operating leases.
F-46
<PAGE> 116
MEMORIAL HOSPITAL FOUNDATION -- PALESTINE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The future minimum lease payments by year and in the aggregate amount under
capitalized leases and under noncancelable operating leases with initial or
remaining noncancelable lease terms in excess of one year, consisted of the
following at May 31, 1994.
<TABLE>
<CAPTION>
NONCANCELABLE
CAPITALIZED OPERATING
LEASES LEASES
----------- -------------
<S> <C> <C>
1995........................................................ $ 914,149 $ 53,342
1996........................................................ 594,198 50,942
1997........................................................ 334,474 50,942
1998........................................................ 4,173 45,718
1999........................................................ 3,825 8,167
Thereafter.................................................. -- --
---------- --------
Total minimum payments due.................................. 1,850,819 209,111
Amounts representing interest............................... 125,873 --
---------- --------
Present value of net minimum lease payments................. $1,724,946 $209,111
========== ========
</TABLE>
Amortization expense and accumulated amortization on capital leases are
included with depreciation expense and accumulated depreciation for the year
ended May 31, 1994.
Certain capital leases provide for purchase options. Generally, purchase
options are at prices representing the expected fair value of the property at
the expiration of the lease term.
CHARITY ALLOWANCE
The Foundation provides health care regardless of ability to pay. Charity
care provided during the year ended May 31, 1994, amounted to $1,209,347.
RELATED PARTY TRANSACTIONS
In May 1992, ETCHS, Inc., a non-profit corporation, was created to provide
community clinical health services on an ability-to-pay basis.
On August 17, 1992, the Foundation purchased a building for $250,000. It is
anticipated the building will be used by ETCHS, Inc. to provide community
clinical health services.
ETCHS, Inc. had not commenced operations as of May 31, 1994.
The Foundation contracts with a corporation, of which a former board member
is a stockholder, to provide holter monitoring services and physician recruiting
services. The Foundation paid $27,125 for holter monitoring services and
$132,850 as reimbursement to the corporation for physician recruitment services
and physician income guarantees, during the former board member's 1994 term.
On June 25, 1993, the Foundation purchased a building for $156,000 from a
board member. The building is rented to physicians for office space.
CONTINGENCIES
In July 1992, three former employees of the Foundation filed a class action
suit alleging that, in 1988, the Foundation wrongfully reclaimed funds
previously contributed to a defined benefit retirement plan (plan) terminated in
1988. The suit asks for actual and punitive damages totaling $11,000,000. On
March 29, 1994, the U.S. District Court in Tyler, Texas granted the plaintiff's
motion for partial summary judgement. The Court ruled the Plan is subject to the
provision of the
F-47
<PAGE> 117
MEMORIAL HOSPITAL FOUNDATION -- PALESTINE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Employee Retirement Security Act (ERISA). However, the Court did not address the
issue of damages and the Foundation is appealing the Court's ruling regarding
ERISA. The Foundation believes the suit is without merit and expects to defend
and conclude the action in its favor.
The Foundation is a defendant in a lawsuit filed by one of its patients for
injuries sustained. On April 6, 1994, the jury returned a verdict against the
Foundation and awarded the plaintiffs $5,031,014 in damages, plus interest at
10% per annum. The Foundation is appealing the decision. The Foundation is of
the opinion that the Foundation's insurer is solely responsible for payment of
the damages plus interest. The Foundation's insurer has posted a $5,545,000
bond. Due to the uncertainty of the outcome of the appeals process and the
coverage provided by the Foundation's insurer, the amount of damages plus
interest has not been reflected in the accompanying consolidated financial
statements.
On August 11, 1993, the Anderson County Appraisal Review Board voted to
revoke the tax-exempt status previously granted to the Foundation, effective
January 1, 1993. The amount of tax in controversy is $120,507. The Foundation
filed suit, on August 31, 1993, against the Anderson County Appraisal District
in order to overturn the decision of the District and regain its status as an
entity that is exempt from paying property taxes. The Foundation believes it
meets the legal requirements for property tax exemption and will prevail in the
suit.
The Foundation is a defendant in two lawsuits filed on behalf of former
patients. Outside counsel for the Foundation has advised that at this stage in
the proceedings they cannot offer an opinion as to the probable outcome. The
Foundation believes the suit is without merit and is vigorously defending its
position. Therefore, no contingent liability has been accrued.
F-48
<PAGE> 118
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE 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. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR
SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED
SECURITIES TO WHICH IT RELATES, OR AN OFFER TO BUY, OR SOLICITATION OF, ANY
PERSON IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
The Company........................... 9
The Recapitalization and the Merger... 9
Risk Factors.......................... 11
Use of Proceeds....................... 18
Dividend Policy....................... 18
Capitalization........................ 19
Dilution.............................. 20
Selected Consolidated Financial
Data................................ 21
Pro Forma Condensed Consolidated
Financial Statements................ 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 29
Business.............................. 40
Management............................ 55
Certain Relationships and Related
Transactions........................ 60
Principal Stockholders................ 62
Description of Capital Stock.......... 62
Shares Eligible for Future Sale....... 64
Underwriting.......................... 66
Legal Matters......................... 67
Experts............................... 67
Additional Information................ 68
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
---------------------
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.
======================================================
======================================================
5,700,000 SHARES
[LOGO]
PROVINCE HEALTHCARE
COMMON STOCK
-------------------
PROSPECTUS
-------------------
BT ALEX. BROWN
BANCAMERICA ROBERTSON STEPHENS
GOLDMAN, SACHS & CO.
THE ROBINSON-HUMPHREY
COMPANY
, 1997
======================================================
<PAGE> 119
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a statement of estimated expenses of the issuance and
distribution of the securities being registered other than underwriting
compensation:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $ 29,796
NASD Filing Fee............................................. 10,333
Nasdaq Original Listing Fee................................. 50,000
Blue Sky Fees and Expenses (including attorneys' fees and
expenses)................................................. 2,000
Printing and Engraving Expenses............................. 325,000
Transfer Agent's Fees and Expenses.......................... 11,500
Accounting Fees and Expenses................................ 410,000
Legal Fees and Expenses..................................... 335,000
Miscellaneous Expenses...................................... 26,371
----------
Total..................................................... $1,200,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Prior to the consummation of the offering, the Company will complete the
Reincorporation. Section 145 of the General Corporation Law of the State of
Delaware ("Section 145") provides that a Delaware corporation may indemnify any
persons who are, or are threatened to be made, parties to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation), by reason of the fact that such person was an officer, director,
employee or agent of such corporation, or is or was serving at the request of
such corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best interests
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe that his conduct was illegal. A Delaware corporation may indemnify
any persons who are, or are threatened to be made, a party to any threatened,
pending or completed action or suit by or in the right of the corporation by
reason of the fact that such person was a director, officer, employee or agent
of such corporation, or is or was serving at the request of such corporation as
a director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit, provided such person acted in good faith and in a manner
he reasonably believed to be in or not opposed to the corporation's best
interests except that no indemnification is permitted without judicial approval
if the officer or director is adjudged to be liable to the corporation. Where an
officer or director is successful on the merits or otherwise in the defense of
any action referred to above, the corporation must indemnify him against the
expenses which such officer or director has actually and reasonably incurred.
The Company's Certificate of Incorporation will provide for the
indemnification of directors and officers of the Company to the fullest extent
permitted by Section 145.
In that regard, the Certificate of Incorporation will provide that the
Company shall indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, administrative or investigative (other than action by or in the
right of the corporation) by reason of the fact that he is or was a director or
officer of the Company, or is or was serving at the request of the Company as a
director, officer or member of
II-1
<PAGE> 120
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of such
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Indemnification in
connection with an action or suit by or in the right of such corporation to
procure a judgment in its favor is limited to payment of expenses (including
attorneys' fees) actually and reasonably incurred in connection with the defense
or settlement of such an action or suit except that no such indemnification may
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable for negligence or misconduct in the performance
of his duty to the indemnifying corporation unless and only to the extent that
the Court of Chancery of Delaware or the court in which such action or suit was
brought shall determine that, despite the adjudication of liability but in
consideration of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper.
The Company has in effect insurance policies covering all of the Company's
directors and officers in certain instances where by law they may not be
indemnified by the Company.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In connection with the Recapitalization and the Merger, on December 17,
1996, the Company sold (i) 20,000 shares of its Series A Senior Preferred Stock,
no par value, to Leeway & Co.; (ii) an aggregate of 28,540 shares of its Series
B Junior Preferred Stock, no par value (the "Junior Preferred"), to GTCR Fund
IV, Leeway & Co., certain members of management and certain other investors; and
(iii) an aggregate of 7,280,020 shares of its Common Stock, no par value, to
GTCR Fund IV, Leeway & Co., Messrs. Rash and Gore and certain other investors.
The aggregate purchase price for all such purchases was $31,612,700.
On July 15, 1997, pursuant to the terms of a Stockholders Agreement, dated
as of December 17, 1996 among the Company and its stockholders, the Company sold
an aggregate of 3,755 shares of the Junior Preferred and 958,222 shares of the
Common Stock to GTCR Fund IV, Leeway & Co., Messrs. Rash and Gore and certain
other investors for an aggregate purchase price of $4,181,888.
In addition, on September 12, 1997, Leeway & Co. exercised its warrant to
purchase 343,274 shares of Common Stock for an aggregate exercise price of
$15,447.
All of the sales described above were deemed to be exempt from registration
under the Securities Act by virtue of Section 4(2) thereof, as transactions not
involving a public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<S> <C> <S>
**1.1 -- Underwriting Agreement
2.1 -- Agreement and Plan of Merger, dated as of December 16, 1996,
between Brim, Inc. ("Brim") and Carryco, Inc.
2.2 -- Plan and Agreement of Merger, dated as of December 17, 1996,
between Brim, Principal Hospital Company ("PHC") and
Principal Merger Company
2.3 -- Agreement and Plan of Merger dated as of November 27, 1996
between Brim, Brim Senior Living, Inc., Encore Senior
Living, L.L.C. and Lee Zinsli
**3.1 -- Amended and Restated Certificate of Incorporation of the
registrant
**3.2 -- Amended and Restated By-laws of the registrant
**4.1 -- Form of Common Stock Certificate
</TABLE>
II-2
<PAGE> 121
4.2 -- Securities Purchase Agreement, dated as of December 17,
1996, between Brim and Leeway & Co.
**4.3 -- Form of Series A Senior Preferred Stock Certificate
**4.4 -- Form of Series B Junior Preferred Stock Certificate
*4.5 -- Credit Agreement, dated as of December 17, 1996, among Brim,
First Union National Bank of North Carolina and the other
lenders party thereto
*4.6 -- First Amendment to Credit Agreement and Modification of Loan
Documents, dated March 26, 1997, among PHC, First Union
National Bank of North Carolina and the other lenders under
the Credit Agreement
4.7 -- Second Amendment to Credit Agreement and Modification of
Loan Documents dated August , 1997, among PHC, First Union
National Bank of North Carolina and the other lenders under
the Credit Agreement.
**5.1 -- Opinion of Kirkland & Ellis with respect to validity of
Common Stock
10.1 -- Investment Agreement, dated as of November 21, 1996, between
Brim, Golder, Thoma, Cressey, Rauner Fund IV, L.P. ("GTCR")
and PHC
10.2 -- First Amendment to Investment Agreement, dated as of
December 17, 1996, between Brim, GTCR and PHC
*10.3 -- Form of Investment Agreement Counterpart
10.4 -- Preferred Stock Purchase Agreement, dated as of November 25,
1996, between Brim and General Electric Capital Corporation
10.5 -- Employment Agreement, dated as of December 17, 1996, by and
between Steven P. Taylor and Brim
10.6 -- Employment Agreement, dated as of December 17, 1996, by and
between A.E. Brim and Brim
*10.7 -- Stockholders Agreement by and among Brim, GTCR, Leeway &
Co., First Union Corporation of Virginia, AmSouth
Bancorporation, Martin S. Rash ("Rash"), Richard D. Gore
("Gore"), PHC and certain other stockholders
**10.8 -- First Amendment to Stockholders Agreement dated as of July
14, 1997 by and among the Company, GTCR Fund IV, Rash, Gore
and certain other stockholders
*10.9 -- Registration Agreement by and among Brim, PHC, GTCR, Leeway
& Co., First Union Corporation of America, AmSouth
Bancorporation and certain other stockholders
*10.10 -- Senior Management Agreement, dated as of December 17, 1996,
between Brim, Rash, GTCR, Leeway & Co. and PHC
**10.11 -- First Amendment to Senior Management Agreement dated as of
July 14, 1997 between the Company, Rash and GTCR Fund IV
*10.12 -- Senior Management Agreement, dated as of December 17, 1996,
between Brim, Gore, GTCR, Leeway & Co. and PHC
**10.13 -- First Amendment to Senior Management Agreement dated as of
July 14, 1997 between the Company, Gore and GTCR Fund IV
*10.14 -- Professional Services Agreement, dated as of December 17,
1996, by and between GTCR, Brim and PHC
10.15 -- Lease and Security Agreement dated April 11, 1994, as
amended, by and between Nationwide Health Properties, Inc.
and Brim Hospitals, Inc.
10.16 -- Lease Agreement dated December 16, 1985, as amended, by and
between Union Labor Hospital Association and Brim Hospitals,
Inc.
*10.17 -- Lease Agreement dated October 1, 1996 by and between County
of Starke, State of Indiana, and Principal Knox Company
II-3
<PAGE> 122
<TABLE>
<C> <C> <S>
10.18 -- Lease Agreement dated December 1, 1992 by and between Palo
Verde Hospital Association and Brim Hospitals, Inc.
10.19 -- Lease Agreement dated May 15, 1986, as amended, by and
between Fort Morgan Community Hospital Association and Brim
Hospitals, Inc.
10.20 -- Lease Agreement dated April 24, 1996, as amended, by and
between Parkview Regional Hospital, Inc. and Brim Hospitals,
Inc.
*10.21 -- Lease Agreement and Annex dated June 30, 1997 by and between
The Board of Trustees of Needles Desert Communities Hospital
and Prince-Needles, Inc.
10.22 -- Stock Purchase and Sale Agreement dated as of November 27,
1996 between Brim, CC-Lantana, Inc. and Lee Zinsli
10.23 -- Purchase and Sale Agreement dated as of November 25, 1996
between Brim, Brim Senior Living, Inc., Brim Pavilion, Inc.,
and Plaza Enterprises, L.L.C.
*10.24 -- Amended and Restated Limited Partnership Agreement of
Aligned Business Consortium Group, L.P. dated June 1, 1997
*10.25 -- Corporate Purchasing Agreement dated April 21, 1997 between
Aligned Business Consortium Group and PHC
**10.26 -- Principal Hospital Company 1997 Long-Term Equity Incentive
Plan
10.27 -- Lease Agreement dated December 17, 1996 between Brim and
Encore Senior Living, L.L.C.
*11.1 -- Computation of Earnings per Share
*16.1 -- Letter of KPMG Peat Marwick, LLP regarding change in
certifying accountants.
*21.1 -- Subsidiaries of the registrant
**23.1 -- Consent of Kirkland & Ellis (included in opinion filed as
Exhibit 5.1)
23.2 -- Consent of Ernst & Young LLP
23.3 -- Consent of KPMG Peat Marwick LLP
23.4 -- Consent of Harrell, Rader, Bonner & Bolton
**23.5 -- Consent of Waller Lansden Dortch & Davis, A Professional
Limited Liability Company
*24.1 -- Power of Attorney (included on signature page)
*27.1 -- Financial Data Schedule
</TABLE>
- ---------------
* Previously filed.
** To be filed by Amendment.
(b) Financial Statement Schedules.
Schedule II -- Valuation and Qualifying Accounts.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to every purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act") may be permitted to directors,
officers and controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
II-4
<PAGE> 123
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 124
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Brentwood, State of Tennessee on October 8, 1997.
PROVINCE HEALTHCARE COMPANY
By: /s/ RICHARD D. GORE
------------------------------------
Richard D. Gore
Executive Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed on October 8, 1997, by the
following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President and Chief Executive Officer, Director
- ---------------------------------------------------
Martin S. Rash
/s/ RICHARD D. GORE Executive Vice President and Chief Financial
- --------------------------------------------------- Officer
Richard D. Gore
* Vice President and Controller (Chief Accounting
- --------------------------------------------------- Officer)
Brenda B. Rector
* Director
- ---------------------------------------------------
Bruce V. Rauner
* Director
- ---------------------------------------------------
Joseph P. Nolan
* Director
- ---------------------------------------------------
A. E. Brim
* Director
- ---------------------------------------------------
Michael T. Willis
* Director
- ---------------------------------------------------
David L. Steffy
*By: /s/ RICHARD D. GORE
------------------------------
Richard D. Gore
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 125
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Province Healthcare Company
We have audited the consolidated financial statements of Province
Healthcare Company (formerly known as Brim, Inc. until January 16, 1997 and as
Principal Hospital Company from January 16, 1997 until October , 1997) and
subsidiaries as of December 31, 1996, and for the year then ended, and have
issued our report thereon dated April 30, 1997, except for Note 16, and Notes 1
and 17, as to which the dates are May 8, 1997 and October , 1997, respectively
(included elsewhere in this Registration Statement). Our audit also included the
financial statement schedule as of December 31, 1996 and for the year then
ended, listed in Item 16(b) of this Registration Statement. This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audit.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Ernst & Young LLP
Nashville, Tennessee
April 30, 1997, except for Note 16, and Notes 1
and 17, as to which the dates are
May 8, 1997 and October , 1997,
respectively
The foregoing report is in the form that will be signed upon the completion
of the reincorporation described in Note 17 to the consolidated financial
statements.
Ernst & Young LLP
Nashville, Tennessee
October 8, 1997
S-1
<PAGE> 126
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Province Healthcare Company
Under the date of March 8, 1996, we reported on the consolidated balance
sheet as of December 31, 1995 and the consolidated statements of operations,
common stockholders equity (deficit), and cash flows of Province Healthcare
Company (formerly Brim, Inc.) and subsidiaries, as of December 31, 1995, and for
the years ended December 31, 1994 and 1995, which are included in the
prospectus. In connection with our audit of the aforementioned financial
statements, we also audited the related financial statement schedule for the
years ended December 31, 1994 and 1995, listed in Item 16(b) of this
Registration Statement. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audit.
In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Portland, Oregon
March 8, 1996
S-2
<PAGE> 127
PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ---------------------- ---------- ------------------------------ ------------- ----------
ADDITIONS
------------------------------
(2)
(1) CHARGED TO
BALANCE AT CHARGED TO OTHER BALANCE AT
BEGINNING COSTS AND ACCOUNTS -- DEDUCTIONS -- END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
----------- ---------- ---------- ---------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December
31, 1994:
Allowance for
doubtful
accounts......... $1,679 $5,056 -- $4,507(1) $2,228
Year ended December
31, 1995:
Allowance for
doubtful
accounts......... 2,228 4,601 -- 4,751(1) 2,078
Year ended December
31, 1996:
Allowance for
doubtful
accounts......... 2,078 9,578 98(2) 7,277(1) 4,477
</TABLE>
- ---------------
(1) Uncollectible accounts written off, net of recoveries.
(2) Allowances as a result of facility acquisitions.
S-3
<PAGE> 1
Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") is dated
as of December 16, 1996 by and between BRIM, INC., an Oregon corporation
("Brim"), and CARRYCO, INC. an Oregon corporation ("Carryco").
RECITALS
1. Carryco was formed by certain shareholders of Brim to
facilitate a recapitalization of Brim in connection with consummating a series
of transactions described in that certain Investment Agreement by and between
Brim and Golder, Thoma, Cressy, Rauner Fund IV, L.P. (the "Investment
Agreement").
2. The Investment Agreement contemplates that Carryco will
merge with and into Brim in accordance with the terms of this Agreement (the
"Merger").
3. Pursuant to the Merger, Carryco will he merged with and
into Brim and the separate existence of Carryco will cease.
4. Pursuant to the Merger, each share of outstanding Common
Stock of Brim ("Brim Common") except Common Stock owned by Carryco prior to the
Merger (which will become treasury stock of Brim pursuant to the Merger and will
be cancelled), will be converted into one share of Junior Redeemable Preferred
Stock of Brim ("Junior Redeemable Preferred"); each option to purchase shares of
Brim Common will be converted into an option to purchase the same number of
shares of Junior Redeemable Preferred; and each share of outstanding Common
Stock of Carryco ("Carryco Common") will be converted into shares of Brim Common
and shares of Junior Preferred Stock of Brim ("Junior Preferred") as set forth
in this Agreement.
AGREEMENT
NOW, THEREFORE, the parties hereby agree as follows:
SECTION 1 THE MERGER.
1.1 THE MERGER. Subject to the terms and conditions of this Agreement,
Carryco will merge with and into Brim. At the Effective Time, as defined in
Section 1.2, the separate existence of Carryco shall cease and Brim shall
continue as the surviving corporation of the Merger.
1.2 EFFECTIVE TIME. The Merger will become effective when a duly
executed and certified copy of the Articles of Merger, substantially in the form
of EXHIBIT A, is filed with the Secretary of State of the State of Oregon (the
"Effective Time").
<PAGE> 2
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of the Oregon Business
Corporation Act (the "Act"). Without limiting the generality of the foregoing,
at the Effective Time Brim shall possess all the rights, privileges, immunities
and franchises, of a public as well as a private nature, of Carryco, and all
property, real, personal, intangible and mixed, and all debts, contingent or
otherwise, and all other choses in action, and all other interests of Carryco
shall be deemed vested in Brim without further act or deed. After the Effective
Time, Brim shall be responsible and liable for all the liabilities and
obligations of Carryco.
1.4 CANCELLATION AND CONVERSION OF SHARES. At the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
stock or securities of Brim or Carryco:
1.4.1 Each share of Brim Common then issued and outstanding
shall be cancelled and changed into one share of Junior Redeemable Preferred,
except for Common Stock owned by Carryco prior to the Merger (which will become
treasury stock of Brim pursuant to the Merger and will be cancelled).
1.4.2 All issued and outstanding options for the purchase of
shares of Brim Common shall, when vested in accordance with the applicable
option agreement, be exercisable for the identical number of shares of Junior
Redeemable Preferred, subject to the terms and conditions of the applicable
option agreement, pursuant to the Brim, Inc. 1992 Non-Statutory Stock Option
Plan and the Brim, Inc. 1993 Stock Incentive Plan.
1.4.3 Each share of Carryco Common then issued and outstanding
shall be cancelled and changed into 5.18795 shares of Brim Common and 0.05188
shares of Junior Preferred.
1.4.4 The shares of Preferred Stock of Brim issued and
outstanding prior to the Effective Time shall remain issued and outstanding and
the rights and obligations of the holder thereof shall not be affected by the
Merger.
1.5 NO FURTHER RIGHTS. From and after the Effective Time, except as
otherwise provided by law, (i) holders of stock certificates formerly evidencing
the Brim Common shall cease to have any rights as holders Brim Common, except
for the right to receive shares of Junior Redeemable Preferred; and (ii) holders
of Carryco Common shall cease to have any rights as holders of stock of Carryco,
except for the right to receive Brim Common and Junior Preferred as provided in
Section 1.4.3.
2
<PAGE> 3
1.6 ISSUANCE OF NEW CERTIFICATES.
1.6.1 Certificates representing shares of Brim Common
immediately prior to the Effective Time shall be deemed for all purposes to
represent shares of Junior Redeemable Preferred and, the Brim Board of Directors
may elect not to issue new certificates representing shares of Junior Redeemable
Preferred.
1.6.2 Brim shall, promptly after the Effective Date, issue to
holders of shares of Carryco Common, certificates representing shares of Brim
Common and Junior Preferred, in such amounts as is provided in Section 1.4.3
hereof.
1.7 DISSENTING SHARES. Holders of Brim Common or Carryco Common who
dissent from the Merger ("Dissenting Shares") shall be entitled to dissenters'
rights only to the extent provided for by the Act.
1.8 ARTICLES OF INCORPORATION; DIRECTORS.
1.8.1 Subject to Section 1.1, at the Effective Time, the
Articles of Incorporation of Brim, as amended, shall be the Articles of
Incorporation of the surviving corporation of the Merger.
1.8.2 The directors of Brim immediately prior to the Effective
Time shall remain the directors of Brim until their successors are duly elected
and qualified or until their earlier resignation.
1.9 CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at such time and location as Brim and
Carryco may mutually select (the "Closing Date"). Immediately after the Closing,
the Certificate of Merger will be filed as provided in Section 1.2. The Merger
and other actions contemplated in Section 1 are referred to as the
"Transactions."
1.10 TAX CONSEQUENCES. It is intended that the Merger shall constitute
a reorganization within the meaning of Section 368(a) (1) (A) of the Internal
Revenue Code of 1986, as amended (the "Code"), and that this Agreement shall
constitute or be a part of a "plan of reorganization" for the purposes of
Section 368 of the Code.
1.11 TERMINATION. Notwithstanding the approval of this Agreement by the
shareholders of Brim or Carryco, this Agreement may be unilaterally terminated,
at any time prior to the Effective Time, by the Board of Directors of Brim or
Carryco.
3
<PAGE> 4
SECTION 2 MISCELLANEOUS PROVISIONS.
2.1 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the state of Oregon,
without regard to the principles of conflicts of laws.
2.2 PARTIAL INVALIDITY. If any one or more of the provisions contained
herein shall be held, for any reason, to be invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Agreement, but this Agreement shall be construed as
if such invalid, illegal or unenforceable provision were not contained in this
Agreement.
2.3 SUCCESSORS AND ASSIGNS, PARTIES IN INTEREST. This Agreement shall
not be assignable by any party hereto without the prior written consent of the
other parties. This Agreement shall be binding upon and inure to the benefit of
and be enforceable by the parties hereto and their respective successors and
permitted assigns.
2.4 NO THIRD-PARTY BENEFICIARY RIGHTS. Nothing in this Agreement,
expressed or implied, is intended or shall be construed to confer upon any
person or entity other than the parties and their successors and permitted
assigns, any right, remedy or claim under or by reason of this Agreement.
2.5 EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be considered an original
counterpart, and shall become a binding agreement when each party shall have
executed one counterpart.
2.6 EXHIBIT. EXHIBIT A referred to in this Agreement shall be construed
as an integral part of this Agreement to the same extent as if the same had been
set forth verbatim herein.
2.7 FURTHER ACTIONS. Each of the parties hereto agrees that, subject to
its legal obligations, it will use its best efforts to fulfill all conditions
precedent specified herein, to the extent that such conditions are within its
control, and to do all things reasonably necessary to consummate the
Transactions.
2.8 ENTIRE AGREEMENT. This Agreement, including the Exhibits, contains
the entire understanding of the parties hereto with respect to the Transactions
and supersedes all other prior agreements and understandings, oral and written,
between the parties hereto with respect to the Transactions.
2.9 AMENDMENT. This Agreement may not be amended except in
writing executed by the parties hereto; provided that after this Agreement has
been adopted by the shareholders of Brim and Carryco, no such amendment shall
reduce the amount or change the form of the Merger consideration to be paid
pursuant to this
4
<PAGE> 5
Agreement or alter or change any of the terms or conditions of this Agreement
if such alteration or change would adversely affect the shareholders of Brim or
Carryco.
IN WITNESS WHEREOF, Brim and Carryco each have caused this
Agreement to be executed as of the date first above written.
BRIM, INC.
Attest:
/s/ K. David McAllister
- --------------------------- By /s/ A. E. Brim
Secretary or -----------------------------
Assistant Secretary Its President
---------------------------
CARRYCO, INC.
Attest:
/s/ K. David McAllister
- --------------------------- By [Signature illegible]
Secretary or ----------------------------
Assistant Secretary Its President
---------------------------
5
<PAGE> 1
Exhibit 2.2
PLAN AND AGREEMENT OF MERGER
dated as of December 17, 1996
by and among
BRIM, INC.,
PRINCIPAL MERGER COMPANY,
and
PRINCIPAL HOSPITAL COMPANY
<PAGE> 2
PLAN AND AGREEMENT OF MERGER
This Plan and Agreement of Merger ("Agreement"), dated as of December
17, 1996, is entered into by and among Brim, Inc., an Oregon corporation
("Brim"), Principal Merger Company, a Delaware corporation and a wholly-owned
subsidiary of Brim ("Newsub"), Principal Hospital Company, a Delaware
corporation ("PHC") and all of the shareholders of PHC, whose names appear on
the signature page attached hereto (the "Shareholders").
RECITALS
This Agreement describes a merger (the "Principal Merger") that is
intended to follow the closing of a series of transactions by which Brim was
reorganized and recapitalized (the "Recapitalization") and divested certain
assets and operating entities (the "Divestitures"; the Recapitalization and the
Divestitures being the "Precedent Transactions").
NOW, THEREFORE, in consideration of the mutual covenants of the parties
set forth herein, IT IS HEREBY AGREED AS FOLLOWS:
ARTICLE I
MERGER; GOVERNANCE; CONVERSION;
OTHER CONSIDERATION
1.01 The Merger. (a) On the Effective Date (as defined in Section
2.01(c) hereof), Newsub shall be merged with and into PHC, and PHC shall be the
surviving corporation. The corporate existence of PHC with all its purposes,
powers and objects shall continue unaffected and unimpaired by the Merger; and
as the surviving corporation, PHC shall be governed by the laws of the State of
Delaware and succeed to all rights, assets, liabilities and obligations of
Newsub as provided for in the Delaware General Corporation Law. The separate
existence and corporate organization of Newsub shall cease upon the Effective
Date, and PHC shall continue as the surviving corporation and a wholly-owned
subsidiary of Brim.
<PAGE> 3
(b) If at any time after the Effective Date the surviving corporation
shall consider or be advised that any further assignments or assurances in law
or any other things are necessary or desirable to vest, perfect, confirm, record
or otherwise, in the surviving corporation, the title to any property or right
of Newsub acquired or to be acquired by reason of or as a result of the Merger,
the officers and directors of Newsub holding office prior to the Effective Date
shall in the name of PHC or otherwise execute and deliver all such proper deeds,
assignments and assurances in law and do all things necessary and proper to
carry out the purpose of this Agreement.
1.02 Governance. (a) The Certificate of Incorporation of PHC, as in
effect on the Effective Date, shall be the Certificate of Incorporation of the
surviving corporation.
(b) The Bylaws of PHC, as in effect on the Effective Date, shall be
the Bylaws of the surviving corporation.
(c) The directors and officers of PHC on the Effective Date shall be
the directors and officers of the surviving corporation until their successors
are elected or until their earlier resignation or removal.
l.03 Conversion of Shares. At the Effective Date, the manner and basis
of converting and exchanging the shares of each of PHC and Newsub shall be as
follows:
(a) Each share of Common Stock, no par value, of Newsub issued
immediately prior to the Effective Date (the "Newsub Shares") shall,
subject to the provisions of the Delaware General Corporation Law, by
virtue of the Merger and without any action on the part of Brim, be
converted into one share of PHC Class B Common Stock (such shares, as
converted, being the PHC Merger Shares).
(b) Each share of Class A Common stock and each share of Class
B Common Stock held by each Shareholder and outstanding immediately
prior to the Effective Date (collectively, the "PHC Shares") shall,
subject to the provisions of the Delaware General Corporation Law, by
virtue of the Merger and without
2
<PAGE> 4
any action on the part of the holder thereof be converted into shares
of the Junior Preferred Stock and Common Stock of Brim (collectively,
the "Conversion Shares"), to each holder in such number as is set forth
on ANNEX A hereto, so that each Shareholder shall receive that number
of Conversion Shares set forth therein.
(c) Each Shareholder shall by virtue of the Merger cease to
have any rights with respect to the PHC Shares other than pursuant to
the provisions of this Article.
(d) On and after the Effective Date, each Shareholder may
surrender his PHC Share certificate or certificates therefor to the
surviving corporation. Upon proper surrender of a certificate or
certificates representing such PHC Shares to the surviving corporation
each Shareholder thereof shall be entitled to receive a certificate or
certificates for the number of Conversion Shares provided for herein.
(e) On and after the Effective Date, Brim may surrender the
certificate evidencing the Newsub Shares in exchange for a certificate
evidencing the PHC Merger Shares.
ARTICLE II
CLOSING
2.01 The Closing. The closing (the "Closing") of the transactions
contemplated in this Agreement shall take place at the offices of Kirkland &
Ellis, 200 East Randolph Drive, Chicago, Illinois, on or before December 17,
1996 (the "Closing Date"), or at such other place, date and time as may be
agreed upon by Brim, Newsub, PHC and the Shareholders. For the purposes of this
Agreement, the Effective Date and the day of Closing are assumed to be the same
day; if however, the Effective Date is delayed beyond the Closing Date for any
reason, any action to be taken only upon the Effective Date shall be deemed to
have taken place on such day.
(a) Deliveries of PHC and the Shareholders. At or prior to the Closing,
PHC and the Shareholders shall deliver or cause to be delivered to Brim the
following:
3
<PAGE> 5
(i) certificates evidencing the PHC Shares; and
(ii) all other previously undelivered documents required to be
delivered by each Shareholder to Brim at or prior to the Closing Date
in connection with the transactions contemplated hereby.
(b) Deliveries by Brim. At or prior to the Closing, Brim
shall deliver or cause to be delivered to PHC and the Shareholders
the following:
(i) Certificates evidencing the Conversion Shares, which
certificates shall be properly and duly registered in the name of each
Shareholder in the denomination provided for herein, to be delivered
against receipt by Brim of the respective certificates for the PHC
Shares; and
(ii) All other previously undelivered documents required to be
delivered by Brim to the Shareholders at or prior to the Closing Date
in connection with the transactions contemplated hereby.
(c) Merger. At the Closing (or at such earlier time as the parties may
agree) Newsub and PHC shall execute and acknowledge the Certificate of Merger,
in the form(s) attached hereto as Exhibit 2.01(c), together with such other
certificates or documents as may be required to be filed under the laws of the
State of Delaware to effect the Merger (collectively, the "Merger Documents").
PHC shall, on the Closing Date, through its counsel, cause said Merger Documents
to be filed with the Secretary of State of Delaware, and to be filed or recorded
with such other government officials as may be required to make the Merger
effective on the Closing Date. The date on which the Merger shall become
effective in accordance with Delaware law is heretofore and hereinafter referred
to as the "Effective Date".
4
<PAGE> 6
ARTICLE III
PHC'S REPRESENTATIONS AND WARRANTIES
PHC has heretofore delivered to Brim copies of the transaction
documents and disclosure schedules (collectively, the "Transaction Documents")
pertaining to or arising in connection with: (i) the formation and initial
capitalization of PHC; (ii) PHC's acquisition of an interest in Memorial
Hospital, Palestine, Texas, through Palestine-Principal, Inc. ("PPI"), a
Tennessee corporation and wholly-owned subsidiary of PHC, and Palestine
Principal Healthcare Limited Partnership ("PPHLP"), a Texas limited partnership;
(iii) the long-term lease of Starke Memorial Hospital, Knox, Indiana, through
Principal Knox Company ("PKC"), a Delaware corporation and wholly-owned
subsidiary of PHC; (iv) PHC's $25,000,000 credit facility with AmSouth Bank of
Alabama and First Union National Bank of North Carolina and (v) the Brim credit
facility with First Union National Bank of North Carolina as agent, all of which
Transaction Documents constitute and may be referred to collectively as the "PHC
Disclosure Documents". Except as set forth in the PHC Disclosure Documents, PHC
does hereby represent and warrant to Brim as follows with respect to PHC and the
Subsidiaries and the business, assets, liabilities and operations thereof:
3.01. Organization and Qualification.
(a) PHC is a corporation duly organized and validly existing under the
laws of the State of Delaware. Each of the Subsidiaries (as defined in Paragraph
3.01(c) below) is a corporation, partnership or limited liability company, duly
organized and validly existing under the laws of the jurisdiction reflected in
the PHC Disclosure Documents. PHC and each Subsidiary has full corporate or
partnership power and authority to conduct its business as and to the extent now
conducted and to own, use and lease its assets and properties.
(b) PHC and each of the Subsidiaries is duly qualified, licensed or
admitted to do business and is in good standing in each jurisdiction in which
the ownership, use or leasing of its assets and properties, or the conduct or
nature of its business, makes such qualification, licensing or admission
necessary. The PHC Disclosure Documents sets forth the foreign jurisdictions in
which PHC and each of the Subsidiaries is qualified to do business.
5
<PAGE> 7
(c) Except for PPI, PPHLP, and PKC (individually, a "Subsidiary" and
collectively, the "Subsidiaries"), PHC does not directly or indirectly own any
equity or similar interest in, or any interest convertible into or exchangeable
or exercisable for, any equity or similar interest in, any corporation,
partnership, limited liability company, joint venture or other business
association or entity.
3.02. Capital Stock.
(a) As of the date hereof, the authorized capital stock of PHC consists
solely of 26,000 shares of Class A Common Stock, $.01 par value per share, and
150,000 shares of Class B Common Stock, $.01 par value per share (the issued and
outstanding shares of the Class A Common Stock and the Class B Common Stock may
be referred to collectively herein as the "Common Stock"). The number of issued
and outstanding shares of the Common Stock and the holders thereof are listed in
Annex A hereto. Except as set forth in the PHC Disclosure Documents and except
as specifically contemplated by Article I of this Agreement, there are no
outstanding subscriptions, options, warrants, rights (including "phantom" stock
rights), preemptive rights or other contracts, commitments, understandings or
arrangements, including any right of conversion or exchange under any
outstanding security, instrument or agreement (together, the "Rights"),
obligating PHC or any Subsidiary to issue or sell any shares of its capital
stock or to grant, extend or enter into any Right with respect thereto nor any
voting trusts, proxies or other commitments, understandings, restrictions or
arrangements in favor of any person other than PHC or the Shareholders with
respect to the voting of or the right to participate in dividends or other
earnings on any capital stock or other equity security of PHC or any of the
Subsidiaries.
(b) The outstanding shares of Common Stock are duly authorized,
validly issued, fully paid and nonassessable.
(c) Except as set forth in the PHC Disclosure Documents, there are no
outstanding contractual obligations to which PHC is a party to repurchase,
redeem or otherwise acquire any of the PHC Shares.
6
<PAGE> 8
(d) Except as set forth in the PHC Disclosure Documents, there are no
outstanding obligations by PHC to provide funds in excess of $100,000 to, or to
make any investment (in the form of a loan, capital contribution or otherwise)
in excess of $100,000 in, any other person, excluding any of the Subsidiaries.
Commitments with respect to equipment purchases or leases are described in
Section 3.10(b) hereof.
3.03. Authority Relative to this Agreement. PHC has full corporate
power and authority to enter into this Agreement and each other instrument,
document and agreement necessary to consummate the transactions contemplated
hereby, to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement
by PHC and the consummation by PHC of the transactions contemplated hereby have
been duly and validly approved by the Board of Directors and the Shareholders of
PHC, and no other corporate proceedings on the part of PHC are necessary to
authorize the execution, delivery and performance of this Agreement by PHC and
the consummation by PHC of the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by PHC and, subject to securing
the Regulatory Approvals and the Third Party Consents (as each such term is
defined in Article VII), constitutes a legal, valid and binding obligation of
PHC enforceable against PHC in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
3.04. Approvals and Consents. Subject to obtaining such consents or
making such filings as may be described in the PHC Disclosure Documents and as
may be described in Paragraphs 7.02 and 7.03 of this Agreement, the execution
and delivery of this Agreement by PHC does not, and the performance by PHC of
its obligations hereunder and the consummation of the transactions contemplated
hereby will not:
(a) conflict with, result in a violation or breach of, constitute (with
or without notice or lapse of time or both) a default under, result in or give
to any person any right of payment or reimbursement, termination, cancellation,
modification or
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acceleration of, or result in the creation or imposition of any liens, claims,
mortgages, encumbrances, pledges, security interests, equities and charges of
any kind (each a "Lien") upon any of the assets or properties of PHC or any of
the Subsidiaries under any of the terms, conditions or provisions of:
(i) the articles of incorporation or bylaws (or other comparable
charter or organizational documents) of PHC or any Subsidiary,
(ii) any PHC Management Contract (as such term is defined in
Paragraph 3.l0(c)),
(iii) any PHC Lease (as such term is defined in Paragraph 3.10(c)), or
(iv) (A) any statute, law, rule, regulation or ordinance (together,
"Laws") of any state or of the United States, or any judgment, decree,
order, writ, permit or license (together, "Orders"), of any court,
tribunal, arbitrator, authority, agency, commission, official or other
instrumentality of the United States or any domestic or foreign state
(a "Governmental or Regulatory Authority"), applicable to PHC or any of
the Subsidiaries or any of its or their respective assets or
properties, or (B) to the knowledge of PHC, any Laws or Orders of any
jurisdiction or governmental authority not specified in clause (A) or
(C) any PHC Contract, as defined in Paragraph 3.10(b).
(b) require any consent, approval or action of, filing with or notice
to any Governmental or Regulatory Authority or other public or private third
party under any of the terms, conditions or provisions of any Law or Order of
any Governmental or Regulatory Authority to which PHC or any of the Subsidiaries
is a party or by which PHC or any of the Subsidiaries or any of its or their
respective assets or properties is bound; or
(c) require any consent, approval or action of, filing with or notice
to any Governmental or Regulatory Authority or other public or private third
party under any of the terms, conditions or provisions of any PHC Management
Contract, PHC Contract or PHC Lease to which PHC or any of the Subsidiaries is a
party or by
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which PHC or any of the Subsidiaries or any of its or their assets
or properties is bound.
3.05. Financial Statements. PHC has delivered to Brim prior to the
execution of this Agreement a true and complete copy of the unaudited
consolidated balance sheet of PHC and its consolidated Subsidiaries as of the
nine months ended September 30, 1996 (the "PHC Company Financial Statements")
and the related statements of operations, stockholders' equity, and cash flows
for the fiscal period ended as of each such date. The PHC Financial Statements
were prepared in accordance with GAAP (except as may be indicated therein or in
the notes thereto) and fairly present the consolidated financial position of PHC
and its consolidated Subsidiaries as at the respective dates thereof and the
consolidated results of their operations and cash flows for the respective
periods then ended.
3.06. Absence of Certain Changes or Events. Except as set forth in the
PHC Disclosure Documents or as contemplated by this Agreement, (a) since
September 30, 1996 there has not been any change, event or development out of
the ordinary course of business having, or that would be reasonably expected to
have a "PHC Material Adverse Effect," as that term is defined in Section
3.10(e)(v) hereof, and (b) (i) between September 30, 1996 and the date hereof
each of PHC and the Subsidiaries has conducted its businesses only in the
ordinary course and with due regard to the proper maintenance and repair of any
real property or personal property owned or leased by it or them and (ii)
between September, 1996 and the date hereof, neither PHC nor any of the
Subsidiaries has engaged in any of the transactions described in Paragraph
5.01(a). Nothing herein shall be construed as requiring PHC to disclose to Brim
general changes in the health care industry which may, could or would have an
affect on PHC either prior to or after the Closing.
3.07. Legal Proceedings. Except as disclosed in the PHC Disclosure
Documents, there are no actions, suits, arbitrations or proceedings pending or,
to the knowledge of PHC, threatened against, relating to or affecting, nor are
there any Governmental or Regulatory Authority investigations or audits pending
or to the knowledge of PHC threatened against, relating to or affecting, PHC or
any of the Subsidiaries or any of its or their assets and
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properties. For purposes hereof disputes with third party payors over the
reimbursement due or paid to PHC Facilities shall not be deemed to be a legal
proceeding, but should be the subject of the disclosure, if any, set forth under
Paragraph 3.16.
3.08. Information Supplied. Any documents to be filed by PHC with any
Governmental or Regulatory Authority in connection with this Agreement and the
other transactions contemplated hereby will not, on the date they are filed or
required to be filed, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading, except that no representation is made by PHC with respect
to information supplied in writing by or on behalf of Brim expressly for
inclusion therein.
3.09. Compliance with Laws and Orders.
(a) PHC and each of the Subsidiaries holds all permits, licenses,
variances, exemptions, orders and approvals of all Governmental and Regulatory
Authorities necessary for the leasing, ownership or operation of the hospitals
and other related health care facilities owned by PHC (the "PHC Facilities") and
the Subsidiaries and for the lawful conduct of the business of PHC and the
Subsidiaries (the "PHC Permits") at PHC Facilities (as defined below), except to
the extent the failure to have any such PHC Permit would not have a PHC Material
Adverse Effect.
(b) Each of PHC and the Subsidiaries is in substantial compliance with
the terms of PHC Permits held by it. Except as disclosed in the PHC Disclosure
Documents, to the knowledge of PHC, PHC and each of the Subsidiaries is in
substantial compliance with any Law and in full compliance with any Order of any
Governmental or Regulatory Authority applicable to it. For purposes hereof, PHC
and the Subsidiaries shall be deemed to be in substantial compliance with PHC
Permits and with any Law if its failure to comply therewith is the subject of a
plan of correction which has been accepted by the applicable Governmental or
Regulatory Authority.
3.10. Compliance with Agreements: Certain Agreements.
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(a) Except as disclosed in the PHC Disclosure Documents or as would not
have a PHC Material Adverse Effect, neither PHC nor any of the Subsidiaries is
in breach or violation of, or in default in the performance or observance of any
term or provision of, and no event has occurred which, with notice or lapse of
time or both, would be reasonably expected to result in a default under:
(i) its articles of incorporation or bylaws (or other comparable
charter documents);
(ii) any PHC Management Contract;
(iii) any PHC Lease;
(iv) any PHC Partnership Agreement; or
(v) any PHC Contract (as defined below).
(b) Except with respect to those agreements listed in the PHC
Disclosure Documents, true and correct copies of which have been made available
to Brim prior to the execution of this Agreement, the receipt of which is hereby
acknowledged by Brim, or as provided for in this Agreement, to its knowledge,
neither PHC nor any of the Subsidiaries is a party to, nor are any of its or
their assets bound or affected by, any oral or written agreements of the
following nature (the "PHC Contracts"):
(i) consulting agreement, contract, arrangement or understanding not
terminable whether with or without penalty on 90 days' or less notice
involving the payment of more than $50,000 per annum individually or
$100,000 per annum in the aggregate for all such agreements;
(ii) union or collective bargaining agreement;
(iii) agreement, contract, arrangement, commitment, understanding or
obligation with any Key Employee (as hereinafter defined) of PHC or any
of the Subsidiaries the benefits of which are contingent or vest, or
the terms of which are materially altered, upon the occurrence of a
transaction involving PHC of the nature contemplated by this Agreement;
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(iv) agreement, contract, arrangement, commitment, understanding or
obligation with respect to any Key Employee of PHC or any Subsidiary
providing any term of employment or compensation guarantee extending
for a period longer than 90 days after the date hereof and for the
payment of more than $50,000 per annum individually or $100,000 per
annum in the aggregate for all such agreements;
(v) agreement or plan, including any stock option, stock appreciation
right, restricted stock or stock purchase plan, any of the benefits of
which will be increased, or the vesting of the benefits of which will
be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of
which will be calculated on the basis of any of the transactions
contemplated by this Agreement;
(vi) agreement, contract, arrangement, commitment, understanding or
obligation to which it is a party limiting in any material respect its
freedom or the freedom of any Key Employee to compete in any line of
business with any person;
(vii) agreement, contract, arrangement, commitment, understanding or
obligation (i) evidencing any liability (A) in excess of $100,000, or
(B) any liability for the obligations of any person in excess of
$100,000 or (C) regardless of the amount thereof, that is not to be
fully performed or that cannot be terminated whether with or without
penalty within ninety (90) days after the Closing Date or (ii) defining
the terms on which any other debt in excess of $100,000 has been or may
be issued or incurred; provided, however, that for purposes of this
Paragraph 3.10(a)(vii), an accrual or third party contractual allowance
reflected on PHC Financial Statements shall not be deemed to be a
liability subject to disclosure under the terms hereof; or
(viii) agreement, contract, arrangement, commitment, understanding or
obligation relating to it, its present or prospective business,
operations, properties or assets in which any Key Employee has any
interest, direct or indirect, including a description of any
transactions between it and any Key Employee or any entity in which any
Key Employee has any
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interest (other than transactions between any corporation and a
publicly held corporation in which the Key Employee holds less than
five percent (5%) of the issued and outstanding shares of capital
stock).
(c) For purposes of this Agreement, the following defined terms used in
this Paragraph and elsewhere in this Agreement shall have the meanings set forth
below:
(i) "PHC Management Contract" means any agreement to which PHC or any
Subsidiary is a party providing for management, administrative or other
services to be rendered in connection with the operation,
administration, or supervision of any managed PHC Facility, which
contracts include as of the date of this Agreement, those PHC
Management Contracts identified in the PHC Disclosure Documents, true
and correct copies of which have been made available to Brim prior to
the execution of this Agreement, the receipt of which is hereby
acknowledged by Brim.
(ii) "PHC Lease" means those leases to which PHC or any Subsidiary is a
party with respect to those hospitals and other related health care
facilities identified in the PHC Disclosure Documents, true and correct
copies of which have been made available to Brim prior to the execution
of this Agreement, the receipt of which is hereby acknowledged by Brim.
(iii)"PHC Partnership Agreement" means those partnership agreements in
which PHC or any Subsidiary holds a general and/or limited partnership
interest identified in the PHC Disclosure Documents, true and correct
copies of which have been made available to Brim prior to the execution
of this Agreement, the receipt of which is hereby acknowledged by Brim.
(iv) "Key Employee" means all officers, managers and other employees
and consultants of PHC or any Subsidiary whose current annual salary or
rate of compensation (including bonus and incentive compensation) is
$100,000 or more, as identified in the PHC Disclosure Documents.
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(v) "PHC Material Adverse Effect" means an event or series of events
affecting PHC (but specifically excluding events that are disclosed
pursuant to the terms hereof in the Company's Disclosure Letter or in
the exhibits hereto as of the date of execution of this Agreement that
will have an adverse effect on the Company's earnings before interest,
taxes, depreciation and amortization on an annualized basis of,
calculated as of the Closing Date, in excess of $500,000.
3.11. Taxes. PHC has filed all tax returns which are required to have
been filed in any jurisdiction with respect to PHC and each of the Subsidiaries,
and has paid, before they have become delinquent, all taxes shown to be due and
payable on such returns and, to the knowledge of PHC, all other taxes and
assessments payable by PHC on behalf of itself or any of the Subsidiaries, to
the extent the same have become due and payable, except for any taxes and
assessments the amount, applicability or validity of which is currently being
contested in good faith by appropriate proceedings and with respect to which PHC
has set aside on its books reserves to the extent required by, and segregated in
accordance with, GAAP. Except as set forth in the PHC Disclosure Documents, (i)
PHC has no knowledge of any proposed material tax assessment against PHC or any
of the Subsidiaries, (ii) to the knowledge of PHC all tax liabilities of PHC and
the Subsidiaries are adequately provided for on the books of PHC and (iii) to
the knowledge of PHC all of the tax returns previously filed by PHC and which,
as of the date hereof, have not been audited by the applicable Governmental or
Regulatory Authority having jurisdiction thereof, were true and correct in all
material respects at the time filed by PHC. PHC has not received any notice of
any past due or unpaid tax or assessment.
3.12. Employee Benefit Plans: ERISA. The PHC Disclosure Documents sets
forth all of the bonus, deferred and incentive compensation, profit sharing,
retirement, vacation, sick leave, leave of absence, hospitalization, severance,
and fringe benefit plans, all "employee pension benefit plans" (as defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) and all "employee welfare benefit plans" (as defined in Section 3(1)
of ERISA) which PHC maintains, to which PHC contributes or has an obligation to
contribute, or with respect to which PHC has any liability or reasonable
expectation of liability,
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whether or not any such plan has terminated and whether or not any such plan is
or was maintained or contributed to by any current or former member of PHC's
Controlled Group (within the meaning of Section 414 of the IRC) (the "Plans").
None of the Plans (i) is subject to Title IV of ERISA or the minimum funding
requirements of Section 412 of the IRC or Section 302 of ERISA, (ii) is a plan
of the type described in Section 4063 of ERISA or Section 413(c) of the IRC,
(iii) is a "multiemployer plan" (as defined in Section 3(37) of ERISA) or (iv)
provides for medical or life insurance benefits to current or future retired or
former employees of PHC (other than as required under IRC Section 4980B or
applicable state law).
1. Each Plan is, in all material respects, in compliance, and has been
administered, maintained and funded in all material respects in accordance, with
the applicable provisions of ERISA and the IRC and all other applicable laws,
rules and regulations, including, but not limited to, medical continuation under
IRC Section 4980B. None of PHC, any Controlled Group member, any fiduciary or
any other person has, with respect to any Plan, (i) engaged in any transaction
prohibited by ERISA, the IRC or other applicable law; (ii) breached any
fiduciary duty owed by it; or (iii) failed to file and distribute timely and
properly all reports and information required to be filed or distributed in
accordance with ERISA or the IRC.
2. All contributions, premiums or payments which are due on or
before the Closing Date with respect to the Plans have been timely, or
will have been prior to the Closing Date, paid.
3. Each Plan which is intended to be qualified under section
401(a) of the IRC (i) has been timely amended to reflect all
requirements of the Tax Reform Act of 1986 ("TRA 86") and all
subsequent legislation which is required to be adopted prior to the end
of the TRA 86 remedial amendment period and (ii) has received from the
Internal Revenue Service a favorable determination letter which
considers the terms of the Plan as amended for such tax law changes.
Nothing has occurred since the date of such letter that could adversely
affect the qualified status of such Plan or the tax-exempt status of
any related trust.
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4. No under funded defined benefit plan has been, during the
five years preceding the Closing Date, transferred out of PHC's
Controlled Group.
5. Except as set forth in the PHC Disclosure Documents. PHC
has not incurred, and has no reason to expect that it will incur, any
material liability to the Internal Revenue Service, the Department of
Labor, the PBGC, any multiemployer plan or otherwise under Title IV of
ERISA (including any withdrawal liability) or under the IRC with
respect to any Plan or any other plan that PHC or any member of its
Controlled Group maintains or ever has maintained or to which any of
them contributes, ever has contributed, or ever has been required to
contribute.
6. With respect to each Plan, PHC has provided Brim with true,
complete and correct copies, to the extent applicable, of (i) all
documents pursuant to which the Plans are maintained, funded and
administered, (ii) the three most recent annual reports (Form 5500
series) filed with the Internal Revenue Service (with attachments),
(iii) the three most recent financial statements, and (iv) all
governmental rulings, determinations, and opinions (and pending
requests for governmental rulings, determinations, and opinions).
3.13. Labor Matters. Except as set forth in the PHC Disclosure
Documents or as would not have a PHC Material Adverse Effect, no unfair labor
practice complaint for sex, age, race or other discrimination claim has been
brought against PHC or any of the Subsidiaries in connection with its or their
business before the National Labor Relations Board, the Equal Employment
Opportunity Commission or any other Governmental Body during the three-year
period ending as of the Closing Date nor has PHC or any of the Subsidiaries
received written notice of the intention of any person to file any such claim
which remains unresolved as of the date hereof.
3.14. Environmental Matters.
(a) Except as disclosed in the PHC Disclosure Documents or as
would not have a PHC Material Adverse Effect: (i) PHC complies with
all applicable Environmental Laws and possesses and complies with
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all applicable Environmental Permits required under such laws to operate as it
presently operates; (ii) no events are likely to occur that would prevent
compliance with, or materially increase the burden on PHC of complying with,
applicable Environmental Laws or Environmental Permits required under such laws;
(iii) there are no Materials of Environmental Concern in conditions and
concentrations at any property owned or leased by PHC, that are reasonably
expected to give rise to liability of PHC under any Environmental Law; and (iv)
PHC has not received any written notification alleging that is liable for, or
request for information pursuant to Section 104(e) of the Comprehensive
Environmental Response, Compensation and Liability Act concerning, disposal of
Materials of Environmental Concern at any location.
(b) For purposes of this Agreement, the following defined terms used in
this Paragraph and elsewhere in this Agreement shall have the meanings set forth
below:
(i) "Environmental Laws" shall mean all Federal, state. or local
statutes, regulations, ordinances, codes, or decrees protecting the
quality of the ambient air, soil, surface water or groundwater, in
effect as of or, to the extent applicable, at any time prior to, the
date of this Agreement.
(ii) "Environmental Permits" shall mean all permits, licenses,
registrations, and other authorizations required under applicable
Environmental Laws.
(iii) "Environmental Report" shall mean any report, study, assessment,
audit, or other similar document that addresses any issue of
noncompliance with, or liability under, any Environmental Law that may
affect PHC.
(iv) "Materials of Environmental Concern" shall mean any hazardous,
acutely hazardous, or toxic substance or waste defined and regulated as
such under the Environmental Laws, including without limitation the
federal Comprehensive Environmental Response, Compensation and
Liability Act and the federal Resource Conservation and Recovery Act.
3.15. Brokers or Finders. PHC represents that no agent, broker,
investment banker, financial advisor or other firm or
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person is or will be entitled to any broker's or finder's fee or any other
commission or similar fee in connection with any of the transactions
contemplated by this Agreement.
3.16. Cost Reports. PHC and each Subsidiary has duly and timely filed
all cost reports which are required as of the date hereof to be filed by it in
connection with the operation of PHC Facilities. A true and correct copy of all
such cost reports which have been filed by PHC and each Subsidiary have been
provided to Brim as of the date hereof is provided in the PHC Disclosure
Documents, the receipt of which cost reports is hereby acknowledged by Brim. To
the knowledge of PHC, all of such cost reports are true, correct and complete in
all material respects and, except as set forth in the PHC Disclosure Documents
or as would not have a PHC Material Adverse Effect, have been prepared in all
material respects in accordance with the requirements of the Medicare and/or
Medicaid Act, as applicable. Nothing herein shall be construed as a
representation or warranty by PHC with respect to the filing of the cost reports
with respect to any PHC Managed Facility.
3.17. Tangible Property and Assets.
(a) PHC and the Subsidiaries have good and marketable title to, or have
valid fee simple title or leasehold interests in, as applicable, or valid rights
under contract to use, all tangible property and assets owned and/or used in
and, individually or in the aggregate, material to the conduct of its or their
businesses including all tangible property and assets reflected on the latest
audited balance sheet included in the PHC Financial Statements, other than
property or assets disposed of since such date or held subject to a lease or
other contract permitted to expire in accordance with its terms since such date,
in either case in the ordinary course of business (the "Tangible Property and
Assets").
(b) PHC's title to the Tangible Property and Assets described in
clause (a) is free and clear of all Liens other than (i) any statutory Lien
arising in the ordinary course of business by operation of law with respect to a
liability that is not yet due or delinquent and (ii) any imperfection of title
or similar Lien which individually or in the aggregate with other such Liens
does not materially impair the value of the property or asset subject to such
Lien or the use of such property or asset in the conduct of
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the business of PHC and the Subsidiaries taken as a whole and (iii) any Lien
which shall be satisfied and released of record as of the Closing Date. All such
property and assets are, in all material respects, in good working order and
condition, ordinary wear and tear excepted, and, to the knowledge of PHC,
adequate and suitable for the purposes for which they are presently being used.
(c) On the date hereof and on the Closing Date, the inventory and
consumable supplies located at and used in connection with the operation of the
Leased PHC Facilities are and shall be in a good and useable condition and
sufficient in quantity and quality to operate such Leased PHC Facilities in a
manner consistent with the past practices of PHC.
(d) Neither PHC nor any of the Subsidiaries has received notice of any
pending or threatened condemnation or taking by power of eminent domain or
otherwise of any of the Tangible Assets or Property or, with respect to PHC's
corporate office, any notice of any tax or special lien or assessment which
would not be paid in full by the Closing Date.
(e) Except as set forth in the PHC Disclosure Documents, neither PHC
nor any of the Subsidiaries has notice that any of the Tangible Assets or
Property is not in compliance with applicable building or zoning codes and
ordinances.
3.18. Certification and Accreditation. Except as otherwise set forth in
the PHC Disclosure Documents, the Leased PHC Facilities are certified to
participate in Medicare and/or Medicaid and are duly accredited, subject to no
contingencies other than those set forth in the correspondence described in
Section 3.18 of PHC Disclosure Documents, true and correct copies of which have
been made available to Brim and the receipt of which is acknowledged by Brim, by
the Joint Commission on Accreditation of Healthcare Organizations. Nothing
herein shall be construed as representation or warranty by PHC with respect to
the certification or accreditation of the Managed PHC Facilities, which
certification and accreditation is in the name of the owner of such Managed PHC
Facilities and not in the name of PHC. As of the date hereof, PHC has not
received any written or verbal notice of any action, investigation or other
proceeding which has not been resolved as of the date hereof to revoke,
terminate or not renew any such
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certification or accreditation with respect to the Leased Company
Facilities.
3.19. Insurance. The PHC Disclosure Documents set forth the insurance
policies covering PHC's operations with respect to the Leased PHC Facilities and
the Managed PHC Facilities in effect as of the date hereof, including the policy
numbers, terms, identity of the insurers and amounts and nature of coverage. All
of such policies are now and will be until Closing in full force and effect,
with no premium arrearages. True and correct copies of all such policies and any
endorsements thereto with respect to the Leased PHC Facilities and copies of any
endorsements with respect to the Managed PHC Facilities have been made available
to Brim prior to the date hereof, the receipt of which is hereby acknowledged by
Brim.
3.20. Payments. Neither PHC nor any of the Subsidiaries has, directly
or indirectly, paid or delivered or agreed to pay or deliver any fee,
commission, or other sum of money or item or property, however, characterized,
to any person, government official or other party related to the businesses of
the Leased PHC Facilities or the Managed PHC Facilities which was, at the time
paid or delivered, illegal under any applicable federal, state or local law.
3.21. Intellectual Property.
(a) Neither PHC nor any of the Subsidiaries has received protection
under federal or state law of any trademarks, trade names, logos, service marks,
patents, patent rights, assumed names, trade secrets or copyrights used by them
in their business.
(b) Nothing herein shall be construed as a representation or warranty
by PHC that the use by PHC and the Subsidiaries is in full compliance with all
applicable hardware and software licensure laws and/or that the trademarks,
trade names, logos, service marks, patents, patent rights, assumed names, trade
secrets or copyrights used by PHC do not infringe on or violate the rights of
any third parties.
3.22 Disclosure. No representation or warranty by PHC in this Agreement
and no statement contained in any document,
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certificate or other writing furnished by PHC to Brim or Newsub in connection
with the transactions contemplated hereby, contains any untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BRIM AND NEWSUB
Brim has heretofore delivered to PHC and the Shareholders or made
available to them, copies of the transaction documents and disclosure schedules
(collectively, the "Brim Transaction Documents") pertaining to or arising in
connection with the Precedent Transactions. The representations and warranties
of Brim and its subsidiaries set forth therein, that relate to the business,
operations or financial condition of Brim as of the closing of the Precedent
Transactions, are incorporated herein by reference, as the representations and
warranties of Brim to PHC and the Shareholders. In addition, Brim and Newsub
hereby jointly and severally represent and warrant to PHC and each of the
Shareholders as follows:
4.01 Authorization, Etc. Brim and Newsub have full corporate power and
authority to execute and deliver this Agreement and the documents and
instruments contemplated hereby, and to carry out the transactions contemplated
hereby and thereby. The Boards of Directors of Brim and Newsub have duly
approved and authorized the execution and delivery of this Agreement and the
documents and instruments contemplated hereby, and the consummation of the
transactions contemplated hereby and thereby. No other corporate proceedings on
the part of Brim and/or Newsub are necessary to approve and authorize the
execution and delivery of this Agreement and the documents and instruments
contemplated hereby by Brim and Newsub and the consummation by Brim and Newsub
of the transactions contemplated hereby and thereby. This Agreement constitutes
a valid and binding obligation of Brim and Newsub, enforceable against Brim and
Newsub in accordance with its terms, except that (i) the enforcement hereof may
be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or
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hereafter in effect relating to creditors' rights generally and (ii) the remedy
of specific performance and injunctive and other forms of equitable relief may
be subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
4.02 No Approvals or Conflicts. Neither the execution and delivery by
Brim and/or Newsub of this Agreement nor the consummation by Brim and/or Newsub
of the transactions contemplated hereby will (i) violate, conflict with or
result in a breach of any provision of the certificate of incorporation or
by-laws of Brim or any of its subsidiaries, including Newsub, (ii) violate,
conflict with or result in a breach of any provision of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination or in a right of
termination or cancellation of, or accelerate the performance required by, or
result in the creation of any lien, security interest, charge or encumbrance
upon any of Brim's or its subsidiaries' properties, or result in any of the
terms, conditions or provisions of, any note, bond, mortgage, indenture, deed
of trust, license, franchise, permit, lease, contract, agreement or other
instrument or commitment or obligation which binds or affects Brim or its
subsidiaries, including Newsub, or any of their properties being declared void,
voidable or without further binding effect, (iii) violate any order, writ,
injunction, decree, judgment, ruling, law, rule or regulation of any court or
governmental authority, domestic or foreign, applicable to Brim or its
subsidiaries, including Newsub, or any of their properties, or (iv) require any
consent, approval or authorization of, or notice to, or declaration, filing or
registration with, any governmental or regulatory authority in connection with
the execution, delivery and performance of this Agreement by Brim and/or
Newsub, which, in the case of clauses (ii), (iii) and (iv) above, would have a
Brim Material Adverse Effect.
4.03 No Brokers' or Other Fees. No broker, finder or investment banker
is entitled to any brokerage, finder or other fee or commission in connection
with the transactions contemplated hereby based upon arrangements made by or on
behalf of Brim and/or Newsub.
22
<PAGE> 24
4.04 Concerning Newsub. Brim and Newsub jointly and severally represent
and warrant to PHC and the Shareholders as follows:
(a) Newsub is a corporation duly organized and existing and in good
standing under the laws of the State of Delaware. Accurate and complete copies
of the Certificate of Incorporation and Bylaws of Newsub will be delivered to
Shareholders prior to the Closing.
(b) The authorized capital stock of Newsub is 100 shares of Common
Stock, no par value. Newsub does not have any outstanding subscriptions,
warrants, options or other agreements or commitments obligating Newsub to issue
shares of its capital stock.
(c) The Board of Directors of Newsub, and Brim as its sole shareholder,
have approved this Agreement and the consummation of the transactions
contemplated hereby and has authorized the execution and delivery of this
Agreement by Newsub. Newsub has full power, authority and legal right to enter
into this Agreement and to consummate the transactions contemplated hereby. This
Agreement constitutes a valid and legally binding obligation of Newsub
enforceable in accordance with its terms, except (i) that the enforcement hereof
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights generally
and (ii) that the remedy of specific performance and injunctive and other forms
of equitable relief may be subject to equitable defenses and to the discretion
of the court before which any proceeding therefor may be brought.
(d) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will result in the breach
of any term or provision of the Certificate of Incorporation or Bylaws of Newsub
or of any agreement or instrument of any kind to which it is a party or by which
it is bound.
4.05 Conversion Shares. The Conversion Shares to be issued to the
Shareholders pursuant to Section 1.03 hereof, at the time such shares are
issued, will have been duly authorized, validly issued, fully paid and
nonassessable; and the Shareholders shall receive good title to such shares,
free and clear of any liens, options, charges, security interests or other legal
or equitable rights and encumbrances of any nature whatsoever.
23
<PAGE> 25
4.06 Disclosure. No representation or warranty by Brim or Newsub in
this Agreement and no statement contained in any document, certificate or other
writing furnished by Brim or Newsub to PHC or any Shareholder in connection with
the transactions contemplated hereby, contains any untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
ARTICLE V
COVENANTS AND AGREEMENTS
5.01. Closing. On the Closing Date, PHC will deliver or cause to be
delivered to Brim the following documents:
(a) Resolutions of PHC's Board of Directors and a vote of PHC's
shareholders, certified by the Secretary or Assistant Secretary of PHC,
authorizing and approving the transactions contemplated herein;
(b) Certified copies of the Charter or Articles of Incorporation of PHC
and each Subsidiary and Certificates of Legal Existence or Good Standing, as
applicable, with respect to PHC and each Subsidiary issued within the 10 days
prior to the Closing Date by the Secretary of State (or other authorized
official) in each of the States in which PHC and each Subsidiary is organized or
qualified to do business as a foreign corporation as set forth more fully in the
PHC Disclosure Documents;
(c) True and correct copies of the Bylaws of PHC and each Subsidiary
certified by the Secretary or Assistant Secretary of each as of the Closing
Date; and
(d) An opinion or opinions of counsel to PHC dated as of the Closing
Date in substantially the form attached hereto as Exhibit 5.01(d).
5.02 Closing. On the Closing Date, in addition to the delivery of the
Conversion Shares, Brim will deliver to PHC or cause to be delivered the
following documents:
24
<PAGE> 26
(a) Resolutions of Brim's and Newsub's Board of Directors and a vote of
Newsub's shareholder, certified by the Secretary or Assistant Secretary of Brim
and Newsub, respectively, authorizing and approving the transactions
contemplated herein;
(b) Certified copies of the Charter or Articles of Incorporation of
Brim and Newsub and Certificates of Legal Existence or Good Standing, as
applicable, with respect to Brim and Newsub issued within the 1O days prior to
the Closing Date by the Secretary of State (or other authorized official) of
their respective state of organization; and
(c) An opinion or opinions of counsel to Brim dated as of the Closing
Date in substantially the form attached hereto as Exhibit 5.02(c).
ARTICLE VI
MISCELLANEOUS
6.01. Notices. Any notice, request or other communication to be given
by any party hereunder shall be in writing and shall be sent by registered or
certified mail, postage prepaid, by overnight delivery, hand delivery or
facsimile transmission to the following address:
To Brim: Brim, Inc.
305 NE 102nd Avenue
Portland, Oregon 97020
Attn: President
Phone: 503-256-2070
Fax: 503-254-7619
To PHC: Principal Hospital Company
5123 Paddock Village Court A-12
Brentwood, Tennessee 37027
Attn: President
Phone: 615-370-1377
Fax: 615-370-9539
Notices shall be deemed given three (3) business days after deposit in
the mail as provided herein or upon actual receipt if
25
<PAGE> 27
sent by overnight delivery, facsimile transmission or hand delivery.
6.02. Assignment. Except as otherwise expressly provided herein, no
party may assign, directly or indirectly, its rights or obligations hereunder
without the prior written consent of the other parties. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns, including successors by operation
of law pursuant to any merger, consolidation or sale of assets involving either
party.
6.03. Sole Agreement. This Agreement may not be amended or modified in
any respect whatsoever except by instrument in writing signed by the parties
hereto. This Agreement, the disclosure documents delivered pursuant hereto, and
the documents executed and delivered pursuant hereto, constitute the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersede all prior negotiations, discussions, writings and agreements
between them.
6.04. Captions. The captions of this Agreement are for convenience of
reference only and shall not define or limit any of the terms or provisions
hereof.
6.05. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware.
6.06. Severability. Should any one or more of the provisions of this
Agreement be determined to be invalid, unlawful or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions hereof
shall not in any way be affected or impaired thereby.
6.07. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original; but such counterparts shall
together constitute but one and the same instrument.
6.8. Third Party Beneficiary. Nothing in this Agreement express or
implied is intended to and shall not be construed to confer upon or create in
any person, other than the parties hereto,
26
<PAGE> 28
any rights or remedies under or by reason of this Agreement, including without
limitation, any right to enforce this Agreement.
6.09. Construction. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state or local
statute or law shall be deemed also to refer to all rules and regulations
promulgated thereunder, unless the context requires otherwise. The word
"including" shall mean "including without limitation."
6.10. Survival. The representations and warranties of PHC shall not
survive the Closing.
* * * *
27
<PAGE> 29
IN WITNESS WHEREOF, the parties hereby execute this Agreement as of the
day and year first set forth therein.
BRIM, INC.
By: /s/ Martin S. Rash
-------------------------------
Its: President & CEO
------------------------------
PRINCIPAL MERGER COMPANY
By: /s/ Martin S. Rash
-------------------------------
Its: President & CEO
------------------------------
PRINCIPAL HOSPITAL COMPANY
By: /s/ Martin S. Rash
-------------------------------
Its: President & CEO
------------------------------
28
<PAGE> 30
- -------------------------------------------------------------------------------
ANNEX A
- -------------------------------------------------------------------------------
Principal Shares Outstanding Brim Shares To Be Issued
- -------------------------------------------------------------------------------
Holder Class A Class B Junior Common
------ ------- ------- Preferred ------
---------
- -------------------------------------------------------------------------------
Golder, Thoma, Cressey, 13,178.52 13,580
Rauner Fund IV. L.P.
- -------------------------------------------------------------------------------
69,312 1,358,000
- -------------------------------------------------------------------------------
Martin S. Rash 211.26 217
- -------------------------------------------------------------------------------
9,859 193,163
- -------------------------------------------------------------------------------
Richard D. Gore 395.36 407
- -------------------------------------------------------------------------------
5,679 111,266
- -------------------------------------------------------------------------------
First Union 98.842 99.5
- -------------------------------------------------------------------------------
520 9,960
- -------------------------------------------------------------------------------
AmSouth 98.842 99.5
- -------------------------------------------------------------------------------
520 9,960
- -------------------------------------------------------------------------------
_________ _________ _______ _________
- -------------------------------------------------------------------------------
13,982.82 85,890 14,403 1,682,349
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE> 1
Exhibit 2.3
AGREEMENT AND PLAN OF MERGER
dated as of November 27, 1996
by and among
BRIM, INC.
and
BRIM SENIOR LIVING, INC.
and
ENCORE SENIOR LIVING, LLC
and
LEE ZINSLI,
as Agent
<PAGE> 2
AGREEMENT AND PLAN OF MERGER
This Agreement is made and entered into as of this 27th day of November,
1996 by and among Brim, Inc., an Oregon corporation (the "Company"), Brim Senior
Living, Inc., an Oregon corporation ("BSL"), Encore Senior Living, LLC, a
Delaware limited liability company ("Purchaser"), and, for limited purposes as
specified herein, Lee Zinsli, as Agent ("Agent").
A. By Investment Agreement dated November 21, 1996 among the Company,
Golder, Thoma, Cressey, Rauner Fund IV, L.P. and Principal Hospital Company (the
"Investment Agreement"), the Company has agreed to cause a redemption of its
preferred stock and certain shares of its common stock (the "Healthcare
Transaction").
B. By Purchase and Sale Agreement dated November 25, 1996, the Company has
agreed to sell to Plaza Enterprises LLC, a newly formed limited liability
company comprised of certain officers and employees of the Company certain
assets and liabilities of the Company and certain of its subsidiaries, including
BSL, which are not directly related to its health care or its senior living
operations (the "Excluded Assets Transaction").
C. In conjunction with the consummation of the Healthcare Transaction, the
Company has agreed with the prospective purchaser that at the closing of said
transaction the assets and liabilities of the Company will exclude those related
to its senior living operations.
D. The Purchaser is interested in purchasing the BSL Senior Living
Business (as defined below) from the Company, through (i) a merger of BSL, the
Company's wholly owned subsidiary, into purchaser (the "Merger"), with Purchaser
as the surviving entity (the "Surviving Entity") and (ii) the purchase by
Purchaser of the Related Assets, subject to the Assumed Related Liabilities (the
"Related Assets and Liabilities Transaction").
E. By Stock Purchase and Sale Agreement of even date herewith, CC-Lantana,
Inc., a Delaware corporation, has agreed to purchase from the Company all of the
stock of Meridian Senior Living, Inc., the sole general partner of Meridian Park
Village Limited Partnership, and by a separate Purchase and Sale Agreement of
even date herewith, James M. Williams and K. David McAllister have agreed to
purchase from the Company its limited partnership interest in Meridian Park
Village Limited Partnership (collectively, the "Freedom Village Transaction").
F. The parties are desirous of documenting the terms and conditions upon
which the Merger and the Related Assets and Liabilities Transaction shall occur.
NOW, THEREFORE, in consideration of the foregoing premises and the
undertaking the parties set forth herein, IT IS HEREBY AGREED AS FOLLOWS:
2
<PAGE> 3
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
"ADA"-- as defined in Section 4.23 hereof.
"Advance Reimbursement" -- the payment at Closing, in immediately available
funds, of an amount equal to the aggregate of all amounts expended by the
Company, or loaned by the Company to, and expended by, BSL, as the case may be,
for out-of-pocket, third party costs and expenses paid in respect of the
Development Projects, but only to the extent that any such amount is paid or
expended in accordance with (A)(i) an Approved Budget for a Development Project,
in the case of all of the Development Projects other than the DeAnza and Mesa
Development Projects, or (ii) in the case of the Mesa and DeAnza and Development
Projects, an amendment to the Approved Budget for a Development Project
increasing such costs, if approved in writing by Purchaser after the date hereof
(but only to the extent such costs and expenses are not otherwise financed
pursuant to leases covering an applicable Facility) and (B) all otherwise
applicable provisions hereof. All amounts included in an Advance Reimbursement
shall be itemized in the Advance Reimbursement Schedule. Advance Reimbursements
shall not include, and neither BSL nor the Purchaser (nor any of their
Affiliates) shall have any liability for, interest with respect to any advance
made by the Company.
"Advance Reimbursement Schedule" - as defined in Section 2.06(b) hereof.
"Agent" -- Lee Zinsli, on behalf of the Former Holders.
"Agent/Legal Fees Expense Account" -- as defined in Section 2.07(c) hereof.
"Agreement" -- this Agreement.
"Approved Budget for a Development Project" -- with respect to each Development
Project, the budget and cost itemization therefor as included in Schedule 2
hereto and such additional or amended budgets and cost itemizations for such
Project as shall be approved by (and shall be effective upon) the execution of a
written acknowledgment thereof by both the Company and the Purchaser.
"Approved Business Plan" -- the Business Plan developed by the management of the
Purchaser prior to the date hereof and approved by Purchaser, a copy of which is
attached as an exhibit to the Operating Agreement.
"Assumed Related Liabilities" -- the liabilities of the Company relating to the
BSL Senior Living Business listed on Schedule 3 attached hereto.
3
<PAGE> 4
"Benefit Arrangement"-- any written or oral employment, consulting, severance or
other similar contract, arrangement or policy and each plan, arrangement,
program, agreement or commitment providing for insurance coverage (including any
self-insured arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits, retirement benefits,
life, health, disability or accident benefits (including, without limitation,
any "voluntary employees' beneficiary association" as defined in Section
5O1(c)(9) of the Code providing for the same or other benefits) or for deferred
compensation, profit-sharing bonuses, stock options, stock appreciation rights,
stock purchases or other forms of incentive compensation or benefits other than
salary, which:
(i) is not a Welfare Plan, Pension Plan or Multiemployer Plan,
(ii) is entered into, maintained, contributed to or required
to be contributed to by the Company or any of its Subsidiaries or under which
the Company or any of its Subsidiaries may incur any liability, and
(iii) covers any employee or former employee of the Company or
any of its Subsidiaries (with respect to their relationship with such entities).
"Brim/Senior Living Escrow Account"-- as defined in Section 2.07(b) hereof.
"BSL" -- as defined in the preamble hereof.
"BSL Assets" -- the interests of BSL in the BSL Facilities, the BSL Leases, the
BSL Management Contracts, BSL's partnership or member's interest in the BSL
Partnerships, the Development Projects, and all other assets of BSL, whether
tangible or intangible, including, without limitation, accounts receivable,
inventory and other working capital items, and all furniture, fixtures and
equipment. The BSL Assets are identified on Schedule 4 attached hereto.
"BSL Facility(ies)" -- the senior living facilities and other health care
facilities owned or leased by BSL, the Development Projects, and all components
of such Facilities and Development Projects. The BSL Facilities are listed on
Schedule 5 attached hereto.
"BSL Lease(s)" -- those leases to which BSL is a party with respect to senior
living and other health care facilities. The BSL Leases are described on
Schedule 6 attached hereto.
"BSL Managed Facility(ies)" -- the senior living facilities and other health
care facilities managed by BSL, which facilities are described on Schedule 7
attached hereto.
"BSL Management Contract(s)" -- the agreements to which BSL is (or after giving
effect to the Related Assets and Liabilities Transaction will be) a party
providing for management, administrative or other services to be rendered in
connection with the operation, administration, or supervision of any senior
living or other health care facility. The BSL Management Contracts
4
<PAGE> 5
are described in Schedule 8 attached hereto.
"BSL Partnership Agreement(s)"-- those partnership agreements and limited
liability company operating agreements listed in Schedule 9 attached hereto
under which BSL now holds or as of the Closing Date will hold a general and/or
limited partnership interest or member's interest.
"BSL Partnership(s)"-- each partnership and limited liability company that is
the subject of a BSL Partnership Agreement.
"BSL Permits" -- as defined in Section 4.11(a) hereof.
"BSL Senior Living Business"-- the business of owning, operating and managing
the BSL Facilities and the other BSL Assets, the BSL Managed Facilities, the
Related Assets and the Assumed Related Liabilities, and, to the extent
applicable, the assets of the BSL Partnerships.
"Closing" -- the consummation of (i) the Merger at the Effective Time and (ii)
the Related Assets and Liabilities Transaction contemplated by this Agreement to
occur at the time of the Merger.
"Closing Date" -- the date that the Closing occurs as determined in accordance
with Article 3.
"CMC"-- Care Management Corporation, a subsidiary of the Company which is
involved in the BSL Senior Living Business.
"Code"-- the Internal Revenue Code of 1986, as amended.
"Common Stock" - as defined in Section 4.02(a) hereof.
"Company Certificate"-- as defined in Section 2.04 hereof.
"Company Disclosure Letter"-- the letter of even date herewith delivered by the
Company to Purchaser and disclosing certain matters relating to the Company, BSL
and the BSL Senior Living Business, which letter is identified by the
Purchaser's acknowledgment thereof.
"Company Financial Statements" - as defined in Section 4.05 hereof.
"Confidentiality Agreement"-- as defined in Section 10.02 hereof.
"Debt"-- indebtedness or obligations for borrowed money, financing or
capitalized lease obligations, obligations in respect of letters of credit,
surety or other bonds, sale and leaseback transactions, all indebtedness secured
by a lien on any asset, and any other liabilities generally regarded as
indebtedness for borrowed money in accordance with GAAP, or any guarantees
thereof or similar undertakings regarding the indebtedness or obligations of
another.
5
<PAGE> 6
"Delaware Law" -- as defined in Section 2.01 hereof.
"Development Projects" -- the real property and improvements to be constructed,
furnished and equipped in accordance with the Approved Budgets for Development
Projects, as from time to time approved by the Purchaser, including, but not
limited to, all property (tangible and intangible) owned or to be acquired by
BSL or Purchaser in connection therewith. Each Development Project approved by
Purchaser (which approval is limited in each case solely to Phase I of such
Development Project, as described in Schedule I) is described in Schedule 1
attached hereto; with respect solely to Phase I of each Development Project
listed on Schedule 1 hereto, BSL is authorized to proceed prior to the Closing
Date in accordance with the terms of the Approved Budget for such Development
Project.
"Dispute Notice" -- as defined in Section 11.03 hereof.
"EBITDA" -- earnings before interest, taxes, depreciation and amortization.
"Effective Time" -- as defined in Section 2.02 hereof.
"Employee Plans" -- all Benefit Arrangements, Multiemployer Plans, Pension Plans
and Welfare Plans.
"Environmental Claims" -- all notices of violations, liens, claims, demands,
suits, or causes of action for any damage, including, without limitation,
personal injury, property damage (including, without limitation, any
depreciation or diminution of property values), lost use of property or
consequential damages, arising directly or indirectly out of Environmental
Conditions or Environmental Laws. By way of example only (and not by way of
limitation), Environmental Claims include:
(i) violations of or obligations under any contract related to
Environmental Laws or Environmental Conditions between the Company (or BSL, CMC
or a BSL Partnership) and any other person,
(ii) actual or threatened damages to natural resources,
(iii) claims for nuisance or its statutory equivalent,
(iv) claims for the recovery of response costs, or
administrative or judicial orders directing the performance of investigations,
responses or remedial actions under any Environmental Laws,
(v) requirements to implement "corrective action" pursuant to
any order or permit issued pursuant to the Resource Conservation and Recovery
Act, as amended, or similar provisions of applicable state law,
6
<PAGE> 7
(vi) claims related to Environmental Laws or Environmental
Conditions for restitution, contribution, or indemnity,
(vii) fines, penalties or liens of any kind against property
related to Environmental Laws or Environmental Conditions
(viii) claims related to Environmental Laws or Environmental
Conditions for injunctive relief or other orders or notices of violation from
federal, state or local agencies or courts, and
(ix) with regard to any present or former employees, claims
relating to exposure to or injury from Environmental Conditions.
"Environmental Conditions" -- the state of the environment, including natural
resources (e.g., flora and fauna), soil, surface water, ground water, any
present or potential drinking water supply, subsurface strata or ambient air,
relating to or arising out of the use, handling, storage, treatment, recycling,
generation, transportation, release, spilling, leaking, pumping, pouring,
emptying, discharging, injecting, escaping, leaching, disposal, dumping or
threatened release of Hazardous Substances, by the Company, BSL, CMC or a BSL
Partnership or its or their predecessors in interest, or by its or their agents,
representatives, employees or independent contractors when acting in such
capacity on behalf of any one or more of the Company, BSL, CMC or a BSL
Partnership. With respect to environmental Claims by third parties,
Environmental Conditions also include the exposure of persons to Hazardous
Substances at the work place or the exposure of persons or property to Hazardous
Substances migrating from or otherwise emanating from or located on any of the
BSL Facilities or BSL Managed Facilities.
"Environmental Laws" -- all applicable federal, state, district, local and
foreign laws, all rules or regulations promulgated thereunder, and all orders,
consent orders, judgments, notices, permits or demand letters issued,
promulgated or entered pursuant thereto, relating to pollution or protection of
the environment (including, without limitation, ambient air, surface water,
ground water, land surface, or subsurface strata), including, without
limitation,
(i) laws relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants, chemicals, industrial
materials, wastes or other substances into the environment and
(ii) laws relating to the identification, generation,
manufacture, processing, distribution, use, treatment, storage, disposal,
recovery, transport or other handling of pollutants, contaminants, chemicals,
industrial materials, wastes or other substances.
Environmental Laws shall include, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), the Toxic
7
<PAGE> 8
Substances Control Act, as amended ("TSCA"), the Hazardous Materials
Transportation Act, as amended, the Resource Conservation and Recovery Act, as
amended ("RCRA"), the Clean Water Act, as amended, the Safe Drinking Water Act,
as amended, the Clean Air Act, as amended, the Atomic Energy Act of 1954, as
amended, the Occupational Safety and Health Act, as amended ("OSHA"), the
Hazardous Substance Account Act, California Health and Safety Code ss. 25300, et
seq., the Hazardous Waste Control Law, California Heath and Safety Code ss.
25100, et seq., and the Porter-Cologne Water Quality Control Act, California
Water Code ss. 13000 et seq., and all analogous laws promulgated or issued by
any state or other governmental authority.
"Environmental Reports" -- any and all written analyses, summaries or
explanations, in the possession or control of the Company, BSL, CMC or a BSL
Partnership of (a) any Environmental Conditions in, on or about the BSL
Facilities or BSL Managed Facilities or (b) the compliance by the Company, BSL,
CMC or a BSL Partnership with Environmental Laws.
"ERISA" -- the Employee Retirement Income Security Act of 1974, as amended.
"ERISA Affiliate" -- any entity which is (or at any relevant time was) a member
of a "controlled group of corporations" with or under "common control," as
defined in Section 414(b), (c), (m), (n) or (o) of the Code, with the Company or
any of its Subsidiaries.
"Escrow Account" -- the Brim/Senior Living Escrow Account and the FV Escrow
Account, collectively.
"Escrow Agreement" -- an agreement in the form of Exhibit A hereto.
"Escrowee"-- Key Bank of Oregon.
"Excluded Assets Transaction"- as defined in Recital B hereof.
"Facilities" -- the BSL Facilities and the BSL Managed Facilities.
"Financial Statement Loss Threshold"-- as defined in Section 11.05(a) hereof.
"Former Holders"-- the Former Holders of the Redeemed Stock, GECC, and the
former holders of the Accelerated Options and/or the Purchased Options (as such
terms are defined in the investment Agreement).
"Former Holders of the Redeemed Stock"-- the shareholders of the Company whose
junior preferred stock is redeemed at the Closing of the Healthcare Transaction.
"Freedom Village Transaction"-- as defined in Recital E hereof.
"FV Escrow Account"-- the FV Escrow Account established with the Escrowee in
accordance
8
<PAGE> 9
with the Escrow Agreement and the documents relating to the Freedom Village
Transaction.
"GAAP" -- generally accepted accounting principles in effect as of the date
hereof or, in the case of any Company Financial Statement, in effect as of the
date thereof.
"GECC" -- General Electric Capital Corporation.
"Governmental Authority" -- any court, tribunal, arbitrator, authority, agency,
department, commission, office, official or other federal, state, county, city
or other governmental instrumentality or any state, county, city or other
political subdivision.
"Hazardous Substance(s)" -- all pollutants, contaminants, chemicals, wastes, and
any other carcinogenic, ignitable, corrosive, reactive, toxic or otherwise
hazardous substances or materials (whether solids, liquids or gases) subject to
regulation, control or remediation under Environmental Laws. By way of example
only, the term Hazardous Substances includes: petroleum; urea formaldehyde;
flammable, explosive and radioactive materials, as defined in any of the
Environmental Laws; PCBs; pesticides; herbicides; asbestos; and sludge, slag,
acids, metals, solvents and waste waters listed or otherwise defined as
hazardous under any of the Environmental Laws.
"Healthcare Transaction" -- as defined in Recital A hereof.
"Income Taxes" -- any and all foreign, federal, state and local taxes, levies,
duties and other assessments or charges of a similar nature (whether imposed
directly or through withholding), to the extent based upon or measured by
income, including any interest, penalties or other additions to tax applicable
thereto.
"Indemnified Party" -- as defined in Section 11.03 hereof.
"Independent Accountants" -- the Portland, Oregon, office of KPMG Peat Marwick
LLP.
"Interim Financial Statements" -- as defined in Section 4.05 hereof.
"Key Employees" -- all officers, managers and other employees of the Company or
any of its Subsidiaries (with respect to the BSL Senior Living Business) or BSL,
CMC or a BSL Partnership involved as of the date hereof and anticipated to be
involved from and after the Effective Time in the day to day operations of the
BSL Senior Living Business, whose current annual salary or rate of compensation
(including bonus and other incentive compensation) is $100,000 or more.
"Laws" -- any constitution statute, law, rule, regulation or ordinance.
"Liens" -- any liens, security interests, deeds of trust, pledges, charges,
conditional sales
9
<PAGE> 10
contracts, mortgages or encumbrances.
"Limitation Period"-- as defined in Section 11.05(a) hereof.
"Limited Partnership Transaction"-- as defined in the agreement relating to the
Freedom Village Transaction.
"Loss Notice"-- as defined in Section 11.03 hereof.
"Losses" -- any and all claims, damages, losses, expenses, deficiencies,
penalties, interest, fines, costs (including reasonable attorneys' fees and
court costs), obligations or liabilities of any kind suffered or incurred
because of a breach of one or more of the representations, warranties and
covenants set forth in this Agreement or because of one or more Third Party
Claims.
"Loss Threshold"-- as defined in Section 11.05(a) hereof.
"Material Adverse Effect"-- any event or events (A) adversely affecting (i) the
BSL Assets by $150,000 or more, or (ii) the business operations or affairs of
the BSL Senior Living Business, or the prospects of the BSL Senior Living
Business as reflected in the Approved Business Plan, in either case having an
adverse effect (after taking into account any events or series of events having
a positive effect) on EBITDA for any consecutive 12-month period covered by the
Approved Business Plan, in excess off $150,000, (B) materially adversely
affecting the ability of the Company or BSL to perform its obligations
hereunder, or (C) otherwise materially adversely affecting the BSL Senior Living
Business.
"Merger Consideration"-- the dollar amount determined by deducting the amount of
the Related Assets Consideration from Fifteen Million Dollars ($15,000,000).
"Merger" -- the Merger described in Section 2.2, as defined in Recital D hereof.
"Multiemployer Plan" -- any "multiemployer plan" as defined in Sections 3(37) or
400l(a)(3) of ERISA:
(i) which any of the Company and its Subsidiaries, or any
ERISA Affiliate maintains, administers, contributes to or is required to
contribute to, or, within the six years prior to the Closing Date maintained,
administered, contributed to or was required to contribute to, or under which
any of the company and its Subsidiaries or any ERISA Affiliate may incur any
liability; and
(ii) which covers any employee or former employee of any of
the Company and its Subsidiaries or any ERISA Affiliate (with respect to their
relationship with such entities).
"Operating Agreement" -- the limited liability company operating agreement of
Encore Senior
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Living LLC, of even date herewith by and among Rockwood Living Inc., CTK Capital
Corp., SSS Capital Corp., Bruce A. Schoen, Craig J. Rhea, Rick D. McDaniel,
Encore Investors LLC and A.E. Brim.
"Orders" -- any injunction, judgment, decree, order, or writ.
"Oregon Act" -- as defined in Section 2.02 hereof.
"Other Required Agreements"-- as defined in Section 7.01(k) hereof.
"Outside Closing Date"-- as defined in Section 3.01 hereof.
"Pension Plan" -- any "employee pension benefit plan" as defined in Section 3(2)
of ERISA (other than a Multiemployer Plan):
(i) which any of the Company and its Subsidiaries or any ERISA
Affiliate maintains, administers, contributes to or is required to contribute
to, or within the five years prior to the Closing Date, maintained,
administered, contributed to or was required to contribute to, or under which
any of the Company and its Subsidiaries or any ERISA Affiliate may incur any
liability; and
(ii) which covers any Employee or former employee of any of
the Company and its Subsidiaries or any ERISA Affiliate (with respect to their
relationship with such entities).
"Permitted Exceptions" --
(i) any liens for taxes and assessments not yet due and
payable;
(ii) liens in favor of vendors, carriers, warehousemen,
repairmen, mechanics, workmen, materialmen, construction or similar liens
arising by operation of law in respect of obligations that are not yet due or
that are being contested in good faith and for which adequate reserves have been
provided for on the Pro Forma Balance Sheet;
(iii) liens associated with purchase money security interests,
provided, in each case, that the associated liability has been provided for on
the Pro Forma Balance Sheet or has been established in relation to assets
purchased subsequent to the date of such Pro Forma Balance Sheet;
(iv) easements, reservations, rights-of-way, restrictions,
covenants, conditions and other similar encumbrances whether of record or
apparent on the premises, including, but not limited to road, highway, pipeline,
railroad and utility easements and defects in the title which individually or in
the aggregate do not materially and adversely affect the present use,
marketability or insurability (under the terms of an applicable title insurance
policy) of any
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Facility; and
(v) any Liens disclosed in the Title Reports.
"Personnel" -- as defined in Section 4.06(b).
"Pro Forma Balance Sheet" -- as defined in Section 4.05 hereof.
"Related Assets Consideration" -- an amount equal to the book value of the
Related Assets as of the Closing Date.
"Related Assets" -- the stock of CMC and the other assets described on Schedule
1O hereto.
"Related Assets and Liabilities Transaction"-- as defined in Recital D hereof.
"Rights" -- as defined in Section 4.02(a) hereof.
"Subsidiary" -- a corporation, partnership or other entity (excluding the BSL
Partnerships) 20% or more of the voting power or value of which is owned by the
referenced corporation, partnership or other entity,
"Surviving Entity" -- the Purchaser, as constituted following the Merger, as
defined in Recital D hereof.
"Taxes" -- any and all foreign, federal, state and local taxes, levies, duties
and other assessments or charges of a similar nature (whether imposed directly
or through withholding), including any interest, penalties or additions to tax
applicable thereto.
"Third Party Consents" -- as defined in Section 6.03(f) hereof.
"Third Party Claim" -- as defined in Section 11.03 hereof.
"Title Reports" -- the title reports and title insurance policies described in
Schedule 11 attached hereto.
"Welfare Plan" -- any "employee welfare benefit plan" as defined in Section 3(1)
of ERISA:
(i) which any of the Company and any of its Subsidiaries or
any ERISA Affiliate maintains, administers, contributes to or is required to
contribute to, or under which any of the Company and any of its Subsidiaries or
any ERISA Affiliate may incur any liability; and
(ii) which covers any employee or former employee of any of
the Company and any of its Subsidiaries or any ERISA Affiliate (with respect to
their relationship with such
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entities).
Other References. References to articles, sections (or any subsections),
schedules or exhibits are to those of this Agreement unless otherwise indicated.
ARTICLE II
THE MERGER AND THE SALE TRANSACTIONS
The Merger. On the Closing Date, BSL shall be merged into Purchaser in
accordance with the terms hereof:
2.01 Effect of the Merger. In accordance with the provisions of this
Agreement and the Delaware Corporation Law (the "Delaware Law"), at the
Effective Time (as defined in Section 2.02 hereof), (i) BSL shall be merged with
and into Purchaser; (ii) the separate existence of BSL shall cease; and (iii)
the Surviving Entity shall continue its corporate existence under the laws of
the State of Delaware.
2.02 Effective Time of the Merger. Articles of Merger shall be filed
with the Offices of the Secretary of State of Delaware and Oregon in accordance
with the Delaware Act and the Oregon Business Corporation Act (the "Oregon Act")
on the Closing Date. The "Effective Time" shall occur at such time as the Merger
shall have become effective in Delaware and Oregon. Notwithstanding the
foregoing or anything herein to the contrary, prior to the Closing Date BSL may
be reincorporated in the State of Delaware in which event the Merger shall be in
accordance with Delaware law, provided that the Company and Purchaser, each
acting in its sole discretion, agrees to such reincorporation and to the
documents by which the same is to be accomplished.
2.03 Certificate of Formation and Operating Agreement. At the Effective
Time:
(i) the Certificate of Formation of Purchaser as in effect
immediately prior to the Effective Time shall be the Certificate of Formation of
the Surviving Entity; and
(ii) the Operating Agreement of the Purchaser in effect
immediately prior to the Effective Time shall be the Operating Agreement of the
Surviving Entity.
2.04. Conversion and Exchange of Stock at Closing. At or before the
Effective Time, the Company shall surrender to the Purchaser certificates
representing all of the issued and outstanding shares of capital stock of BSL
(collectively, the "Company Certificate"). At the Effective Time, by virtue of
the Merger and without any action on the part of the Company:
(a) all shares of BSL common stock which are held in treasury shall be
canceled;
(b) all issued and outstanding shares of capital stock of BSL (other
than shares canceled pursuant to subsection (a) above) shall be converted into
the right to receive the Merger
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Consideration as hereinafter provided.
2.05. Deposit of Consideration: Exchange of Certificates. At and after
the Effective Time, the Company shall cease to have any rights as a shareholder
of BSL, except for the right to surrender the Company Certificate and to receive
the Merger Consideration, in accordance with the terms hereof, and the stock
transfer books of BSL shall be closed, and there shall be no further transfer of
shares of BSL capital stock which were outstanding immediately before the
Effective Time.
2.06. Other Conveyances.
(a) At the Effective Time, the Company shall transfer and deliver to
Purchaser, pursuant to conveyancing documents in form and substance reasonably
satisfactory to Purchaser and executed by the Company and Purchaser, as
appropriate, all of the stock of CMC and all of the other Related Assets, and
the Purchaser shall assume all of the Assumed Related Liabilities. In exchange
therefor, the Company shall be entitled to receive from the Purchaser the
Related Assets Consideration, as hereinafter provided.
(b) At or before the Effective Time, the Company shall deliver to
Purchaser a schedule which itemizes all amounts to be included in the Advance
Reimbursement (the "Advance Reimbursement Schedule"), together with the lien
waivers, releases and subordinations required under Section 6.01(q) hereof.
2.07. Payment Procedures. At the Effective Time, upon compliance with
Sections 2.04, 2.05 and 2.06 hereof, Purchaser shall pay the Merger
Consideration, the Advance Reimbursement and the Related Assets Consideration by
delivering:
(a) Fourteen Million Two Hundred Thousand and no/100 Dollars
($14,200,000), plus the Advance Reimbursement, by wire transfer, in immediately
available funds, to a bank account designated by the Company;
(b) Seven Hundred Fifty Thousand and no/100 Dollars ($750,000), by wire
transfer, in immediately available funds, to an interest bearing escrow account
established with the Escrowee and designated as the "Brim/Senior Living Escrow
Account" to be held and applied by the Escrowee in accordance with the terms of
this Agreement and the Escrow Agreement; and
(c) Fifty Thousand and no/100 Dollars ($50,000), by wire transfer, in
immediately available funds, to an interest bearing escrow account established
with the Escrowee and designated as the "Agent/Legal Fees Expense Account" to be
held and applied by the Escrowee in accordance with the terms of the agreement
applicable to such account.
The Company acknowledges and agrees that the Purchaser's obligation to
pay the Merger Consideration, the Advance Reimbursement and the Related Assets
Consideration shall be fully
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satisfied upon completion of the above-described wire transfers.
ARTICLE III
CLOSING
3.01 Deliveries by the Company at Closing. In the event all of the
conditions to Closing set forth in Articles VII and VIII have been satisfied or
waived, the Company shall deliver all certificates, documents, exhibits,
schedules, and other instruments required to be delivered at Closing by the
Company or its counsel pursuant to this Agreement, each of which shall be fully
executed and completed, as appropriate.
3.02 Deliveries by Purchaser at Closing. In the event all of the
conditions to Closing set forth in Articles VII and VIII have been satisfied or
waived, Purchaser shall deliver and/or cause its designees to deliver all of the
certificates, documents, exhibits, schedules, and other instruments required to
be delivered at Closing by Purchaser and/or its designees or its or their
counsel, pursuant to this Agreement, each of which shall be fully executed and
completed, as appropriate and shall remit or cause to be remitted to the Company
the consideration described in Section 2.07.
3.03 Time and Place. The Closing shall occur at the Chicago offices of
Latham & Watkins at 10:00 am, local time, on December 13, 1996, provided that as
of said date all of the conditions to Closing set forth in Articles VII and VIII
have been satisfied by the responsible party or waived by the party entitled to
waive the same (the "Closing Date"), or at such other time or on such other date
or such other place as the Company and Purchaser may mutually agree, but in no
event later than December 17, 1996 (the "Outside Closing Date"). In the event
all of the conditions to Closing have not been satisfied or waived as of the
Outside Closing Date, either party shall thereafter have the right to terminate
this Agreement in accordance with the terms of Article X hereof.
ARTICLE IV
THE COMPANY'S REPRESENTATIONS AND WARRANTIES
The Company and BSL jointly and severally represent and warrant to
Purchaser as follows:
4.01. Organization and Qualification.
(a) The Company is a corporation duly organized and validly existing
under the laws of the State of Oregon.
(b) Each of BSL and CMC is a corporation duly organized and validly
existing under the laws of the State of Oregon (provided that BSL may
reincorporate in the State of Delaware
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prior to the Closing if the parties agree to same as provided herein). Each of
BSL and CMC has all corporate power and authority necessary to conduct its
business as and to the extent now conducted and to own, use and lease its assets
and properties.
(c) Each of BSL and CMC is duly qualified, licensed or admitted to do
business and in good standing (to the extent "good standing" is applicable in
each jurisdiction) in each jurisdiction in which the ownership, use or leasing
of its assets and properties, or the conduct or nature of its business, makes
such qualification, licensing or admission necessary. Section 4.01(c) of the
Company Disclosure Letter sets forth the foreign jurisdictions in which BSL and
CMC are qualified to do business.
(d) Each BSL Partnership is duly formed and validly existing in the
state of its formation and licensed or admitted to do business and is in good
standing (to the extent good standing is applicable in each jurisdiction) in
each jurisdiction in which the ownership, use, or leasing of its assets and
properties, or the conduct or nature of its business, makes such qualification,
licensing, or admission necessary.
(e) Neither BSL nor CMC has any direct or indirect Subsidiaries, and
neither of them owns, directly or indirectly, any equity or similar interest in,
or any interest convertible into or exchangeable or exercisable for, any equity
or similar interest in, any partnership, limited liability company, joint
venture or other business association or entity. Neither BSL nor CMC will have
any Subsidiaries on the Closing Date.
4.02. Capital Stock.
(a) The authorized capital stock of BSL consists solely of 1,000 shares
of common stock, without par value, 100 of which are issued and outstanding. All
of such issued and outstanding shares of common stock are owned beneficially and
of record by the Company (the "Common Stock") free and clear of all Liens,
claims and encumbrances and with full right, power and authority to transfer
such shares to the Purchaser. There are no outstanding subscriptions, options,
warrants, rights (including "phantom" stock rights), preemptive rights or other
contracts, commitments, understandings or arrangements, including any right of
conversion or exchange under any outstanding security, instrument or agreement
(together, "Rights"), obligating BSL, CMC or any BSL Partnership to issue or
sell any shares of its capital stock or to grant, extend or enter into any Right
with respect thereto nor any voting trusts, proxies or other commitments,
understandings, restrictions or arrangements in favor of any person with respect
to the voting of or the right to participate in dividends or other earnings on
any capital stock or other equity security of or interest in BSL, CMC or any BSL
Partnerships.
(b) The outstanding shares of Common Stock have been duly authorized,
validly issued, fully paid and nonassessable.
(c) There are no outstanding obligations by BSL, CMC or any BSL
Partnership
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provide funds to, or make any investment (in the form of a loan, capital
contribution or otherwise) in, any other person.
4.03. Authority Relative to this Agreement. Each of the Company and BSL
has full corporate power and authority to enter into this Agreement and each
other instrument, document and agreement necessary to consummate the
transactions contemplated hereby and perform its obligations hereunder. The
execution, delivery and performance of this Agreement by each of the Company and
BSL and the consummation by each of them of the transactions contemplated hereby
have been duly and validly approved by their respective Boards of Directors, and
no other corporate proceedings are necessary to authorize the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby, by either the Company or BSL, other than
securing the approval of the Company's shareholders. The Company shall use its
best efforts to secure required its shareholders' approval, including without
limitation its shareholders' approval of the execution and delivery of this
Agreement by the Agent and performance of the Agent's obligations hereunder, in
accordance with the provisions of Section 6.01(j) hereof. Subject to obtaining
such shareholder approval, this Agreement has been duly and validly executed and
delivered by each of the Company, BSL and the Agent and constitutes a legal,
valid and binding obligation of each of them and is enforceable against each of
them in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
4.04. Approvals and Consents. The execution and delivery of this
Agreement by the Company and BSL does not, and except as described in Section
4.04 of the Company Disclosure Letter and as described in Section 6.01(j)
hereof, the performance by the Company and BSL of its or their obligations
hereunder and the consummation of the transactions contemplated hereby will not:
(a) conflict with, result in a violation or breach of, constitute (with
or without notice or lapse of time or both) a default under, result in or give
to any person any right of payment or reimbursement, termination, cancellation,
modification or acceleration of, or of notice under, any agreement, contract,
lease, license, permit, note, instrument or other document to which the Company,
any of its Subsidiaries, BSL, CMC or any BSL Partnership is a party or by which
any of them is bound or to which any asset or property of any of them is
subject, or
(b) violate any Laws or Orders of a Governmental Authority, applicable
to the Company, any of its Subsidiaries, BSL, CMC, any BSL Partnership or any of
its or their respective assets or properties, or the articles of incorporation
or bylaws (or other comparable charter or organizational documents, including
the BSL Partnership Agreements) of the Company, any of its subsidiaries, BSL,
CMC or any BSL Partnership, or
(c) require any consent, approval or action of, or permit from, or
filing, or registration
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with or notice to any Governmental Authority or other public or private third
party.
4.05. Financial Statements.
(a) On or before the date hereof, the Company has delivered to
Purchaser the following (collectively, the "Company Financial Statements"):
(i) a true and complete copy of the audited consolidated
balance sheet of the Company and its consolidated Subsidiaries, including BSL
and CMC, as of December 31, 1995 and the related statements of operations,
stockholders' equity, and cash flows and the report thereon by the Independent
Accountants;
(ii) a true and complete copy of the unaudited consolidated
balance sheet of the Company and its consolidated Subsidiaries, including BSL
and CMC, as of June 30, 1996 and the related statements of operations,
stockholders' equity and cash flow for the fiscal period ended on such date (the
"Interim Financial Statements"); and
(iii) an unaudited combined pro forma balance sheet of BSL and
CMC as of June 30, 1996, giving effect to the transfers contemplated in the
Related Assets and Liabilities Transaction and the Excluded Assets Transaction,
and reviewed by the Independent Accountants (the "Pro Forma Balance Sheet").
The parties have executed an acknowledgment identifying the Pro Forma
Balance Sheet and the Interim Financial Statements. The Company Financial
Statements were prepared in accordance with GAAP applied on a consistent basis
during the periods involved (except as may be indicated therein or in the notes
thereto), are in conformity with the books and records of the Company, and
fairly present the consolidated financial position of the Company and its
consolidated Subsidiaries, including BSL and CMC (or BSL and CMC and the other
Related Assets, in the case of the Pro Forma Balance Sheet), as at the
respective dates thereof and the consolidated or combined, as applicable,
results of their operations, stockholders' equity and cash flows for the
respective periods then ended.
(b) The amount of stockholders' equity, as shown in an unaudited
combined balance sheet of BSL and CMC to be prepared by Purchaser (as
contemplated by Section 11.05 hereof) as of the Closing on the Closing Date (on
the same basis as the Pro Forma Balance Sheet, i.e., by giving effect to the
transfers contemplated in the Related Assets and Liabilities Transaction and the
Excluded Assets Transaction and by excluding the effect of the merger of BSL
into the Purchaser), will not be less than the amount of stockholders' equity
shown in the Pro Forma Balance Sheet.
4.06. Absence of Certain Changes or Events. Except as set forth in
Section 4.06 of the Company Disclosure Letter, or as permitted by Article 6,
since June 30, 1996 there has not been any:
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(a) (i) change, event or development having, or that would be
reasonably expected to have an adverse effect on the Company with respect to the
BSL Senior Living Business and/or on BSL, CMC or any BSL Partnership except in
the ordinary course of business consistent with past practice and involving not
more than $100,000 in the aggregate. Nothing herein shall be construed as
requiring the Company to disclose to Purchaser generally known changes in the
senior living business which may, could or would have an effect on the Company,
BSL or Purchaser either prior to or after the Closing, it being understood and
agreed that Purchaser and its members are sophisticated investors in and
purchasers of companies in the senior living business and can and will keep
themselves advised as to any such general developments.
(b) (i) except for normal periodic increases in the ordinary course of
business consistent with past practice, increase in the compensation payable or
to become payable by the Company (with respect to the BSL Senior Living
Business), BSL, CMC or any BSL Partnership to any of its officers, employees or
former employees or individuals involved in the BSL Senior Living Business
(collectively, "Personnel").
(ii) grant, payment or accrual, contingent or otherwise, for
or to the credit of any of the Personnel with respect to any bonus, incentive
compensation, service award or other like benefit;
(iii) adoption, creation or amendment of any Employee Plan of
BSL or CMC;
(iv) employment agreement (written or verbal) made by the
Company (with respect to the BSL Senior Living Business), BSL, CMC or any BSL
Partnership or to which any of them is a party; or
(v) other change in employment terms for any of the Personnel;
(c) sale, lease, assignment or transfer of any of the Facilities, the
BSL Leases, the BSL Management Contracts, BSL's partnership or member interests
in the BSL Partnerships, the Development Projects or the Related Assets.
(d) cancellation, compromise, waiver or release of any right or claim
(or series of related rights or claims) of BSL, CMC or the BSL Senior Living
Business except with respect to the Excluded Assets, and except in the ordinary
course of business consistent with past practice and involving not more than
$100,000 in the aggregate.
(e) amendment, cancellation or termination of any agreement, contract,
permit, license, note, instrument or other document or arrangement of the
Company and its Subsidiaries (with respect to the BSL Senior Living Business),
BSL, CMC, any BSL Partnership or the BSL Senior Living Business, except in the
ordinary course of business consistent with past practice and involving not more
than $100,000 in the aggregate.
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(f) capital expenditure or the execution of any lease, contract,
license, sublease or sublicense (or series of related contracts, leases,
subleases, licenses and sublicenses) or any incurring of liability therefor by
the Company and its Subsidiaries (with respect to the BSL Senior Living
Business), BSL, CMC, or any BSL Partnership, except with respect to the Excluded
Assets and the Development Projects, and except in the ordinary course of
business consistent with past practice and involving not more than $100,000 in
the aggregate.
(g) failure to operate the BSL Senior Living Business in the ordinary
course consistent with past practice, which failure has resulted in an adverse
effect with respect to (i) the preservation of the BSL Senior Living Business,
(ii) the availability to the Purchaser of the services of the Personnel involved
in the BSL Senior Living Business or of BSL or CMC or (iii) the preservation for
Purchaser of the goodwill of suppliers, customers, distributors and others
having business relations with the Company with respect to the BSL Senior Living
Business or BSL or CMC;
(h) change in accounting methods or practices by the Company (with
respect to the BSL Senior Living Business), BSL or CMC;
(i) grant of a lien, mortgage, pledge or other encumbrance on any of
the Related Assets or the BSL Assets, or the assets of any BSL Partnership,
other than Permitted Exceptions;
(j) declaration, setting aside for payment or payment of any dividend
or distribution in respect of any capital stock of BSL or CMC or interest in any
BSL Partnership or any redemption, purchase, or other acquisition of any of
BSL's, CMC's or any BSL Partnership's equity securities or interests except
distributions made in accordance with the applicable provisions of the BSL
Partnership Agreements;
(k) Debt, or any commitment to incur Debt, or any loan or guarantee
incurred, entered into, made or agreed to be made by the Company and its
Subsidiaries (with respect to the BSL Senior Living Business) or by BSL, CMC or
any BSL Partnership, except for intercompany Debt with respect to the
Development Projects;
(l) liabilities incurred (other than for Debt) except as part of the
Development Projects and except in the ordinary course of business and
consistent with past practice and involving not more than $100,000 in the
aggregate;
(m) acceleration, termination, material modification, cancellation or
threatened acceleration, termination, material modification or cancellation of
any contract involving more than $100,000 in the aggregate to which the Company
(with respect to the BSL Senior Living Business), BSL, CMC or any BSL
Partnership is a party or by which any of them is bound or to which any of the
assets or properties of any of them is subject;
(n) grant of any license or sublicense of any rights under or with
respect to any
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intellectual property rights of the Company which relate to the BSL Senior
Living Business or of BSL or CMC;
(o) written agreement or, to the knowledge of the Company or BSL, oral
agreement by the Company or BSL or any Key Employee to do any of the foregoing;
or
(p) other event or condition of any character (other than events or
conditions affecting the economy generally or the senior living business
generally and other than events in the ordinary course of business) known to the
Company or BSL that individually or in the aggregate would reasonably be
expected to have an effect that is materially adverse on BSL, CMC, a BSL
Partnership or the BSL Senior Living Business.
4.07 Accounts Receivable. The accounts receivable of BSL reflected on
the Pro Forma Balance Sheet, and all accounts receivable arising since the date
of the Pro Forma Balance Sheet, represent bona fide claims against debtors for
sales made, services performed or other charges arising on or before the date
hereof, all the goods delivered and services performed that gave rise to said
accounts were delivered or performed in accordance with the applicable orders,
contracts or customer requirements in all material respects, and all of such
accounts are collectible in the ordinary course of business or adequate loss
reserves therefor have been established.
4.08 Inventories. The values at which inventories of BSL are shown on
the Pro Forma Balance Sheet have been determined in accordance with the normal
valuation policy of the Company as described in the Company Financial
Statements, consistently applied, and in accordance with GAAP. The inventories
(and items of inventory acquired subsequent to June 30, 1996) consist only of
items of quality and quantity commercially usable and salable in the ordinary
course of business except for any items of obsolete material or material below
standard quality, all of which have been written down to realizable market
value, or for which adequate reserves have been provided on the Pro Forma
Balance Sheet. All inventories not written off have been priced at cost on a
first in, first out basis. The inventory and consumable supplies located at and
used in connection with the operation of the BSL Facilities are in a good and
useable condition in all material respects and sufficient in quantity and
quality to operate those BSL Facilities which are currently operational in a
manner consistent with the past practices of the Company and BSL.
4.09. Legal Proceedings.
(a) Except as set forth in Section 4.09(a) of the Company Disclosure
Letter, there is no charge, complaint, action, order, writ, injunction, judgment
or decree outstanding or claim, suit, litigation, investigation, audit,
proceeding, labor dispute or arbitration proceeding (collectively, "Actions")
pending or, to the knowledge of the Company or BSL, threatened or anticipated
before any court, arbitrator or other public or private tribunal or before or by
any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, relating to or
affecting:
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(i) BSL, CMC or a BSL Partnership, the BSL Assets or the
assets of CMC or a BSL Partnership, or the operation of the BSL Senior Living
Business as currently operated,
(ii) any Employee Plan of CMC or any trust or other funding
instrument, fiduciary or administrator thereof, or
(iii) the transactions contemplated by this Agreement,
(b) Neither the Company nor its Subsidiaries (with respect to the BSL
Senior Living Business) nor BSL nor CMC nor any BSL Partnership is in default
with respect to any Order of any Governmental Authority with respect to the BSL
Senior Living Business and there are no unsatisfied uninsured judgments against
the Company and its Subsidiaries, BSL, CMC or any BSL Partnership.
4.10. Information Supplied. Each document filed by the Company, any
Subsidiary of the Company, BSL, or CMC or by any of them on behalf of the BSL
Partnerships with any Governmental Authority in connection with this Agreement
and the other transactions contemplated hereby does not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading, except that no
representation is made by the Company or BSL with respect to information
supplied in writing by or on behalf of Rockwood Living, Inc. or the Rockwood
Living, Inc. Affiliates of Purchaser expressly for inclusion therein.
4.11. Compliance with Laws and Orders.
(a) BSL or the applicable BSL Partnership holds all permits, licenses,
variances, exemptions, orders and approvals of all Governmental Authorities
necessary for the leasing, management or operation of the BSL Facilities (other
than the Development Projects) and the BSL Managed Facilities and for the lawful
conduct of the BSL Senior Living Business (the "BSL Permits").
(b) BSL or the applicable BSL Partnership is in compliance in all
material respects with the terms of the BSL Permits held by it, and is not in
violation of or default under any Law or Order of any Governmental Authority
applicable to it.
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4.12. Compliance with Agreements: Certain Agreements.
(a) Except as disclosed in Section 4.12(a) or 4.12(b) of the Company
Disclosure Letter, none of the Company or its Subsidiaries (with respect to
contracts that relate to the business, assets, prospects or operations of BSL,
CMC or the BSL Senior Living Business) or BSL, CMC or any BSL Partnership is a
party to, or bound by, any contract of any kind to be performed after the
Closing Date pursuant to which it is obligated to spend more than $50,000 in any
twelve month period and which is not subject to cancellation by it on thirty
(30) or fewer days' notice.
(b) Section 4.12(b) of the Company Disclosure Letter lists the
following contracts to which the Company (with respect to contracts that relate
to the BSL Senior Living Business) or BSL, CMC or a BSL Partnership is a party:
(i) each BSL Management Contract;
(ii) each BSL Lease;
(iii) each BSL Partnership Agreement;
(iv) each agreement, contract or arrangement with any
consultant, not terminable on 30 days' or less notice involving the payment of
more than $50,000 per annum except architect agreements and contractor
agreements for the Development Projects;
(v) each union or collective bargaining agreement;
(vi) each agreement contract, arrangement, commitment or
obligation with any employee the benefits of which are contingent or vest, or
the terms of which are materially altered, upon the occurrence any of the
transactions contemplated by this Agreement;
(vii) each agreement, contract, arrangement, commitment or
obligation with respect to any Key Employee involved in the BSL Senior Living
Business other than salaries and benefits paid in the ordinary course of
business;
(viii) each agreement or plan, including any bonus, incentive
compensation, stock option, stock appreciation right, restricted stock or stock
purchase agreement or plan, any of the benefits of which will be increased by,
vested on an accelerated basis as a result of, or calculated or valued based on
the occurrence of any of the transactions contemplated by this Agreement. It is
understood and agreed that all of the foregoing in this clause (viii) is the
responsibility of the Company;
(ix) each agreement, contract arrangement, commitment or
obligation to which it is a party limiting in any material respect its freedom
or the freedom of any Key
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Employee to compete in any line of business with any person;
(x) each agreement, contract, arrangement, commitment or
obligation evidencing any liability for Debt in excess of $100,000;
(xi) each agreement, contract, arrangement, commitment,
understanding or obligation relating to it, its present or prospective business,
operations, properties or assets in which any Key Employee has any interest,
direct or indirect, including a description of any transactions between it and
any Key Employee or any entity in which any Key Employee has any interest (other
than transactions between any corporation and a publicly held corporation in
which the Key Employee holds less than five percent (5%) of the issued and
outstanding shares of capital stock); and
(xii) each oral contract or agreement with respect to any of
the matters referred to in the foregoing clauses (i) through (xi) and any oral
or written proposal to enter into any contract, agreement or other arrangement
with respect to any of the matters referred to in the foregoing clauses (i)
through (xi).
(c) The Company has delivered or made available to Purchaser a correct
and complete copy of each contract or agreement listed in Section 4.12(b) of the
Company Disclosure Letter. With respect to each written agreement listed, to the
Company's knowledge (based on a review of the files related to the BSL Senior
Living Business maintained at the corporate offices of the Company, BSL and CMC,
inquiries of employees located at the corporate offices of the Company, BSL and
CMC and involved in the BSL Senior Living Business, and inquiries of the onsite
administrators at the facilities), (A) the written agreement is legal, valid,
binding, enforceable (except as such enforceability may be limited by (i)
bankruptcy, insolvency, moratorium, reorganization and other similar laws
affecting creditors' rights generally and (ii) the general principles of equity,
regardless of whether asserted in a proceeding in equity or at law) and in full
force and effect; (B) no party is in material breach or default, and no event
has occurred which with notice or lapse of time or both could constitute a
material breach or default or permit termination, modification or acceleration,
under the written agreement and (C) no party has repudiated any term of the
written agreement, and there are no pending renegotiations of or outstanding
rights to renegotiate any material amounts paid or payable by or to the Company
(with respect to the BSL Senior Living Business) or BSL, CMC or any BSL
Partnership thereunder and no such person has made written demand for such
renegotiation.
4.13 Employees and Employee Benefit Plans
(a) Employees. Section 4.13(a) of the Company Disclosure Letter
contains a complete and accurate list of the name, hire date, base compensation,
bonus and title of Key Employees employed in the operation of the BSL Senior
Living Business. Except as provided by applicable law, the employment of all
persons presently employed or retained by the Company, any Company Subsidiary or
BSL in the operation of the BSL Senior Living Business is
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terminable at will, at any time and without advance notice.
(b) Employee Plans. Section 4.13(b) of the Company Disclosure Letter
contains a complete list of all Employee Plans. True and complete copies of each
of the following documents for Employee Plans will be delivered to Purchaser by
the Company subsequent to the date of this agreement but prior to the Closing
Date:
(i) each Welfare Plan and Pension Plan (and, if applicable,
related trust agreements and summary plan descriptions, all amendments thereto,
and all annuity contracts or other funding instruments),
(ii) each Benefit Arrangement and a complete description of
any such Benefit Arrangement which is not in writing and,
(iii) for the three most recent plan years, Annual Reports on
Form 5500 Series required to be filed with any governmental agency for each
Welfare Plan and Pension Plan.
(c) Pension Plans. No Pension Plan is subject to the minimum funding
requirements of Title I of ERISA or Section 412 of the Code or Title IV of
ERISA. Except as disclosed in Section 4.13(c) of the Company Disclosure Letter,
each Pension Plan and each related trust agreement, annuity contract or other
funding instrument is qualified and tax-exempt under the provisions of Code
Section 401(a) and 501(a) and has been so qualified during the period from its
adoption to date.
(d) Multiemployer Plans. None of the Company, BSL, CMC nor any ERISA
Affiliate contributes to, or has been obligated to contribute to, any
Multiemployer Plan.
(e) Welfare Plans. None of the Company, BSL, CMC nor any ERISA
Affiliate has any present or future obligation to make any payment to or with
respect to any present or former employee of the Company involved in the BSL
Senior Living Business or of BSL or CMC pursuant to any retiree medical benefit
plan, other than as may be required by federal or state law. None of the
Company, BSL, CMC or any ERISA Affiliate has ever maintained, contributed to or
been required to contribute to any "welfare benefit fund" as defined in Section
419(e) of the Code in connection with the BSL Senior Living Business. Each
Welfare Plan employed in connection with the BSL Senior Living Business which is
a "group health plan" as defined in Section 607(a) of ERISA, has been operated
in compliance with provisions of Part 6 of Title I of ERISA and Sections 162(i)
and 4980B of the Code at all times.
(f) Compliance with Law. Each Welfare Plan, Pension Plan and Benefit
Arrangement which covers or has covered employees of the Company involved in the
BSL Senior Living Business or the employees of BSL, CMC or any ERISA Affiliate
involved in the BSL Senior Living Business has been maintained in compliance
with its terms and with the requirements prescribed by any and all statutes,
orders, rules and regulations which are applicable
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to such Welfare Plan, Pension Plan or Benefit Arrangement, including but not
limited to, ERISA and the Code.
(g) Deductibility of Payments. There is no contract, agreement, plan or
arrangement covering any employee or former employee of the Company involved in
the BSL Senior Living Business, BSL or CMC that, individually or collectively,
provides for the payment by the Company, BSL or CMC of any amount:
(i) that is not deductible under Section 162 or 404 of the
Code; or
(ii) that is an "excess parachute payment" under Section 280G
of the Code.
(h) No Amendments. Except as disclosed in Section 4.13(h) of the
Company Disclosure Letter, none of the Company, BSL, CMC nor any ERISA Affiliate
has any announced plan or legally binding commitment to create any additional
Employee Plans with respect to the BSL Senior Living Business or to amend or
modify any existing Employee Plan in effect with respect to the BSL Senior
Living Business.
(i) No Acceleration of Rights or Benefits. Except as disclosed in
Section 4.13(i) of the Company Disclosure Letter or as provided by applicable
law, neither the execution and delivery of this Agreement nor the consummation
of the transactions contemplated hereby will result in the acceleration of the
exercisability of any stock options, the acceleration of the vesting of any
restricted stock or any interest in any Pension Plan or Welfare Plan or the
creation of rights under any severance, parachute or change of control
agreement.
(j) No Other Material Liability. No event has occurred in connection
with any Employee Plan which would have a Material Adverse Effect on any of the
Company, BSL, CMC or any ERISA Affiliate or any such Employee Plan, directly or
indirectly under any statute, regulation or governmental order relating to any
such Employee Plans.
4.14 Taxes. The Company has filed all Tax returns which are required to
have been filed in any jurisdiction with respect to the Company and each of the
Subsidiaries, and has paid, before they have become delinquent, all Taxes shown
to be due and payable on such returns and, to the knowledge of the Company, all
other Taxes and assessments payable by the Company on behalf of itself or any of
the Subsidiaries, to the extent the same have become due and payable, except for
any Taxes and assessments the amount, applicability or validity of which is
currently being contested in good faith by appropriate proceedings and with
respect to which the Company has set aside on its books reserves to the extent
required by, and segregated in accordance with, GAAP. Except as set forth in
Section 4.14 of the Company Disclosure Letter, (i) the Company has no knowledge
of any proposed material Tax assessment against the Company or any of the
Subsidiaries, (ii) to the knowledge of the Company all Tax liabilities of the
Company and the Subsidiaries are adequately provided for on the books of the
Company and (iii) to the knowledge of the Company all of the Tax returns
previously filed by the Company and which, as of the date
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hereof, have not been audited by the applicable Governmental Authority having
jurisdiction thereof, were true and correct in all material respects at the time
filed by the Company. The Company has not received any notice of any past due or
unpaid Tax or assessment which as of the date hereof has not been paid or is
being contested in good faith by appropriate proceedings and is evidenced by an
appropriate reserve on the Company's books.
4.15. Labor Matters. Except as set forth in Section 4.09(a) of the
Company Disclosure Letter, no complaint for sex, age, race or other
discrimination claim or any unfair labor practice claim has been brought against
the Company (with respect to the BSL Senior Living Business), BSL, CMC or any
BSL Partnership which is unresolved as of the date hereof. To the Company's and
BSL's knowledge, the Company (with respect to the BSL Senior Living Business),
BSL, CMC and each BSL Partnership have complied with all applicable state and
federal labor Laws and Orders. Neither the Company (with respect to the BSL
Senior Living Business), BSL, CMC or any BSL Partnership is a party to any
collective bargaining agreement or other labor union contract applicable to
persons employed by any of them. There are and have been no strikes, slowdowns,
work stoppages, or lockouts at any of the BSL Facilities (or the BSL Managed
Facilities, during the term of the BSL Management Agreement applicable thereto).
4.16. Environmental Matters.
Except as disclosed in Section 4.16 of the Company Disclosure Letter or
in any of the reports referenced therein, (A) as applicable with respect to the
BSL Managed Facilities, to the knowledge of the Company based solely on
inquiries made to the applicable administrators, and (B) with respect to the BSL
Facilities:
(i) The Company (with respect to the BSL Senior Living
Business), BSL, CMC and each BSL Partnership are, and at all times during their
ownership or operation of the Facilities have been, in compliance in all
material respects with all Environmental Laws.
(ii) There are no existing Environmental Claims against the
Company (with respect to the BSL Senior Living Business), BSL, CMC or any BSL
Partnership nor has the Company (with respect to the BSL Senior Living
Business), BSL, CMC or any BSL Partnership received any notification of any
allegation of any actual, or potential responsibility for, or any inquiry or
investigation regarding, any disposal, release or threatened release at any
location of any Hazardous Substance generated or transported by any of them.
(iii) The Company is not aware of any underground tank or
other underground storage receptacle for Hazardous Substances currently located
on the BSL Facilities or the BSL Managed Facilities.
(iv) There have been no releases (i.e., any past or present
releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, disposing, or dumping) of Hazardous Substances in
quantities exceeding the reportable quantities
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as defined under federal or applicable state law by the Company (with respect to
the BSL Senior Living Business), BSL, CMC or any BSL Partnership on, upon or
into the BSL Facilities or the BSL Managed Facilities except as allowed by
Environmental Laws. In addition, the Company and BSL are not aware (without
independent investigation) that there have been any such releases by the
Company's or BSL's corporate predecessors, and no releases in quantities
exceeding the reportable quantities as defined under federal or state law on,
upon, or into any real property in the vicinity of any of the BSL Facilities or
BSL Managed Facilities other than those authorized by Environmental Laws which,
through soil or ground water contamination, may have come to be located on the
BSL Facilities or the BSL Managed Facilities.
(v) The Company and BSL are not aware of any PCBs or asbestos
located at or on the BSL Facilities or the BSL Managed Facilities.
(vi) There are no consent decrees, consent orders, judgments,
judicial or administrative orders, agreements with (other than permits) or liens
by, any governmental authority or quasi governmental entity relating to any
Environmental Law which regulate, or bind the Company (with respect to the BSL
Senior Living Business), BSL, CMC or any BSL Partnership.
(vii) True and correct copies of all existing Environmental
Reports, as well as all other written environmental reports, audits or
assessments which have been conducted, either by the Company (with respect to
the BSL Senior Living Business), BSL, CMC or any BSL Partnership or any person
engaged by any of them for such purpose, at any BSL Facility or BSL Managed
Facility or any facility formerly owned, managed or leased by the Company and
its Subsidiaries (with respect to the BSL Senior Living Business) or BSL and
which are in the possession of the Company, BSL, CMC or any BSL Partnership have
been made available to the Purchaser.
4.17. Brokers or Finders. No agent, broker, investment banker,
financial advisor or other firm or person is or will be entitled to any broker's
or finder's fee or any other commission or similar fee in connection with any of
the transactions contemplated by this Agreement, other than Smith Barney, which
has acted as a financial advisor to the Company and which shall be compensated
by the Company for its services rendered in connection therewith.
4.18. Insurance. Section 4.18 of the Company Disclosure Letter sets
forth the insurance policies covering the operations of the BSL Senior Living
Business in effect as of the date hereof, including the policy numbers, terms,
identity of the insurers and amounts and nature of coverage. All of such
policies (or replacements thereof) are now and will be until Closing in full
force and effect, with no premium average. True and correct copies of all such
policies and any endorsements thereto have been or will be made available to
Purchaser for its review prior to Closing. Neither the Company nor BSL nor CMC
nor any BSL Partnership has received any written notice of any actual or
proposed cancellation or limitation of coverage or non-coverage under any such
policies and the Company (with respect to the BSL Senior Living Business),
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BSL, CMC and each BSL Partnership are in compliance (or are in the process of
complying) with all underwriter requirements and recommendations of which any of
them has been notified.
4.19. Intellectual Property.
(a) Neither the Company nor any of the Subsidiaries has received
protection under Federal or state law of any trademarks, trade names, logos,
service marks, patents, patent rights, assumed names, trade secrets or
copyrights used by them in their business.
(b) The Company has implemented, and is actively engaged in, a program
designed to monitor the compliance at the corporate office of the Company and
its Subsidiaries, including BSL and CMC, with applicable laws governing the
licensure of the computer hardware and software used by them in their business.
Such a compliance program has not yet been implemented at each of the BSL
Facilities and is not anticipated to be implemented at the BSL Managed
Facilities. Nothing herein shall be construed as a representation or warranty by
the Company that the use by the Company and the Subsidiaries is in full
compliance with all applicable hardware and software licensure laws and/or that
the trademarks, trade names, logos, service marks, patents, patent rights,
assumed names, trade secrets or copyrights used by the Company do not infringe
on or violate the rights of any third parties; provided, however, that except
with respect to certain copyright violations which have been corrected as of the
date hereof, none of the Company, BSL and CMC has received notice of, or has
knowledge of, any such infringement or claimed infringement.
4.20. Certain Assets.
(a) The Company (with respect to the Related Assets), BSL, CMC and/or
the BSL Partnerships have good and marketable title to, or valid fee simple
title or leasehold interests in, as applicable, or valid rights under contract
to use, all tangible property and assets owned and/or used in the conduct of the
BSL Senior Living Business (including all BSL Assets and Related Assets
reflected on the Pro Forma Balance Sheet), other than property or assets
disposed of since June 30, 1996 in the ordinary course of business. The BSL
Assets and Related Assets include all the tangible assets reasonably necessary
to the BSL Senior Living Business as is currently conducted.
(b) The title of the Company (with respect to the Related Assets), and
BSL, CMC and each BSL Partnership with respect to the assets described in clause
(a) is free and clear of all Liens other than (i) the Permitted Exceptions and
(ii) any Lien which shall be satisfied and released of record as of the Closing
Date. All such property and assets are in good working order, condition and
repair (ordinary wear and tear excepted) and, adequate and suitable for the
purposes for which they are presently being used.
(c) Neither the Company nor BSL nor CMC nor any BSL Partnership has
received notice of any pending or threatened condemnation or taking by power of
eminent domain or
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otherwise of any of the assets described in clause (a) or any notice of any tax
or special lien or assessment which would not be paid in full by the Closing
Date and for which BSL, CMC or any BSL Partnership would be liable.
(d) Except as set forth in Section 4.20(d) of the Company Disclosure
Letter, none of the Company, BSL, CMC or the BSL Partnerships has received
notice of noncompliance of any of the assets described in clause (a) with
applicable building or zoning codes and ordinances.
4.21. No Other Agreements to Sell the Assets or Capital Stock of BSL.
Neither the Company nor BSL has any legal obligation, absolute or contingent, to
any other person or firm to sell or effect a sale of the Related Assets, the BSL
Assets or to sell or effect a sale of the capital stock of BSL or, except as
contemplated herein, to effect any merger, consolidation or other reorganization
of the Company, BSL, CMC or any BSL Partnership or to enter into any agreement
or cause the entering into of an agreement with respect thereto.
4.22. Books and Records. BSL and the Company have made and kept (and
given the Purchaser access to) books and records and accounts, which, in
reasonable detail, accurately and fairly reflect the activities of the Company
and its Subsidiaries (including BSL and CMC) and the BSL Partnerships with
respect to the BSL Senior Living Business. Neither the Company (with respect to
the BSL Senior Living Business) nor BSL nor CMC nor any BSL Partnership has
engaged in any material transaction, maintained any bank account or used any
corporate funds except for transactions, bank accounts and funds which have been
and are reflected in the normally maintained books and records of the Company
and its Subsidiaries.
4.23. Americans With Disabilities Act Compliance. The BSL Facilities
listed in Section 4.23 of the Company Disclosure Letter are being constructed by
or on behalf of BSL and all such construction has been in full compliance with
the Americans with Disabilities Act (the "ADA"). None of the Company, BSL, CMC
or any BSL Partnership has received any notice to the effect that, or has
otherwise been advised that, any of the BSL Facilities or the BSL Managed
Facilities is not in compliance with the ADA.
4.24. Undisclosed Liabilities. The Company has not failed to disclose
to the Purchaser any liabilities--whether fixed or contingent--actually known to
it as of the date hereof and not otherwise disclosed or taken into account in
the Company Financial Statements or in the schedules or exhibits hereto or the
Company Disclosure Letter.
4.25. Material Misstatements Or Omissions. No representations or
warranties by the Company or BSL in this Agreement nor any document, exhibit,
statement, certificate, schedule or other information furnished or to be
furnished to Purchaser (or its members) pursuant hereto, or in connection with
the transactions contemplated hereby, contains or will contain any untrue
statement of a material fact, or omits or will omit to state any material fact
necessary to make the statements or facts contained therein not misleading.
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4.26 Development Projects. In connection with the Development Projects,
the Company and BSL represent and warrant as follows:
(a) A true and correct copy of each construction contract for the
Development Projects (including all change orders thereto) has been delivered to
Purchaser for its approval and acceptance as to form and content. Neither the
Company nor BSL has received or anticipates receiving, from any contractor, any
notice of default or notice of intention to suspend or not to commence any work.
(b) The Approved Budgets for Development Projects have been prepared by
BSL and reflect BSL's estimation of the total costs and expenses to be incurred
in connection with the Development Projects after taking into account the
requirements of this Agreement. The construction schedule for the Development
Projects is realistic and feasible.
(c) Neither the Company nor BSL has directly or indirectly conveyed,
assigned or otherwise disposed of or transferred (or agreed to do so) any
development rights, entitlements, permits or other similar development rights
with respect to the Development Projects, including those rights, entitlements,
permits, privileges or attributes arising under any zoning or land use ordinance
or other Governmental authorization or requirement, except assignments required
for the existing financing of the Development Projects, including without
limitation sale/leaseback financing.
ARTICLE V
PURCHASER'S REPRESENTATIONS AND WARRANTIES
Purchaser does hereby represent and warrant to the Company and to BSL
as follows:
5.01. Organization and Qualification.
(a) Purchaser is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of Delaware. Purchaser
has, or as of Closing will have, full power and authority under the Delaware
Limited Liability Company Act to conduct its business as and to the extent now
conducted and to own, use and lease its assets and properties, including the
assets and properties to be acquired by it pursuant to the terms of this
Agreement
(b) Purchaser is or prior to the Closing Date will be duly qualified to
do business in, and validly existing and/or in good standing under the laws of,
Oregon and each of the states listed in Section 4.01(c) of the Company
Disclosure Letter.
(c) Purchaser does not directly or indirectly own any equity or similar
interest in, or any interest convertible into or exchangeable or exercisable
for, any equity or similar interest in, any corporation, partnership, limited
liability company, joint venture or other business association or entity.
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5.02. Authority Relative to this Agreement. Purchaser has full power
and authority as a Delaware limited liability company to enter into this
Agreement and each other instrument, document and agreement necessary to
consummate the transactions contemplated hereby, and to perform its obligations
hereunder. The execution, delivery and performance of this Agreement by
Purchaser and the consummation by Purchaser of the transactions contemplated
hereby have been duly and validly approved by the Executive Committee of
Purchaser and no other proceedings on the part of Purchaser as a Delaware
limited liability company or its members are necessary to authorize the
execution, delivery and performance of this Agreement by Purchaser and the
consummation by Purchaser of the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by Purchaser and
constitutes a legal, valid and binding obligation of Purchaser enforceable
against Purchaser in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors' rights generally and by general
equitable principles (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
5.03. Approvals and Consents. Subject to obtaining such consents or
making such filings as are referred to in Section 4.04 hereof or in Section 4.04
of the Company Disclosure Letter, the execution and delivery of this Agreement
by Purchaser does not, and the performance by Purchaser of its obligations
hereunder and the consummation of the transactions contemplated hereby will not:
(a) conflict with, result in a violation or breach of, constitute (with
or without notice or lapse of time or both) a default under, result in or give
to any person any right of payment or reimbursement, termination, cancellation,
modification or acceleration of, or of notice under, any agreement, contract,
lease, license, permit, note, instrument or other document to which Purchaser is
a party or by which it is bound or to which any of the assets or properties of
Purchaser are subject; or
(b) violate any Laws or Orders of any Governmental Authority applicable
to Purchaser or any of its assets or properties, or the Operating Agreement; or
(c) require any consent, approval or action of, or permit from, or
filing or registration with or notice to any Governmental Authority or other
public or private third party.
5.04. Legal Proceedings. There are no actions, suits, arbitrations or
proceedings pending or, to the knowledge of Purchaser, threatened against,
relating to or affecting, nor to the knowledge of Purchaser are there any
investigations or audits by Governmental Authorities pending or threatened
against, relating to or affecting Purchaser or any of its assets and properties.
5.05. Information Supplied. Each document filed by Purchaser with any
Governmental Authority in connection with this Agreement and the other
transactions contemplated hereby,
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solely to the extent based on information provided by Rockwood Living, Inc.,
does not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading.
5.06. Brokers or Finders. No agent, broker, investment banker,
financial advisor or other firm or person has been engaged by it and is or will
be entitled to any broker's or finder's fee or any other commission or similar
fee from it in connection with any of the transactions contemplated by this
Agreement.
ARTICLE VI
PRE-CLOSING COVENANTS
6.01. Company. The Company covenants, between the date hereof and the
Closing, that:
(a) BSL, CMC and the Company shall conduct the BSL Senior Living
Business and pursue the Development Projects in the ordinary course consistent
with past practices and preserve intact their business organization, keep
available the services of their officers and employees in the ordinary course of
business and use their commercially reasonable best efforts to maintain
satisfactory relationships with suppliers, distributors, customers and others
having business relationships with them.
(b) None of the Company and its Subsidiaries (with respect to the BSL
Senior Living Business), BSL, CMC or any BSL Partnership shall commit or omit to
do any act that would cause a breach of any agreement, commitment or covenant of
any of them contained in this Agreement or cause the representations and
warranties as set forth in this Agreement to become untrue in any material
respect as of the Closing Date.
(c) Except with respect to the assets which are the subject of the
Excluded Assets Transaction, none of the Company, its Subsidiaries, BSL, CMC or
any BSL Partnership shall make any material change in the operation of the BSL
Senior Living Business or sell or agree to sell all or any portion of the BSL
Senior Living Business or the assets thereof (other than sales of machinery,
equipment and inventory in the ordinary course of business) or otherwise enter
into, terminate, modify or amend any agreements materially affecting any of the
Facilities or the operation thereof, without the prior written consent of
Purchaser which consent, in the case of terminations, modifications to or
amendments of any such agreements shall not be unreasonably withheld.
(d) Except with respect to the assets which are the subject of the
Excluded Assets Transaction, each of BSL, CMC and the BSL Partnerships shall
maintain its assets, and the Company shall maintain the Related Assets, in the
same condition as they are in at the date hereof, ordinary wear and tear,
insured casualty loss and taking by eminent domain excepted.
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(e) Except in connection with the Development Projects, none of BSL,
CMC or any BSL Partnership shall purchase an equity interest in, or the assets
of, any corporation, partnership or other entity, or create or permit any Lien
on any asset, except for Permitted Exceptions, or create, assume, incur or
guarantee any Debt.
(f) Except in the ordinary course of business and consistent with past
practice, there shall be no increase in the compensation of any of the Personnel
or any consultant, nor shall there be any new employment, severance or other
agreement with any of the Personnel or any consultant (other than any such
agreements executed by the Purchaser).
(g) During normal business hours, the Company and BSL will provide
Purchaser, its agents and employees (or cause them to be provided) with access
on twenty-four (24) hours notice to the books and records of the Company and its
Subsidiaries, BSL, CMC and the BSL Partnerships to the extent related to the BSL
Senior Living Business, provided they do not unreasonably interfere with the
operations of the Company or its Subsidiaries or BSL.
(h) None of the Company or its Subsidiaries or BSL, and none of the
officers, directors, advisors or others authorized to act on behalf of any of
them shall directly initiate or solicit discussions relating to any alternative
acquisition proposal or similar transaction including, without limitation, a
merger or other business combination involving, to any extent, BSL, CMC or any
BSL Partnership or offer to acquire or convey in any manner, directly or
indirectly, all or substantially all of the equity interest in, or the voting
securities of, the Company, BSL, CMC or any BSL Partnership or the assets of any
them (limited in the Company's case to the stock of BSL and the Related Assets),
provided, however, that public announcements of the transaction contemplated by
this Agreement and responses to inquiries received thereafter shall not be
prohibited hereby and that the Company shall not be deemed to be in breach of
its obligations hereunder in the event the Board of Directors determines, prior
to the approval of the transactions provided for herein and of the Excluded
Assets Transaction, the Freedom Village Transaction and the Healthcare
Transaction by the shareholders of the Company, in the exercise of its fiduciary
duties, that the Company is required to provide information in response to any
acquisition or merger proposals or discussions which are initiated by a third
party; and provided, further, that nothing herein shall be construed as
prohibiting the Company from pursuing the pending negotiations with respect to
the Healthcare Transaction or the Excluded Assets Transaction.
(i) Except as required for the reincorporation of BSL in the State of
Delaware, if the parties agree to do so before Closing as provided herein,
neither the Articles of Incorporation nor the Bylaws of any of BSL or CMC nor
the BSL Partnership Agreements shall be amended without the prior consent of the
Purchaser, which consent shall not be unreasonably withheld.
(j) The Company shall promptly submit this Agreement and the
transactions contemplated herein, including the Healthcare Transaction and the
Excluded Assets Transaction, for approval by, at a meeting of, its shareholders.
Subject to its fiduciary duties under applicable
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law, the Board of Directors of the Company has agreed to recommend to its
shareholders approval of the Merger and the Related Assets and Liabilities
Transaction, the Freedom Village Transaction, the Healthcare Transaction and
Excluded Assets Transaction. Subject to the fiduciary duties of the Board of
Directors of the Company under applicable law, the Company shall use its
reasonable efforts to obtain its shareholders' approval and adoption of this
Agreement and the transactions contemplated hereby. Subject to the notice
requirements of the Oregon Act, such meeting shall be held as soon as
practicable following the execution of this Agreement.
(k) None of BSL, CMC and the BSL Partnerships shall declare or pay any
dividend or other distribution to the Company or any other person, except in the
case of a BSL Partnership, in accordance with the applicable BSL Partnership
Agreement.
(l) During construction of the Development Projects, the Company and
BSL shall maintain or cause to be maintained the following insurance coverages
relating to the Development Projects, which will be effective no later than the
date of commencement of construction:
(1) builder's risk (or equivalent coverage) insurance upon any
work done or materials furnished under the construction contracts except
excavations, foundations and any other structures not customarily covered by
such insurance, such policies to be written in completed value form for 100% of
the insurable value of the improvements therefor;
(2) workers' compensation and employer's liability insurance
covering all Personnel and employees of contractors and subcontractors in
amounts required by law;
(3) automobile liability insurance covering owned, nonowned
and hired automobiles of contractors and subcontractors in an amount not less
than $1,000,000 combined single limit; and
(4) commercial general liability insurance, including umbrella
coverage, with combined coverage in amounts not less than $1,000,000 liability
for personal injury for each occurrence and $2,000,000 in the aggregate and
$1,000,000 for property damages for each occurrence and $2,000,000 in the
aggregate.
(m) The Company and BSL shall provide and continuously maintain
insurance coverages for the BSL Senior Living Business in such amounts and types
as are currently maintained by them.
(n) The Company and BSL shall promptly pay all costs, expenses and
obligations as and when due in respect of the Development Projects. Further, the
Company and BSL shall not amend or modify the Approved Budgets for Development
Projects without approval of Purchaser.
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(o) No construction of the Development Projects shall be undertaken
except as shown in and in accordance with the construction plans and
specifications approved by the Purchaser.
(p) The Company shall deliver to Purchaser promptly upon request the
names of all persons with whom the Company has contracted or intends to contract
for any material work on the Development Projects. No change orders for any of
the Development Projects shall be effective without the prior written approval
of Purchaser, except any change order that does not (i) extend the completion
date, (ii) involve an increase in the approved construction cost of more than
$5,000 for any one item or $10,000 in the aggregate, or (iii) adversely affect
the exterior of the improvements or otherwise adversely affect any aspect of the
aesthetics of the improvements. Notwithstanding the foregoing, all change orders
with respect to the DeAnza and Mesa Development Projects shall require
Purchaser's approval if the Company wishes to seek reimbursement therefor under
the Advance Reimbursement provisions hereof. The Company shall not suffer or
permit any breach or default to occur in any of the obligations of the Company
or BSL under any construction contract or contracts with the architects or the
engineers or any other contract necessary for the continued full ownership,
construction, operations, maintenance and enjoyment of the Development Projects,
nor shall the Company suffer or permit the same to terminate by reason of any
failure of the Company or BSL to meet any requirements thereof whatsoever.
(q) All monies sought to be reimbursed to the Company in respect of the
Advance Reimbursement shall have been used (to the extent provided in the
definition of Advance Reimbursement) to acquire, construct, or develop the
Development Projects in accordance with the Approved Budgets for Development
Projects, and on Closing Purchaser shall receive lien waivers, releases or
subordinations in form and substance reasonably satisfactory to Purchaser in
respect of all expenditures included in the Advance Reimbursement for which such
lien waivers, releases or subordinations are appropriate.
(r) The Company and BSL shall promptly notify Purchaser of the
occurrence or existence of any event or circumstance which is or could
reasonably be expected to be a breach of the representations, warranties and
covenants of the Company and BSL relating to the Development Projects.
(t) The Company shall prepare and file all returns for Taxes of the
Company and its Subsidiaries for all taxable years and other periods ending on
or prior to or including the Closing Date.
6.02. Purchaser. Purchaser covenants that, without the prior written
consent of the Company, between the date hereof and the Closing:
(a) It shall not commit or omit to do any act that would cause a breach
of any agreement, commitment or covenant contained in this Agreement or cause
the Purchaser's representations and warranties as set forth in this Agreement to
become untrue in any material
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respect as of the Closing Date; and
(b) Purchaser shall cause replacement letters of credit to be issued
with respect to the letters of credit listed in Paragraph 10 of Schedule 4.12 of
the Company Disclosure Letter, on or before the Closing Date.
6.03. Mutual Covenants. Following the execution of this Agreement and
until the Closing Date:
(a) The Company and Purchaser shall cooperate with each other and use
their commercially reasonable efforts to procure all necessary and appropriate
consents and approvals, complete and file all necessary and appropriate
applications, notifications, filings and certifications, satisfy all
requirements prescribed by law for, and all conditions set forth in this
Agreement to, the consummation of the transactions contemplated hereby (without
conditions adverse to any of the Purchaser, the Company or any of its
Subsidiaries, BSL, CMC, the BSL Partnerships and the Surviving Entity).
(b) At least 5 days prior to the Closing Date, the Independent
Accountants shall review and comment upon a schedule which will be prepared by
BSL allocating the Merger Consideration and the Related Assets Consideration
among the BSL Assets and the Related Assets, which schedule when completed will
be attached to this Agreement as Schedule 12. The Independent Accountants' fees
and expenses in connection with preparing such allocation schedule will be paid
by the Company pursuant to Section 12.7 hereof.
(c) The Company and Purchaser shall deliver such other instruments of
title, certificates, consents, endorsements, assignments, assumptions and other
documents or instruments, in form reasonably acceptable to the party requesting
the same and its counsel, as may be reasonably necessary to carry out and/or to
comply with the terms of this Agreement and the transactions contemplated
herein;
(d) The Company and Purchaser shall confer with each other on a regular
basis, report on material operational matters and promptly advise the other
orally and in writing of any change or event having, or which, insofar as can
reasonably be foreseen would have, a material adverse effect on such party or on
BSL, CMC, a BSL Partnership or the Surviving Entity, or which would cause or
constitute a material breach of any of the representations, warranties or
covenants of such party contained herein;
(e) The Company and Purchaser shall promptly provide each other (or its
counsel) with copies of all filings made by such party with any state or federal
governmental entity in connection with this Agreement or the transactions
contemplated hereby.
(f) Each of the Company, BSL and Purchaser will use its commercially
reasonable efforts to obtain prior to the Closing Date all permits, consents,
approvals, authorizations,
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licenses and other orders (and make such filings with any third party or
Governmental Authority) (the "Third Party Consents") that each such party is
required to obtain (or make) in order to permit (without conditions adverse to
any of them or to CMC, any BSL Partnership or the Surviving Entity) the
consummation of the Merger and other transactions contemplated by this Agreement
(including, but not limited to, such licensure and certification approval in
each of the states in which the Facilities are located as may be necessary to
enable Purchaser to consummate the Merger) and the consent of lenders, lessors
and other third parties (without conditions adverse to any of them or to CMC,
any BSL Partnership or the Surviving Entity) to the extent required under any
loan documents, lease agreements, management agreements, partnership agreements
or other instruments or documents to which the Company or its Subsidiaries (with
respect to the BSL Senior Living Business), BSL, CMC or any BSL Partnership is a
party. Each of the Company, BSL and Purchaser shall reasonably cooperate with
each other (not including incurring any substantial additional liabilities or
obligations, other than costs and expenses which another party has agreed to
reimburse) in connection with a party's efforts to obtain Third Party Consents
which it is required to obtain; provided, however, nothing herein shall be
construed as requiring Purchaser or any member thereof to provide a guaranty or
other security in order to obtain said Third Party Consents.
(h) The parties shall consult with each other prior to the issuance by
either party of any press release or any written statement with respect to this
Agreement or the transaction contemplated hereby.
ARTICLE VII
PURCHASER CONDITIONS
7.01. The obligation of Purchaser to consummate the Merger and the
Related Assets and Liabilities Transaction is subject to the fulfillment, or to
the Purchaser's written waiver thereof, prior to or at the Effective Time, of
each of the following conditions:
(a) The representations and warranties of the Company and BSL contained
in this Agreement or in any certificate or document delivered in connection with
this Agreement or the transactions contemplated herein shall be true and correct
at and as of the Closing Date as though such representations and warranties were
then again made, except for any breaches thereof or inaccuracies therein as
would not, individually or in the aggregate, have a Material Adverse Effect.
(b) The Company shall have performed and complied in all material
respects with all covenants, conditions and agreements contained herein required
to be performed or complied with by the Company prior to or at the Closing.
(c) Except for such licenses to be issued or transferred by
Governmental Authorities as may be required in connection with the operation of
the Facilities but which cannot be obtained until after Closing occurs as a
result of the applicable rules, procedures and practices
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governing the transfer of facilities such as the Facilities and the re-licensure
thereof in the name of the new owner or operator thereof, either (i) no permits,
consents, approvals, authorizations, licenses or other orders or filings with
any third party or any Governmental Authority shall be necessary in connection
with the authorization, execution, delivery and performance by the Company or
BSL of all documents in connection with the Merger and the Related Assets and
Liabilities Transaction, or (ii) the Company or BSL shall have obtained all such
permits, consents, approvals, authorizations, licenses or other orders (without
conditions which would materially adversely affect the Purchaser, BSL, CMC, any
BSL Partnership or Surviving Entity) or made such filings with such third
parties or Governmental Authorities as are necessary to obtain all such permits,
consent approvals, authorizations or other orders (without conditions which
would materially adversely affect the Purchaser, BSL, CMC, any BSL Partnership
or Surviving Entity).
(d) The Company shall have delivered (i) a certificate of legal
existence, as of a date within ten (10) days of the Closing Date, of each of BSL
and CMC by the Secretary of State of Oregon, (ii) a certificate of legal
existence or good standing issued by the Secretary of State in the state of
formation for each BSL Partnership, and (iii) a certificate of legal existence
or good standing for each of BSL and CMC issued by the Secretary of State (or
applicable Governmental Authority) in every other state in which either of them
is doing business.
(e) The Company shall have delivered to Purchaser fully executed (i) in
the case of GECC, General Electric Real Estate Credit Corporation ("GERECC") and
Claremont Management Company, a document in the form attached as Exhibit C-1
hereto, (ii) in the case of GECC, a document in the form attached as Exhibit
C-2, (iii) in the case of Health Care Properties Investors, Inc. documents
substantially in the form attached as Exhibit C-3, C-4, and C-5 hereto, (iv) in
the case of Nationwide Health Properties, Inc., documents in the form attached
as Exhibits C-6, C-7 and C-8 hereto, (v) in the case of the limited partners of
Calaroga Terrace Limited Partnership and Carpenters Creek Limited Partnership,
ballots in the form attached as Exhibit C-9 and C-10 hereto, respectively,
evidencing the affirmative vote and consent of the requisite number of limited
partners (as required by the applicable partnership agreement) to the
transactions contemplated hereby, (vi) in the case of the members (other than
BSL) of the DeAnza Alzheimer's Care Facility, LLC, a document in the form
attached as Exhibit C-11 hereto, (vii) in the case of each BSL Partnership
which is a landlord under a BSL Lease, documents in the form attached as
Exhibits C-12 and C-13 hereto, and (viii) in the case of each owner under a BSL
Management Contract, a document substantially in the form attached as Exhibit
C-14 hereto provided, however, that if any such owner which is not controlled
by one or more Key Employees or affiliates thereof, fails or refuses to execute
such a document, the Company, in substitution therefor, shall execute and
deliver to Purchaser a statement in form and substance reasonably acceptable to
Purchaser with respect to the matters set forth in the form, of such document),
and (ix) in the case of GERECC, a document in the form attached as Exhibit C-16
hereto.
(f) The Company shall have delivered to Purchaser evidence that the
intercompany
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liability of the Company owing to BSL has been paid in full. The Company and BSL
represent that the amount of such a liability was $2,198,785.00 as of June 30,
1996.
(g) The Company shall have delivered to Purchaser an opinion of counsel
to the Company, dated as of the Closing Date, in form and substance satisfactory
to the Purchaser, as to customary matters. In rendering such opinion, counsel
may rely as they deem advisable as to factual matters, upon certificates and
assurances of public officials and officers of the Company and BSL.
(h) The Company shall furnish the Purchaser with certificates
evidencing compliance with the conditions set forth in this Article 7 as may be
reasonably requested by Purchaser.
(i) Each of the Company and BSL shall have delivered to the Purchaser a
secretary's certificate certifying the truth and completeness of (i) director
and stockholder corporate resolutions, fully and properly executed, evidencing
authorization of the Company or BSL, and the Agent, as the case may be, to
execute, deliver and perform under the terms of this Agreement, including the
Other Required Agreements and the exhibits hereto, which resolutions shall be
attached to said certificate, and (ii) BSL's articles of incorporation and
bylaws, copies of which shall also be attached to said certificate.
(j) No order shall be in effect restraining, enjoining or otherwise
preventing the Closing.
(k) The following agreements shall be executed and delivered to
Purchaser by the other parties thereto prior to or at the Closing (collectively,
the "Other Required Agreements"):
(i) a Lease Agreement in form attached hereto as Exhibit D
duly executed by an individual authorized to act on behalf of the Company
effective immediately after the closing of the Healthcare Transaction;
(ii) a Shared Services Agreement in the form attached hereto
as Exhibit E duly executed by an individual authorized to act on behalf of the
Company effective immediately after the closing of the Healthcare Transaction;
(iii) the Company shall have delivered or caused to be
delivered Non-Competition Agreements in the form attached hereto as Exhibit F
duly executed by Messrs. A. E. Brim, John Miller and Steven Taylor; and
(iv) the Escrow Agreement.
(l) General Electric Credit Equities, Inc. shall have released its
security interest in BSL's special limited partnership interest in the
Carpenter's Creek Partnership, by the execution of the release and related
documents in the forms attached hereto as Exhibit C-15 hereto.
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(m) The Freedom Village Transaction and the Excluded Assets Transaction
shall be consummated or all of the documents and consideration necessary for the
consummation thereof shall have been executed and delivered into escrow and the
only condition for the release of said documents and consideration from escrow
shall be the confirmation that the Merger and Related Assets and Liabilities
Transaction have been consummated or the parties hereto are prepared to
consummate the same, there being no other terms or conditions to which
consummation of the same are subject.
(n) Intentionally Omitted.
(o) The Operating Agreement shall not have terminated due to any action
taken by any of the Members thereof other than Rockwood Living, Inc.
(p) There shall not have occurred any event or events constituting or
having after June 30, 1996, either individually or in the aggregate, a Material
Adverse Effect.
(r) Each of A. E. Brim, James M. Williams and K. David McAllister shall
have executed and delivered to the Purchaser a Section 7.O1(r) Agreement in the
form attached hereto as Exhibit G.
ARTICLE VIII
COMPANY CONDITIONS
8.01. The obligation of the Company to consummate the Merger and the
Related Assets and Liabilities Transaction is subject to the fulfillment, or to
the Company's written waiver thereof, prior to or at the Effective Time, of each
of the following conditions:
(a) The representations and warranties of the Purchaser contained in
this Agreement or in any certificate or document delivered in connection with
this Agreement or the transactions contemplated herein shall be true in all
material respects at and as of the Closing Date as though such representations
and warranties were then again made.
(b) The Purchaser shall have performed and complied in all material
respects with all covenants, conditions and agreements contained herein required
to be performed or complied with by the Purchaser prior to or at the Closing.
(c) Purchaser shall have caused replacement letters of credit to be
issued with respect to the letters of credit listed in Paragraph 10 of Schedule
4.12 of the Company Disclosure Letter.
(d) Except for such licenses to be issued or transferred by
Governmental Authorities as may be required in connection with the operation of
the Facilities but which cannot be obtained until after Closing occurs as a
result of the applicable rules, procedures and practices governing the transfer
of facilities such as the Facilities and the re-licensure thereof in the name
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of the new owner or operator thereof, either no permits, consents, approvals,
authorizations, licenses or other orders or filings with any third party or any
governmental authority shall be necessary in connection with the authorization,
execution, delivery and performance by the Company or BSL of all documents in
connection with the Merger and the Related Assets and Liabilities Transaction,
or, except to the extent failure to do so would not have a Material Adverse
Effect, the Company or BSL shall have obtained all such permits, consents,
approvals, authorizations, licenses and other orders (without conditions which
would be materially adverse to the Surviving Entity) or made such filings with
such third parties or Governmental Authorities as are necessary to obtain all
such permits, consents, approvals, authorizations or other orders (without
conditions which would be materially adverse to the Surviving Entity) provided,
however, that the foregoing shall not be a condition to the Company's obligation
to close in the event the Purchaser waives the Company's inability to secure the
same and from and after the Closing indemnifies, defends and holds harmless the
Company from and against any Losses which it may incur as a result thereof.
(e) Purchaser shall have delivered a certificate of legal existence
and/or of good standing as of a date within ten (10) days of the Closing Date
issued by the Secretary of State of Delaware and of every other state in which
BSL was doing business immediately prior to the Closing.
(f) The Operating Agreement shall not have terminated due to any action
taken by Rockwood Living, Inc. or its failure to take any action it is obligated
to take.
(g) Purchaser shall have delivered to the Company an opinion of counsel
to Purchaser, dated as of the Closing Date, in form and substance satisfactory
to the Company, as to customary matters. In rendering such opinion, counsel may
rely as they deem advisable as to factual matters, upon certificates, and
assurances of the Purchaser and public officials, and as to matters governed by
Oregon law Purchaser's counsel may assume that Oregon law is the same as
Illinois law.
(h) The Purchaser shall furnish the Company with certificates
evidencing compliance with the conditions set forth in this Article 8 as may be
reasonably requested by the Company.
(i) The Purchaser shall have delivered to the Company a Member's
certificate certifying the truth and completeness of (i) resolutions, fully and
properly executed, evidencing authorization of the Purchaser to execute, deliver
and perform under the terms of this Agreement, including the Other Required
Agreements and the exhibits hereto, which resolutions shall be attached to said
certificate; and (ii) Purchaser's Certificate of Formation, a copy of which
shall also be attached to said certificate.
(j) No order shall be in effect restraining, enjoining or otherwise
preventing the Closing.
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(k) The Purchaser shall have executed and delivered to the Company the
Other Required Agreements.
(l) The Freedom Village Transaction shall be consummated or all of the
documents and consideration necessary for the consummation thereof shall have
been executed and delivered into escrow and the only condition for the release
of said documents and consideration from escrow shall be the confirmation that
the Merger and Related Assets and Liabilities Transaction have been consummated
or the parties hereto are prepared to consummate the same, there being no other
terms or conditions to which consummation of the same are subject (provided that
the Company's or BSL's failure to execute and deliver any documents that they
are required to execute and deliver pursuant to the agreements relating to the
Freedom Village Transaction shall not excuse the Company's or BSL's performance
hereunder).
(m) The Healthcare Transaction shall be consummated or all of the
documents and consideration necessary for the consummation thereof shall have
been executed and delivered into escrow and the only condition for the release
of said documents and consideration from escrow shall be the confirmation that
the Merger and Related Assets and Liabilities Transaction have been consummated
or the parties hereto are prepared to consummate the same, there being no other
terms or conditions to which consummation of the same are subject (provided that
the Company's or BSL's failure to execute and deliver any documents that they
are required to execute and deliver pursuant to the agreements relating to the
Healthcare Transaction shall not excuse the Company's or BSL's performance
hereunder).
ARTICLE IX
POST-CLOSING COVENANTS
9.01. Certain Gain Recognition. The Company and BSL will recognize, on
the Company's consolidated federal income tax return for taxable year 1996, a
gain equal to the amount of the goodwill and going concern value of the Company
and BSL transferred to the Purchaser as a result of the Merger and the Related
Assets and Liabilities Transaction (and each of the Company and BSL shall make
the election required by Section 197(f) of the Code). The amount of such
goodwill and going concern value will be determined in accordance with the
allocation of the purchase price contemplated by Section 6.03(b) hereof. The
Company agrees to recognize and pay federal income tax at a 35% rate on the
amount of gain specified in this paragraph, notwithstanding any loss, deduction,
credit or other allowance or offset to which it may otherwise be entitled under
any provision of the Code or the regulations promulgated thereunder.
ARTICLE X
TERMINATION
10.01. Termination. This Agreement may be terminated by the parties
hereto upon the
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following conditions:
(a) By mutual consent of the parties;
(b) By Purchaser, if the conditions to Closing set forth in Section
7.01 have not been satisfied or waived by the Outside Closing Date.
(c) By the Company if the conditions to Closing set forth in Section
8.01 have not been satisfied or waived by the Outside Closing Date.
10.02. Rights on Termination. Each party's right of termination under
Section 10.01 of this Agreement is in addition to any other rights it may have
under this Agreement or otherwise and the exercise of a right of termination
will not be an election of remedies. If this Agreement is terminated pursuant to
Section 10.01, all further obligations of the parties under this Agreement will
terminate, except that the obligations under Section 12.07 of this Agreement and
under the Confidentiality Agreement dated May 8, 1996 (the "Confidentiality
Agreement") will survive; provided, however, that if this Agreement is
terminated by a party because of a breach of this Agreement by the other party
then except as provided in Section 10.03 hereof the terminating party's right to
pursue all legal remedies will survive such termination unimpaired.
10.03. Default Fee. As security for the obligations of Purchaser
hereunder, Rockwood Living, Inc. has deposited with Key Bank of Oregon
concurrently with the execution of this Agreement cash or its irrevocable letter
of credit in the face amount of $250,000 issued by Bank of America (Illinois),
N.A. In the event this Agreement is terminated by the Company as a result of a
breach by Purchaser of its obligations under this Agreement or the obligations
of the purchaser in the Freedom Village Transaction, the Company's sole remedy
in the event of such breach shall be to draw against the Letter of Credit and
the amount drawn shall constitute liquidated damages. Purchaser and the Company
acknowledge and agree that this Section 10.03 shall be the Company's exclusive
remedy with respect to the Merger, the Related Assets and Liability Transaction
and all other transactions contemplated by this Agreement in the event such
transactions are not consummated.
ARTICLE XI
INDEMNIFICATION
11.01. By Purchaser. In the event the Closing occurs, then from and
after the Closing Purchaser shall defend, indemnify and hold harmless the
Company from any Losses arising from or attributable to (i) claims made by third
parties against the Company for payment or satisfaction of liabilities or
obligations related to the assets, liabilities, operations and business of the
BSL Senior Living Business (except to the extent such liabilities or obligations
are by the express provisions of Sections 11.02(a)(i), (b) or (c) of this
Agreement or provisions of the agreements relating to the Freedom Village
Transaction the liability or responsibility of Company), and (ii) the operations
of the Surviving Entity after the Closing Date.
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11.02. By Company. In the event the Closing occurs, then from and after
the Closing:
(a) The Company shall indemnify and hold harmless the Purchaser, CMC
and the Surviving Entity against all Losses incurred by any or all of them
arising from:
(i) liabilities and obligations of the Company and its
Subsidiaries, including liabilities and obligations related to the assets,
operations, liabilities and business that are retained by, or the liability or
responsibility of the Company pursuant to the Healthcare Transaction but
specifically excluding liabilities, obligations and Losses (x) which are the
responsibility of the Purchaser under Section 11.01 hereof; or (y) which relate
to the assets or liabilities which are the subject of the Excluded Assets
Transaction (except to the extent such liabilities and obligations are by the
express terms of the agreement relating to the Excluded Asset Transaction the
liability or responsibility of the Company), and
(ii) a breach by the Company or BSL of its representations and
warranties, or a breach by the Company of its covenants, set forth in this
Agreement.
(b) Without limiting in any way the obligations of the Company under
Section 11.02(a) hereof, and notwithstanding any limitation contained in any
provision of this Agreement (including, without limitation, Section 11.05
hereof), the Company shall indemnify and hold harmless the Purchaser, CMC and
the Surviving Entity against:
(i) all Income Taxes of the Company and its Subsidiaries,
including BSL and CMC, for each taxable year or other period ending on or
before or including (for the portion of the taxable year through the close of
business on) the Closing Date, including, without limitation, all Taxes that
may be or become payable in respect of the matters described in Section 4.14 of
the Company's Disclosure Letter; and
(ii) all Taxes of the Company and its Subsidiaries, including
BSL and CMC, attributable to the transactions contemplated by this Agreement,
including the Merger, the Related Assets and Liabilities Transaction, the
Healthcare Transaction, the Excluded Assets Transaction, the Freedom Village
Transaction and the Limited Partnership Transaction, and also including the
federal Income Taxes the Company has agreed to pay as provided in Section 9.01
hereof; and
(iii) any breach by the Company of its obligations under
Section 6.01(k), Section 9.01 or Section 12.07 hereof; and
(iv) any dissenters' rights or other claims by former
shareholders of the Company exercising dissenter's rights in connection with
the fairness of the consideration paid in the transactions contemplated by this
Agreement.
(c) Without limiting in any way the obligations of the Company under
Section
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<PAGE> 46
11.02(a) hereof, and notwithstanding any limitation contained in any provision
of this Agreement, including, without limitation, Section 11.05 hereof, the
Company shall pay to the Purchaser any amount previously paid by the Purchaser
to the Company as an Advance Reimbursement, which did not qualify or should not
have been treated as an Advance Reimbursement and which Purchaser sets forth in
a notice of claim relating thereto delivered to the Company within 120 days
after the Closing Date.
11.03. Procedures.
(a) Third Party Claims--in General. A person seeking indemnification
under this Article 11 (the "Indemnified Party") shall give prompt notice to the
party against whom indemnity is sought (the "Indemnifying Party") of the
assertion of any third party claim or the commencement of any third party suit,
action or proceeding in respect of which indemnity may be sought under this
Article 11 (collectively, a "Third Party Claim"), provided, however that delay
in giving any such notice shall relieve the Indemnifying Party of its
obligations in respect of the Third Party Claim only to the extent the delay
results in actual prejudice to the Indemnifying Party. If a Third Party Claim is
covered by the indemnity under Section 11.02 above, other than items referred to
in Section 11.02(a)(i), (b) or (c) hereof references herein to the Indemnifying
Party shall be deemed to refer to the Agent, and Purchaser will give a Loss
Notice (as defined below) to the Escrowee and to the Agent in respect of such
claim. If a Third Party Claim is covered by the indemnity in Section
11.02(a)(i), (b) or (c) hereof, references to the Indemnifying Party shall be
deemed to refer to the Company, and Purchaser will give a Loss Notice (as
defined below) to the Company in respect of such claim. The Indemnifying Party
shall have the right to participate in and control the defense of any such Third
Party Claim, including any suit, action or proceeding relating thereto, at its
own expense. If requested by the Indemnifying Party, the Indemnified Party shall
reasonably and in good faith cooperate with the Indemnifying Party and its
counsel in contesting any claim which the Indemnifying Party elects to contest,
including, without limitation, the making of any related counterclaim against
the person asserting the Third Party Claim or any cross complaint against any
person or providing related statements or testimony. If the Indemnifying Party
does not notify the Indemnified Party in writing within twenty (20) business
days of the Indemnifying Party's receipt of such Loss Notice of its intent to
assume the defense of the Third Party Claim, the Indemnified Party shall be
entitled to take control of such Third Party Claim and the defense thereof at
the Indemnifying Party's cost and expense (provided that the Indemnifying Party
was obligated to indemnify the Indemnified Party hereunder, and further provided
that if such Third Party Claim is subject to the limitations described in
Paragraph 11.05 hereof, then only to the extent of any funds on deposit in the
Escrow Account as provided in Paragraph 11.05), which Third Party Claim shall be
diligently prosecuted to a final conclusion or settlement provided, however,
that the Indemnified Party may settle such Third Party Claim as it may deem
appropriate, in its discretion. The Indemnifying Party shall not be liable under
this Article 11 for any settlement effected without its consent of any Third
Party Claim or any litigation or proceeding in respect thereof, for which
indemnity may be sought hereunder, except for any settlement as to which the
Indemnifying Party did not assume the defense and for which the Indemnifying
Party was obligated to indemnify hereunder.
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<PAGE> 47
(b) Additional Provisions Applicable to Third Party Claims and Breaches
of Representations. Warranties or Covenants subject to Section 11.02(a)(ii). In
the event that any circumstances exist or any claim is made or threatened
against Purchaser after the Closing Date which the Purchaser believes has
resulted or will result in the Purchaser incurring a Loss that is subject to the
Company's indemnification obligation in Section 11.02(a)(ii) hereof:
(i) Purchaser will promptly deliver to the Escrowee and to the
Agent written notice (the "Loss Notice") setting forth a reasonable summary of
the nature of the Loss and the facts giving rise thereto and specifying the
section of this Agreement to which such Loss relates and the amount thereof and,
if the Loss Notice involves a Third Party Claim, a copy of such claim and the
Purchaser's reasonable estimate of the amount sought by the third party.
(ii) The Agent shall have the right to dispute the Company's
responsibility for the Loss on behalf of the Former Holders by the delivery of
written notice (the "Dispute Notice") to the Escrowee within twenty (20)
business days after Purchaser's delivery of the Loss Notice to the Agent and the
Escrowee. If the Agent fails to deliver a Dispute Notice within such twenty (20)
business day period, or if the Agent timely delivers a Dispute Notice but does
not contest therein all the items included in the Loss Notice, the Escrowee
shall be authorized without further action by or approval of any party hereto to
disburse from the Escrow Account the amount which is the subject of the Loss
Notice (or the portion thereof that is not disputed in the Dispute Notice) to,
or as directed by, the Purchaser, except that in the case of a Loss Notice which
relates to a Third Party Claim, sufficient funds to cover the Losses which are
the subject thereof shall be retained by Escrowee in the Escrow Account until
the final resolution thereof however effected, including by the decision of a
court of competent jurisdiction (or by decision made upon arbitration or other
nonjudicial or quasi-judicial dispute resolution) or by a duly executed
settlement agreement, at which time the funds which are the subject of any such
Loss Notice(s) shall be disbursed in accordance with the terms of any such
order, decision or settlement, as applicable.
(iii) In the event the Agent submits a Dispute Notice within
the twenty (20) business day period provided for herein and the Agent and
Purchaser are unable to resolve their differences within twenty (20) business
days after the submission of a Dispute Notice, either the Agent or the Purchaser
may submit the matters which are the subject of the Loss Notice to arbitration
in accordance with the provisions of Section 11.04 hereof and the Escrowee, the
Agent and the Purchaser shall be bound by and shall act in accordance with the
determination of the arbitrator.
(iv) In the event of a Loss Notice which relates to a Third
Party Claim, the matter submitted to arbitration shall be limited to whether the
Third Party Claim involves the breach of a representation, warranty or covenant
by the Company or BSL hereunder, and the Dispute Notice shall state whether the
Agent intends to assume the defense of such Third Party Claim and/or whether the
Agent will permit the Purchaser and the Indemnified Parties to retain primary
responsibility for the settlement or the defense thereof, subject to the Agent's
right, at its
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<PAGE> 48
expense, to retain counsel to monitor, but not to approve, any such defense or
settlement negotiations.
(v) The submission of a Dispute Notice to arbitration shall
not relieve the Agent of its obligation, at its expense, to defend any Third
Party Claim in the event it gives notice of its election to do so, unless and
until it is determined in such arbitration that the Third Party Claim does not
involve a breach of representation, warranty or covenant by the Company
hereunder.
(vi) In the event the arbitrator determines that a Loss Notice
which relates to a Third Party Claim is not the subject of an indemnifiable loss
under the terms of this Article 11, the Indemnified Party shall be required to
reimburse the Agent for any and all costs and expenses incurred in defending
such Third Party Claim until the Indemnified Party assumes the defense thereof,
which shall in no event occur later than ten (10) days after such determination
is made. In the event the arbitrator determines that a Loss Notice which relates
to a Third Party Claim is the subject of an indemnifiable loss under the terms
of this Article 11, the Arbitrator shall retain jurisdiction until a final
determination of said Third Party Claim by order of a court of competent
jurisdiction, by arbitration or other nonjudicial or quasi-judicial proceeding
or by a duly executed settlement agreement, at which time the arbitrator shall
order disbursement of the funds from the Escrow Account in accordance with such
order or settlement.
(c) Other Claims. Promptly upon learning of the grounds of a claim for
indemnification that is subject to Section 11.02(a)(i), (b) or (c) hereof, the
Purchaser shall deliver to the Company a Loss Notice specifying in reasonable
detail the grounds and amount of such claim. If such claim is not resolved in
sixty (60) days after such delivery, the Purchaser may exercise any rights and
pursue any remedies it may have hereunder, at law or otherwise in respect of
such claim directly against the Company.
11.04. Arbitration.
(a) Any matters which are the subject of the indemnity provisions of
this Article 11, other than a Loss Notice and Dispute Notice submitted with
respect to the representation set forth in Section 4.O5(b), shall be submitted
for resolution to arbitration in Portland, Oregon, or such other location as the
Purchaser and the Agent may agree to, under the Commercial Arbitration Rules of
the American Arbitration Association to which shall be added the provisions of
the Federal Rules of Civil Procedure relating to the Production of Evidence.
Such arbitration shall be presided over by a single arbitrator. If the Purchaser
and the Agent do not agree on the arbitrator within twenty (20) business days
after the delivery by Agent of a Dispute Notice, the arbitrator shall be
selected by them from a list of five potential arbitrators provided by the
American Arbitration Association. Such list shall be provided within 10 days of
the expiration of said twenty (20) business day period (or as soon thereafter as
the American Arbitration Association is able to do so), provided that if the
American Arbitration Association shall not have provided such list within twenty
(20) days after the expiration of said twenty (20) business day period, then
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<PAGE> 49
the arbitrator shall be designated by the presiding judge of the county in which
such arbitration is held. The Agent shall delete one name from the list. The
Purchaser shall delete one name from the list. This process shall then be
repeated in the same order and the last remaining person on the list shall be
the arbitrator. This selection process shall take place within the two business
days following both parties' receipt of the list of five potential arbitrators.
Hearings in such arbitration proceeding shall commence within 20 days of the
selection of the arbitrator or as soon thereafter as the arbitrator is
available. The arbitrator shall deliver his or her opinion within 20 days after
the completion of the arbitration hearings. The arbitrator's decision shall be
final and binding upon the parties, and may be entered and enforced in any court
of competent jurisdiction by either of the parties.
(b) Any Loss Notice and Dispute Notice submitted with respect to the
representation set forth in Section 4.O5(b) as to which the parties fail to
reach agreement within ten (1O) business days from the date of delivery of the
Dispute Notice, will be submitted to the Independent Accountants for
determination. The Independent Accountants shall deliver to the Purchaser and
the Agent, as promptly as practicable, a written report setting forth their
determination of the disputed items, which determination shall be final,
conclusive and binding upon the parties, and shall not be subject to appeal to
any court or tribunal.
(c) Unless otherwise ordered by the arbitrator or the Independent
Accountants, the arbitrator's or the independent Accountants' expenses, as
applicable, shall be shared equally by the parties.
11.05 Limitation on Claims.
(a) Purchaser shall have no right to recover with respect to any Losses
until the amount of all such Losses is equal to or greater than $150,000
individually or in the aggregate (the "Loss Threshold"), except in the case of a
breach of the representation or warranty set forth in Section 4.05(b), as to
which the Purchaser shall be required to suffer or incur a loss in the amount of
$150,000 before any such claim can be made (the "Financial Statement Loss
Threshold"); provided, however, that to the extent that any Loss subject to the
Financial Statement Loss Threshold involves a breach of a representation or
warranty contained herein, other than in Section 4.05(b) hereof, such Loss shall
be applied in reduction of the Loss Threshold. The Purchaser shall only be
entitled to recover Losses suffered or incurred by it in excess of the Loss
Threshold or the Financial Statement Loss Threshold, as applicable, and in
addition the Purchaser shall not be entitled to be indemnified against any Loss
item under Section 11(a)(ii) hereof to the extent that it has previously
received payments on account of the identical loss item in respect of any breach
of the representation or warranty set forth in Section 4.05(b). Any and all
claims for the recovery of losses (other than claims against the Company under
Sections 11.02(a)(i), (b)(except as relates to Section 6.01(k) hereof) or (c)
hereof) must be brought by Purchaser within one year after the Closing Date, and
any claim for recovery of any Loss under Section 11.02(b)(iii) as relates to
Section 6.01(k) must be brought by Purchaser within eighteen months after the
Closing Date (in each case, the "Limitation Period"), except in
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<PAGE> 50
the case of a breach of the representation and warranty set forth in Section
4.05(b), as to which any claims must be brought within sixty (60) days after the
Closing Date and shall be based solely upon an unaudited combined balance sheet
of BSL and CMC (giving effect to the transfers contemplated in the Related
Assets and Liabilities Transaction and the Excluded Assets Transaction but not
taking into account the effect of the Merger of BSL into the Purchaser), dated
as of the Closing on the Closing Date, prepared by or at the direction of
Purchaser in accordance with GAAP and otherwise on a basis consistent with the
Pro Forma Balance Sheet. Any claim against the Company under Section
11.02(a)(i), (b)(except as relates to Section 6.01(k) hereof) or (c) hereof
shall not be subject to any limitation set forth in this Section 11.05 and may
be brought (except as provided in Section 11.02(c) hereof) at any time prior to
the expiration of the statute of limitations applicable with respect to such
claim.
(b) Except for items referred to in Sections 11.02(a)(i), (b) or (c)
hereof, the Purchaser's recourse for any and all Losses pursuant to Section
11.02 shall be limited to the funds on deposit in the Escrow Account, as the
Escrow Account may be reduced by payments therefrom pursuant to the provisions
of this Agreement (or the agreement relating to the Freedom Village
Transaction). It understood and agreed that the Loss Threshold shall not apply
to the items referred to in Sections 11.02(a)(i), (b) or (c).
(c) Any and all funds remaining in the Escrow Account at the end of the
Limitation Period (the "Remaining Escrowed Funds"), including any remaining
interest income, shall be released in accordance with the Escrow Agreement;
provided, however, that as to any Loss Notices submitted prior to the expiration
of the Limitation Period in excess of the Loss Threshold or the Financial
Statement Loss Threshold, as applicable, which remain unresolved at the end of
the Limitation Period, sufficient funds to cover the Losses which are the
subject thereof shall be retained by Escrowee in the Escrow Account until the
final resolution thereof however effected, including in accordance with the
arbitration procedures set forth in Section 11.04, or, in the case of a Third
Party Claim by the decision of a court of competent jurisdiction (or upon
arbitration or other nonjudicial or quasi-judicial decision made) or by a duly
executed settlement agreement, at which time the funds which are the subject of
any such Loss Notice(s) shall be disbursed in accordance with the terms of any
such order, decision or settlement, as applicable.
11.06. Further Assurances. The parties agree to execute and deliver any
and all documents as may be reasonably requested by the Escrowee to evidence its
assumption of the duties and obligations provided for herein.
11.07. Mitigation. Each Indemnified Party will use reasonable efforts
to mitigate any Losses for which it may claim indemnification under this Article
11. Further, the indemnities provided by this Article 11 shall apply only to
Losses for which the Indemnified Party is not, or is not entitled to be,
reimbursed through third party insurance.
11.08. Adjustment of Merger Consideration. Amounts paid for
indemnification under this Article 11 shall be deemed to be an adjustment to the
Merger Consideration.
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<PAGE> 51
11.09. Income Taxes. The Company acknowledges and agrees that the funds
in the Escrow Account shall be deemed for purposes of the tax laws to be the
property of the Purchaser and accordingly that Purchaser shall be required to
pay Income Taxes on any interest earned thereon. The Company further
acknowledges and agrees that the Purchaser shall have the right to withdraw from
interest earned on the Escrow Account sufficient funds to pay said Income Taxes
and that any interest on the Escrow Account available for disbursement pursuant
to the terms hereof shall be reduced by such amount.
11.10. Access to Books and Records. From the Closing Date until the
final determination of any matters which are the subject of a Loss Notice and a
Dispute Notice, the Agent and his representatives will have such access to the
books, records and accounts of the Purchaser and its employees as is relevant to
the resolution of such matters.
ARTICLE XII
MISCELLANEOUS
12.01. Notices. Any notice, request or other communication to be given
by any party hereunder shall be in writing and shall be sent by registered or
certified mail, postage prepaid, by overnight delivery, hand delivery or
facsimile transmission to the following address:
To the Company: Brim, Inc.
305 NE 102nd Avenue
Portland, Oregon 97220
Attn: A. E. Brim
Phone: 503-256-2070
Fax: 503-254-7619
To BSL: Brim Senior Living, Inc.
305 NE 102nd Avenue
Portland, Oregon 97220
Attn: Jim Williams
Phone: 503-256-2070
Fax: 503-254-7619
With copy of anything Randi S. Nathanson, Esq.
addressed to the Company The Nathanson Group
or to BSL to: 1411 Fourth Avenue
Suite 905
Seattle, WA 98101
Phone: 206-623-6239
Fax: 206-623-1738
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To Purchaser: Encore Senior Living, LLC
305 NE 102nd Avenue
Portland, Oregon 97220
Attn: James Williams
Phone: 503-256-2070
Fax: 503-254-7619
With copy to: Rockwood Living, Inc.
200 West Madison
Suite 3800
Chicago, Illinois 60606
Attn: John Kevin Poorman
Phone: 312-750-8415
Fax: 312-750-8597
With further Latham & Watkins
copy to: 5800 Sears Tower
Chicago, Illinois 60606
Attn: Stephen S. Bowen
Phone: 312-876-7652
Fax: 312-993-9767
To Agent: Lee Zinsli
482 SW Riverbend Drive
West Linn, OR 97068
Phone: (503) 656-2718
Fax: (503) 655-8136
Notices shall be effective upon actual receipt or refusal of receipt whether
sent by mail, overnight delivery, facsimile transmission or hand delivery.
12.02. Assignment. No party may assign, directly or indirectly, its
rights or obligations hereunder without the prior written consent of the other
parties. This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and permitted assigns,
including successors by operation of law pursuant to any merger, consolidation
or sale of assets involving either party.
12.03. Sole Agreement. This Agreement may not be amended or modified in
any respect whatsoever except by an instrument in writing signed by the parties
hereto. This Agreement, the Schedules and Exhibits hereto, the Company
Disclosure Letter and the Confidentiality Agreements, constitute the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersede all prior negotiations, discussions, writings and agreements
between them.
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<PAGE> 53
12.04. Captions. The captions of this Agreement are for convenience of
reference only and shall not define or limit any of the terms or provisions
hereof.
12.05. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Oregon.
12.06. Counterparts. This Agreement may be executed simultaneously in
any number of counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument. The parties
agree and acknowledge that delivery of a signature by facsimile shall constitute
execution by such signatory.
12.07. Transactional Expenses. Except as otherwise provided herein,
whether or not the transactions contemplated by this Agreement or the Other
Required Agreements are consummated, each party (which shall mean the Company in
the case of BSL) shall pay its own fees and expenses incident to the
negotiation. preparation, execution, delivery and performance hereof and thereof
including, without limitation, the fees and expenses of its counsel, accountants
and other experts. The Company shall pay all fees and expenses associated with
(i) obtaining estoppel certificates, releases, lien waivers and subordinations
in connection with the transactions contemplated by this Agreement, (ii)
obtaining all permits, consents (including, without limitation, all consents and
all other documents described in Section 7.01(e) hereof), approvals,
assignments, licenses and orders and other authorizations of any kind, and
making such filings with respect to the foregoing with such third parties or
Governmental Authorities, as are required in connection with the transactions
contemplated hereby, (iii) the investment banking services provided by Smith
Barney, (iv) the provision of services to the Company, BSL, CMC or any BSL
Partnership by all other persons or entities in connection with the preparation
and negotiation of this Agreement and the consummation of the transactions
contemplated hereby, and (v) the performance by the Company and BSL of their
obligations hereunder.
12.08. Knowledge Defined. To the extent that any of the representations
and warranties contained in this Agreement are limited by the phrases "to the
knowledge of" or "the Company has no knowledge of" or "Purchaser has no
knowledge of" or words or phrases of similar import, the same shall mean, in the
case of the Company and BSL, to the actual knowledge of Messrs. A. E. Brim, K.
David McAllister, James M. Williams, Bruce A. Schoen, Craig J. Rhea or Rick D.
McDaniel after due and diligent inquiry with respect thereto, which inquiry
shall include inquiry of the on site administrators of each of the Facilities,
and, in the case of Purchaser, to the actual knowledge of Penny Pritzker or John
Kevin Poorman, after due and diligent inquiry with respect thereto.
12.09. Severability. If any provision of this Agreement shall for any
reason be held to be unlawfully broad as to any application, activity or
subject, it shall be construed, by limiting and reducing it, to be enforceable
to the extent compatible with applicable law. If, notwithstanding the preceding
sentence, any provision contained in this Agreement shall, for any reason, be
held to be illegal or unenforceable in any respect, such illegality or
unenforceability shall not affect
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<PAGE> 54
any other provision of this Agreement, but this Agreement shall be reasonably
construed as if the illegal or unenforceable provision had never been contained
herein.
12.10. Further Assurances. The parties hereto shall use their
commercially reasonable efforts to do and perform or cause to be done and
performed all such further acts and things and shall execute and deliver all
such other agreements, certificates, instruments or documents as any other party
may reasonably request in order to carry out the intent and purposes of this
Agreement and the consummation of the transactions contemplated hereby.
12.11. Third Party Beneficiary. Nothing in this Agreement express or
implied is intended to and shall not be construed to confer upon or create in
any person not a party to this Agreement, any rights, remedies or obligations
under or by reason of this Agreement, including without limitation, any right to
enforce this Agreement.
12.12. Attorneys' Fees. In the event of a dispute between the parties
hereto with respect to the interpretation or enforcement of the terms hereof,
the prevailing party in any action resulting therefrom shall be entitled to
collect from the other its reasonable costs and attorneys' fees, including its
costs and fees on appeal.
12.13. Construction. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state or local
statute or law shall be deemed also to refer to all rules and regulations
promulgated thereunder, unless the context requires otherwise. The word
"including" shall mean "including without limitation."
12.14. Disclosure. Anything disclosed in this Agreement or in any of
the Exhibits or Schedules attached to this Agreement or the Company Disclosure
Letter or any other document delivered pursuant to this Agreement or in the
Company Financial Statements shall be deemed to have been disclosed for any and
all purposes to which said information relates, and to the extent that such
information constitutes an exception to any of covenants, representations or
warranties herein such covenants, representations or warranties shall not be
deemed to have been breached if such information as and where disclosed is
reasonably adequate to give the non-disclosing party fair notice of the
exception to the applicable covenants, representations or warranties; provided,
however, that nothing set forth in the Approved Business Plan shall be deemed to
be an exception to any of the covenants, representations or warranties of the
Company or BSL set forth herein.
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<PAGE> 55
12.15. Purchaser Executive Committee Action or Approval Required. All
actions required or permitted to be taken by Purchaser under this Agreement
shall be valid and effective only if taken or approved by the Executive
Committee of Purchaser pursuant to the Operating Agreement.
IN WITNESS WHEREOF, the parties hereby execute this Agreement as of
the day and year first set forth therein.
BRIM, INC.
By:
------------------------------------
Its:
------------------------------------
BRIM SENIOR LIVING, INC.
By:
------------------------------------
Its:
------------------------------------
ENCORE SENIOR LIVING, LLC
By:
------------------------------------
Its:
------------------------------------
The Agent hereby executes this Agreement subject to the approval of the
shareholders of the Company and, in the event such approval is given, solely for
the purpose of agreeing to act as the agent of such shareholders for the limited
purposes set forth herein. Subject to obtaining such shareholder approval, Agent
hereby represents and warrants that this Agreement has been duly and validly
executed and delivered by the Agent and constitutes a legal, valid and binding
obligation of the Agent and is enforceable against the Agent in accordance with
its terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (regardless of
whether such enforceability is considered in a proceeding in equity or at law),
Agent is not making and shall not be responsible for any other representations,
warranties or covenants made in this Agreement. Agent acknowledges and agrees to
the rights of the Purchaser with respect to the interest earned on the Escrow
Account as provided in Section 11.09 hereof.
------------------------------------
Lee Zinsli
55
<PAGE> 1
EXHIBIT 4.2
================================================================================
------------------
Securities Purchase Agreement
------------------
between
Brim, Inc.
and
Leeway & Co.
Dated
As of December 17, 1996
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. Transactions and Definitions.............................................................................1
2. The Securities...........................................................................................1
2.1. Senior Preferred Stock........................................................1
2.2. Junior Preferred Stock........................................................1
2.3. Common Stock..................................................................2
2.4. Warrants......................................................................2
2.5. Investor Securities Defined...................................................2
3. Sale and Purchase of Securities..........................................................................2
3.1. Agreement to Sell and Purchase................................................2
3.2. Closing.......................................................................2
3.3. Subsequent Closing............................................................3
3.4. Use of Proceeds...............................................................3
3.5. Specifically Prohibited Applications of Proceeds..............................3
4. Representations and Warranties...........................................................................3
4.1. Organization, Standing, Subsidiaries, etc.....................................3
4.2. Capitalization................................................................4
4.3. Financial Information.........................................................6
4.4. Related Agreements............................................................7
4.5. Changes in Condition..........................................................9
4.6. Incorporation by Reference....................................................9
4.7. No Legal Obstacle to Agreement................................................9
4.8. ERISA........................................................................10
4.9. Foreign Trade Regulations; Government Regulations............................10
4.10. Litigation...................................................................11
4.11. Solvency.....................................................................11
4.12. Availability for Resale......................................................11
4.13. Disclosure...................................................................11
5. Investment Representations..............................................................................11
5.1. Accredited Investor..........................................................12
5.2. Experience...................................................................12
5.3. Investment...................................................................12
6. Conditions to Purchase..................................................................................12
6.1. Related Agreements...........................................................12
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
6.2. Legal Opinions...............................................................12
6.3. Representations and Warranties; Officers' Certificate........................12
6.4. Origination Fee..............................................................13
6.5. Payment of Transaction Costs.................................................13
6.6. Proper Proceedings...........................................................13
6.7. Legality; Governmental Authorization.........................................13
6.8. General......................................................................13
7.1. Financial Statements.........................................................13
7.2. Transactions with Affiliates.................................................16
7.3. ERISA........................................................................16
7.4. Resale Under Rule 144A.......................................................17
7.5. Confidentiality..............................................................18
7.6. Registration Statements......................................................18
8.1. Charter Amendments...........................................................18
8.2. Related Agreements...........................................................19
8.3. Existence, Etc...............................................................19
8.4. Conduct of Business..........................................................20
8.5. Prohibition of Fundamental Changes...........................................20
8.6. Repurchase...................................................................20
8.7. Restrictions on Indebtedness.................................................20
8.8. Restrictions on Guarantees...................................................20
8.9. Distributions................................................................21
8.10. Board Visitation Rights......................................................21
8.11. Change of Control............................................................21
9. Covenants Applicable While Any Warrants, Warrant Shares or Shares of Common Stock Constituting
Investor Securities Are Outstanding.....................................................................22
9.1. Limitations on Issuance of Equity Securities.................................22
9.2. First Refusal Rights.........................................................22
9.3. Board Representation.........................................................25
10. Payment on Investor Securities; Transfer; Replacement...................................................25
10.1. Payment......................................................................25
10.2. Transfer and Exchange of Senior Preferred....................................25
10.3. Transfer and Exchange of Junior Preferred Stock..............................25
10.4. Transfer and Exchange of Common Stock........................................26
10.5. Transfer, Exchange, Exercise and Conversion of Warrants......................26
10.6. Replacement of Lost Securities...............................................26
11. Restrictions on Transfer................................................................................27
11.1. Restrictive Legend...........................................................27
11.2. Notice of Proposed Transfer; Opinions of Counsel.............................27
</TABLE>
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<TABLE>
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11.3. Termination of Restrictions..................................................27
11.4. Special Restriction..........................................................28
12. Definitions.............................................................................................28
12.1. Terms Defined Elsewhere......................................................28
12.2. Action.......................................................................29
12.3. Affiliate....................................................................29
12.5. Applicable Percentage........................................................29
12.7. Business Day.................................................................30
12.8. By-laws......................................................................30
12.9. Capitalized Lease............................................................30
12.10. Charter......................................................................30
12.11. COBRA........................................................................30
12.12. Code.........................................................................30
12.13. Commission...................................................................30
12.14. Consolidated.................................................................30
12.15. Contractual Obligation.......................................................30
12.16. Distribution.................................................................31
12.20. Exchange Act.................................................................31
12.21. Equity Securities............................................................31
12.24. Foreign Trade Regulations....................................................32
12.25. Generally Accepted Accounting Principles.....................................32
12.26. Governmental Authority.......................................................32
12.27. Indebtedness.................................................................32
12.28. Investment...................................................................32
12.29. Legal Requirement............................................................32
12.30. Lien.........................................................................33
12.31. Major Holder.................................................................33
12.32. Material Adverse Change; Material Adverse Effect.............................33
12.33. Members of the Immediate Family..............................................33
12.38. Person.......................................................................34
12.40. Public Sale..................................................................34
12.42. Required Holders.............................................................34
12.44. Securities Act...............................................................34
12.45. Single Employer Plan.........................................................34
12.46. Stockholder..................................................................34
12.47. Subject Entity...............................................................35
12.48. Subsidiary...................................................................35
12.50. Wholly Owned Subsidiary......................................................35
13. Expenses, Indemnity.....................................................................................35
13.1. Expenses.....................................................................35
</TABLE>
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<TABLE>
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13.2. Indemnity....................................................................36
14. Notices.................................................................................................36
15. Survival................................................................................................37
16. Amendments and Waivers..................................................................................37
17. WAIVER OF JURY TRIAL....................................................................................37
18. Service of Process......................................................................................37
19. Applicable Remedies.....................................................................................38
20. Miscellaneous...........................................................................................38
</TABLE>
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SCHEDULES AND EXHIBITS
<TABLE>
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Schedule 1 Home Office Payments
Exhibit 2.1 Charter of Company
Exhibit 2.4 Warrant
Exhibit 4.1.3A List of Stockholders before Closing
Exhibit 4.1.3B List of Stockholders after Closing
Exhibit 4.1.4 Subsidiaries
Exhibit 4.1.5 Qualification
Exhibit 4.2.1A Other Agreements Related to Equity Securities as of Closing
Exhibit 4.2.1B Other Agreements Related to Equity Securities Immediately after Closing
Exhibit 4.2.2 Ownership of Subsidiaries
Exhibit 4.4 Certain Contractual Obligations
Exhibit 4.4.1 Carryco Merger Agreement
Exhibit 4.4.2 Credit Agreement
Exhibit 4.4.3 Investment Agreement
Exhibit 4.4.4 Preferred Stock Purchase Agreement
Exhibit 4.4.5 Professional Services Agreement
Exhibit 4.4.6 Principal Merger Agreement
Exhibit 4.4.7 Shareholders Agreement
Exhibit 4.4.8 Registration Rights Agreement
Exhibit 4.4.9 Employment Agreements
Exhibit 4.5 Changes in Condition
Exhibit 7.2 Related Party Transactions
Exhibit 8.1 Amendments to Charter
Exhibit 8.6 Repurchase Agreements
Exhibit 9.1 Issuance of Equity Securities
</TABLE>
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BRIM, INC.
305 N.E, 102nd Avenue
Portland, Oregon 97020
Telephone Number: (503) 254-7619
As of December 17, 1996
LEEWAY & CO.
C/o State Street Bank and Trust Company
Master Trust Division-Q4W
P.O. Box 1992
Boston, Massachusetts 02101
Ladies and Gentlemen:
In connection with the purchase and sale of securities provided for herein,
the undersigned Brim, Inc., a corporation duly organized and validly existing
under the laws of the State of Oregon (the "Company"), hereby agrees with you as
follows:
1. TRANSACTIONS AND DEFINITIONS. Subject to all of the terms and conditions of
this Agreement and in reliance on the representations and warranties set forth
or incorporated by reference herein, the Company proposes to issue and sell to
you the Investor Securities described herein, and to apply the proceeds
therefrom solely as specified in Section 3.3 hereof. Certain terms are used in
this Agreement as specifically defined herein. These definitions are set forth
or referred to in Section 12 hereof.
2. THE SECURITIES.
2.1. Senior Preferred Stock. The Company has authorized the issuance and
sale to you of 20,000 shares of its Series A Senior Preferred Stock, no par
value (the "Senior Preferred Stock") with the terms specified in the Company's
Charter (the "Certificate") attached hereto as Exhibit 2.1, for an aggregate
purchase price of $19,845,531.
2.2. Junior Preferred Stock. The Company has authorized the issuance and
sale to you of 3,752 shares its Series B Junior Preferred Stock, no par value
(the "Junior Preferred Stock" and together with the Senior Preferred Stock the
"Preferred Stock") with the terms specified in the Certificate, for an aggregate
purchase price of $3,752,000.
<PAGE> 8
2.3. Common Stock. The Company has authorized the issuance and sale to you
of 375,200 shares its Common Stock, no par value (the "Common Stock") with the
terms specified in the Certificate, for an aggregate purchase price of $375,200.
2.4. Warrants. The Company has authorized the issuance and sale to you of
warrants, each in substantially the form of Exhibit 2.4 hereto, for the purchase
of an aggregate of 154,469 shares of the Company's Common Stock, no par value,
at a per share exercise price of $0.10 (each such warrant, together with any
warrant or warrants issued in exchange therefor, being referred to herein as a
"Warrant" and collectively as the "Warrants") for an aggregate purchase price of
$154,469.
2.5. Investor Securities Defined. The Senior Preferred Stock, the Junior
Preferred Stock, the Common Stock and the Warrants being issued to you
hereunder, together with (i) any securities issued with respect thereto (whether
as a stock dividend or otherwise), upon exercise, conversion or transfer thereof
or in exchange therefor, including without limitation the Common Stock issued or
issuable upon exercise or conversion of the Warrants (the "Warrant Shares") and
(ii) any securities issued with respect to, upon exercise, conversion or
transfer of or in exchange for the securities described in the immediately
preceding clause (i) or this clause (ii), are collectively referred to herein as
"Investor Securities"; provided, however, that any such securities sold in a
Public Sale shall cease to be Investor Securities for all purposes hereof.
3. SALE AND PURCHASE OF SECURITIES.
3.1. Agreement to Sell and Purchase. Based on your representations and
warranties contained in Section 4 hereof, the Company hereby agrees to issue and
sell to you, and, subject to all of the terms and conditions hereof and in
reliance on the representations and warranties of the Company set forth or
incorporated by reference or otherwise referred to herein, you hereby agree to
purchase from the Company, at the Closing, the Senior Preferred Stock, the
Junior Preferred Stock, the Common Stock and the Warrants, at the respective
purchase prices specified in Sections 2.1 through 2.4.
3.2. Closing. The closing of the purchase and sale of the Investor
Securities (the "Closing") shall take place at 10:00 a.m., Chicago time, at the
offices of Kirkland & Ellis, on December 17, 1996 or at such other time and
place as the Company and you may agree upon (the date on which the Closing
occurs being herein referred to as the "Closing Date"). At the Closing, the
Company will, unless otherwise requested, deliver to you a single certificate
for each of the Senior Preferred Stock, Junior Preferred Stock and Common Stock,
in each case evidencing the aggregate number of shares of Senior Preferred
Stock, Junior Preferred Stock or Common Stock being issued to you by the Company
hereunder, and a single warrant evidencing the aggregate number of Warrants
being issued to you by the Company hereunder, each registered in your name,
against payment of the purchase price therefor by wire transfer of immediately
available funds to a single account of the Company specified by notice from the
Company to you not less than three Business Days prior to the Closing Date.
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3.3. Subsequent Closing. You have agreed that the Company may sell
to you an additional 794 shares of Junior Preferred Stock for $1,000 per share
and an additional 79,400 shares of Common Stock at $1 per share in accordance
with Section 6(d) of the Shareholders Agreement as in effect on the date hereof.
If the Company elects to make additional sales to you under this Section 3.3 the
Company shall give you written notice of the date of the closing of such
additional sales (the "Subsequent Closing") at least ten Business Days prior to
the date of such Subsequent Closing (the "Subsequent Closing Date"). At the
Subsequent Closing, the Company will, unless otherwise requested, deliver to you
a single certificate for each of the Junior Preferred Stock and Common Stock, in
each case evidencing the aggregate number of shares of Junior Preferred Stock or
Common Stock being issued to you by the Company at the Subsequent Closing, each
registered in your name, against payment of the purchase price therefor by wire
transfer of immediately available funds to a single account of the Company
specified by notice from the Company to you not less than three Business Days
prior to the Subsequent Closing Date.
3.4. Use of Proceeds. The Company covenants that it will apply the proceeds
of the Investor Securities to be issued and sold by it to you at the Closing to
the Redemption and related transactions pursuant to the Related Agreements
referred to in Section 4.4 hereof (the "Transactions").
3.5. Specifically Prohibited Applications of Proceeds. In no event shall
the Company, directly or indirectly, apply any part of the proceeds from the
issuance and sale hereunder of the Investor Securities to any transaction
prohibited by the Foreign Trade Regulations.
4. REPRESENTATIONS AND WARRANTIES. In order to induce you to enter into this
Agreement and to purchase the Investor Securities to be purchased by you
hereunder, the Company hereby represents and warrants as follows with respect to
the Company and its Subsidiaries:
4.1. Organization, Standing, Subsidiaries, etc.
4.1.1. The Company. The Company is a duly organized and validly
existing corporation under the laws of the State of Oregon, with all
necessary power and authority, corporate and otherwise, to execute, deliver
and perform this Agreement and each other Related Agreement to which it is
or will be a party, to issue, sell and perform the Investor Securities, and
to carry on the business now conducted or currently proposed to be
conducted by it. The Company has taken all action, corporate and otherwise,
necessary to authorize this Agreement, the other Related Agreements to
which it is or will be a party and the issuance of the Investor Securities
and to make each such document the legal, valid, binding and enforceable
obligation it purports to be, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors' rights generally or by general principles of
equity. This Agreement, each other Related Agreement to which the Company
is or will be a party and
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<PAGE> 10
the Investor Securities have been (or, as applicable, will have been at or
prior to the Closing) duly executed and delivered by the Company.
4.1.2. Charter. Attached hereto as Exhibit 2.1 is a correct and
complete copy of the Charter of the Company as in effect at the execution
hereof and as it will be in effect at the Closing.
4.1.3. Stockholders. Immediately prior to the Closing, the only
Stockholders are those listed on Exhibit 4.1.3A hereto. Immediately after
the Closing and giving effect to the application of the proceeds of the
sale of the Investor Securities to be sold to you at the Closing and the
consummation of the Repurchase Agreement, the Redemption, the Carryco
Merger Agreement, the Investment Agreement, and the Principal Merger
Agreement, the only Stockholders will be those listed on Exhibit 4.1.3B
hereto.
4.1.4. Subsidiaries; Investments. The Company has no Subsidiaries
other than those listed on Exhibit 4.1.4 hereto. Each Subsidiary is a duly
organized and validly existing corporation in good standing under the laws
of its state of incorporation, with all necessary power and authority,
corporate and otherwise, to execute, deliver and perform each Related
Agreement to which it is or will be a party and to carry on the business
now conducted at currently proposed to be conducted by it. Each Subsidiary
has taken all action, corporate and otherwise, necessary to authorize each
Related Agreement to which it is or will be a party, and to make each such
document the legal, valid, binding and enforceable obligation it purports
to be, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally or by general principles of equity. Each Related Agreement
to which any Subsidiary is or will be a party has been (or, as applicable,
will have been at or prior to the Closing) duly executed and delivered by
such Subsidiary. The Company has no Investment in any Person other than a
Subsidiary, other than those described on Exhibit 4.1.4 hereto.
4.1.5. Qualification. Except as set forth on Exhibit 4.1.5 hereto,
each of the Company's Subsidiaries is duly qualified to do business as a
foreign corporation and is in good standing as such in each jurisdiction in
which it is required to be so qualified and is duly authorized, qualified
and licensed under all laws, regulations, ordinances or orders of public
authorities, or otherwise, to carry on its business in the places and in
the manner presently conducted and proposed to be conducted, except for
such failures to be so qualified or authorized, qualified and licensed that
have not had and are not reasonably expected to have a Material Adverse
Effect.
4.2. Capitalization.
4.2.1. Capital Stock of the Company; Options, Etc. The authorized
capital stock of the Company immediately prior to the Closing consists of
20,000,000 shares of
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Common Stock, no par value, 96,000 shares of Series A preferred stock, no
par value (the "Series A Preferred Stock"), 750,000 shares of junior
redeemable preferred stock, no par value (the "Redeemable Preferred
Stock"), 25,000 shares of Senior Preferred Stock, and 50,000 shares of
Junior Preferred Stock. As of the date of this Agreement the Company has
outstanding 358,000 shares of Common Stock, 96,000 shares of Series A
Preferred Stock, 742,033 shares of Redeemable Preferred Stock, and 3,580
shares of Junior Preferred Stock, owned of record as set forth in Exhibit
4.1.3A hereto, all of which have been validly issued and are fully paid
and non-assessable. As of the date of this Agreement, no Senior Preferred
Stock is outstanding. After giving effect to the Closing and giving effect
to the application of the proceeds of the sale of the Investor Securities
to be sold to you at the Closing and the consummation of the Repurchase
Agreement, the Redemption, the Carryco Merger Agreement, the Investment
Agreement, and the Principal Merger Agreement, (x) the authorized capital
stock of the Company will consist of 20,000,000 shares of Common Stock, no
par value, 96,000 shares of Series A Preferred Stock. 750,000 shares of
Redeemable Preferred Stock, 25,000 shares of Senior Preferred Stock and
50,000 shares of Junior Preferred Stock, and (y) the Company will have
3,276,005 shares of common stock outstanding, 20,000 shares of Senior
Preferred Stock outstanding, and 28,540 shares of Junior Preferred Stock
outstanding, which shall be owned of record as set forth in Exhibit 4.1.3B
hereto, all of which will be validly issued, fully paid and
non-assessable. No shares of Series A Preferred Stock or Redeemable
Preferred Stock will be outstanding immediately after the Closing. When
issued and paid for as provided for in this Agreement, the Investor
Securities will be subject to no Lien, except restrictions on transfer
imposed by this Agreement, the other Related Agreements, and applicable
securities laws and Liens, if any, created by you. Except as described in
Exhibits 4.2.1A and 4.2.2 hereto, no Subject Entity has outstanding, and
except as described in Exhibits 4.2.1B and 4.2.2 hereto, immediately after
giving effect to the Closing, no Subject Entity will have outstanding, in
each case other than as created by or pursuant to this Agreement or any of
the Related Agreements (a) any Equity Securities, or (b) any contractual
obligation to repurchase or otherwise acquire or retire any of its Equity
Securities.
4.2.2. Subsidiaries. All of the outstanding shares of capital
stock of each Subsidiary have been duly and validly authorized and issued
and are fully paid. nonassessable and owned beneficially and of record, as
set forth in Exhibit 4.2.2 hereto, subject to no Lien or Restriction except
Liens securing the Senior Indebtedness, and restrictions on transfer
imposed by this Agreement and the other Related Agreements and applicable
securities laws, and except as described in Exhibit 4.2.2.
4.2.3. Reservation of Common Stock. The shares of common stock
issuable upon exercise at conversion of the Warrants have been duly
authorized and reserved for issuance by all necessary corporate action on
the part of the Company. and such shares, when issued upon such exercise or
conversion (as applicable), will be duly and validly issued, fully paid and
nonassessable.
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<PAGE> 12
4.2.4. Issuance of Securities. All outstanding securities of each
Subject Entity have been, and all securities of each Subject Entity
outstanding on the Closing Date will have been, issued in accordance with
all applicable Legal Requirements, including without limitation the
Securities Act and state "Blue Sky" laws.
4.3. Financial Information. You have been furnished with, and by your
execution hereof acknowledge receipt of, true, complete and correct copies of
each of the following:
4.3.1. The consolidated and consolidating balance sheets of the
Subject Entities as of December 31, 1995 and the related consolidated and
consolidating statements of earnings and consolidated statements of
shareholders equity and cash flows for the fiscal year then ended,
accompanied by the notes thereto and (with respect to such consolidated
statements) the report thereon of KPMG Peat Marwick LLP, and similar
financial statements as at the end of and for the preceding fiscal year
accompanied by the notes thereto and auditors' report thereon.
4.3.2. The unaudited consolidated and consolidating balance sheets
of the Subject Entities as of September 30, 1996 and the related unaudited
consolidated and consolidating statement of earnings and consolidated
statements of stockholders equity and cash flows for the fiscal quarter and
portion of the fiscal year then ended.
4.3.3. Monthly unaudited consolidated and consolidating financial
statements of the Subject Entities for internal use for the months of
October, 1996 (other than consolidating statements of stockholders equity
and cash flow).
4.3.4. The budgeted consolidated and consolidating financial
statements of the Subject Entities for the periods ended December 31 of
each of 1996 and 1997 (other than consolidating statements of stockholders
equity and cash flow).
4.3.5. Pro forma projections of consolidated and consolidating
financial results (other than consolidating statements of stockholders
equity and cash flow) of the Subject Entities for each of the fiscal years
ended December 31, 1998 through 2001.
4.3.6. The pro forma consolidated capitalization of the Subject
Entities, as of the Closing Date.
The financial statements (including the notes thereto, if any) referred to
in Sections 4.3.1 and 4.3.2 were prepared in accordance with generally accepted
accounting principles consistently applied (except as to changes described
therein and except, in the case of the financial statements described in Section
4.3.2, for the absence of footnotes and normal year end adjustments), and such
financial statements and the financial statements referred to in Section 4.3.3
present fairly in all material respects the financial condition of the Persons
covered thereby at the respective
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dates thereof and the results of their operations for the periods covered
thereby subject, in the case of interim financial statements, to normal year-end
adjustments and the absence of footnotes.
The budgeted, projected and pro forma information referred to in Sections
4.3.4, 4.3.5, and 4.3.6 was prepared in good faith, was reasonable to the
Company when prepared and continues to be reasonable as of the Closing Date,
based upon the assumptions stated therein, it being understood that the actual
results of operations of the Subject Entities will depend in part upon the
occurrence of the assumptions stated therein, general economic conditions and
the normal and ordinary competitive, regulatory and operating risks associated
with the business of the Subject Entities, which are not within the control of
the Subject Entities and without representation or warranty that such projected
performance and financial condition will actually be achieved, it being
acknowledged by you that actual results may differ from projected results and
such differences may be material.
The Company is not aware of any fact which casts doubt on the validity of
the pro forma capitalization referred to in Section 4.3.6. After giving effect
to the transactions contemplated hereby, the Company does not and will not have
any material contingent liabilities which are not referred to in said pro forma
capitalization or on the financial statements referred to above or the notes
thereto.
4.4. Related Agreements. The Company has furnished or caused to be
furnished to you (i) true, correct and complete executed or conformed copies of
the documents listed in Sections 4.4.1 through 4.4.9 hereof, inclusive, which
have been executed on or prior to the date hereof and of any amendments thereto,
modifications thereof or waivers granted thereunder (in the case of oral
waivers, a written description thereof), and (ii) true, correct and complete
copies of the documents listed in Sections 4.4.1 through 4.4.9 hereof,
inclusive, which have not yet been executed, in the exact form in which they
will be executed on or prior to, and will be in effect on, the Closing Date. The
documents listed in Sections 4.4.1 through 4.4.9 hereof, inclusive, together
with this Agreement and the Option Plan, are referred to collectively herein as
the "Related Agreements." References to any one of the Related Agreements shall
mean such Related Agreement in the form so furnished to you, without regard to
any amendment, modification, waiver, change, limitation or termination of such
document which is made or otherwise becomes effective after the date hereof,
unless such amendment, modification, waiver, change, limitation or termination
has been made with your consent, and shall include other documents, exhibits and
schedules which are attached thereto or incorporated therein by reference.
4.4.1. Carryco Merger Agreement. The Agreement and Plan of Merger
dated December 16, 1996 between the Company and Carryco, Inc., an Oregon
corporation (the "Carryco Merger Agreement").
4.4.2. Credit Agreement. The Credit Agreement dated as of
December 17, 1996 (the "Credit Agreement") among the Company, First Union
National Bank of North Carolina and the lenders party thereto (the
"Lenders") pursuant to which the Lenders shall
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provide the Company with a term loan in the principal amount of $35,000,000
and a revolving credit loan in the aggregate principal amount of up to
$65,000,000 (the "Senior Financing").
4.4.3. Investment Agreement. The Investment Agreement dated as of
November 21, 1996 among the Company, Golder, Thoma, Cressey, Rauner Fund
IV, L.P. ("GTCR Fund IV") and Principal Hospital Company ("Principal")
pursuant to which GTCR Fund IV and its designees shall purchase certain
securities of the Company, and certain counterparts thereto (collectively,
the "Investment Agreement").
4.4.4. Preferred Stock Purchase Agreement. The Preferred Stock
Purchase Agreement dated as of December 17, 1996 (the "Preferred Stock
Repurchase Agreement") between the Company and General Electric Capital
Corporation ("GECC"), pursuant to which the Company shall purchase all of
the preferred stock of the Company held by GECC (the "GECC Preferred
Stock") for an aggregate price of $30,003,106.
4.4.5. Professional Services Agreement. The Professional Services
Agreement dated as of December 17, 1996 (the "Professional Services
Agreement") among the Company and Golder, Thoma, Cressey, Rauner, Inc.
4.4.6. Principal Merger Agreement. The Plan and Agreement of
Merger dated as of December 17, 1996 (the "Principal Merger Agreement")
among the Company, Principal and Principal Merger Company, pursuant to
which Principal Merger Company shall merge with and into Principal so that,
following the merger Principal shall be a wholly-owned subsidiary of the
Company, the shareholders of Principal receiving in consideration therefore
an aggregate amount of 14,403 shares of Junior Preferred Stock and
1,682,349 shares of the Company's Common Stock.
4.4.7. Shareholders Agreement. The Stockholders Agreement dated
as of December 17, 1996 (the "Shareholders Agreement") among the Company,
GTCR Fund IV, Leeway & Co., Martin Rash, Richard Gore, AmSouth, First
Union, and the Brim Rollover Stockholders.
4.4.8. Registration Agreement. The Registration Agreement dated
as of December 17, 1996 (the "Registration Rights Agreement") among the
Company, GTCR Fund IV, Leeway & Co., Martin Rash, Richard Gore, AmSouth,
First Union, and the Brim Rollover Stockholders.
4.4.9. Senior Management Agreements. The senior management
agreements dated December 17, 1996 between the Company, GTCR Fund IV,
Leeway & Co., Martin Rash and Richard Gore (the "Employment Agreements").
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<PAGE> 15
Except as set forth on Exhibit 4.4 hereto, no Subject Entity is a party to
or bound by any Contractual Obligation (i) relating to Indebtedness, or (ii)
affecting the Equity Securities of any Subject Entity or the voting thereof,
which, in either case, is not a Related Agreement or referred to in one or more
of the Related Agreements.
4.5. Changes in Condition. Since December 31, 1995, there has been no
Material Adverse Change, and no Subject Entity has entered into any material
transaction outside of the ordinary course of business except as described on
Exhibit 4.5 hereto or as disclosed elsewhere herein.
4.6. Incorporation by Reference. Each of the representations and warranties
made by any Subject Entity in any of the other Related Agreements to which such
Subject Entity is a party or in any document delivered pursuant thereto at the
Closing or otherwise is incorporated herein by reference with the same force and
effect as if fully set forth herein together with the definitions of the defined
terms used therein, mutatis mutandis, so that references to the recipient of
any such representations and warranties shall be deemed to be references to you.
Each such representation and warranty so incorporated herein by reference (other
than representations regarding the capitalization of the Company prior to the
Closing) is true and correct on the date hereof as if made on and as of the date
hereof and is hereby confirmed directly by the Company to you (without regard to
any limitation on the survival of representations and warranties). The Company
has no reason to believe and does not believe that any of the representations
and warranties made by any Person (other than the Subject Entities) in any of
the other Related Agreements or in any document delivered pursuant thereto at
the Closing or otherwise is not true and correct in all material respects.
4.7. No Legal Obstacle to Agreement. Neither the execution and delivery of
this Agreement or any other Related Agreement, nor the consummation of any
transaction referred to herein or therein or contemplated hereby or thereby, nor
the fulfillment of the terms hereof or thereof or of any agreement or instrument
referred to in this Agreement or any other Related Agreement, has constituted or
resulted in or will constitute or result in (i) a breach of the provisions of
any Contractual Obligation to which any Subject Entity is party or by which it
is bound or of its Charter or By-laws, or (ii) assuming the accuracy of your
representation, and warranties in Section 5 hereof, a violation of any Legal
Requirement applicable to any Subject Entity, or (iii) the creation under any
Contractual Obligation of any Lien (other than liens required by the Credit
Agreement) upon any of the assets of any Subject Entity. No approval,
authorization or other action by any Governmental Authority or any other Person
is required to be obtained by any Subject Entity in connection with the
execution, delivery and performance of this Agreement or any other Related
Agreement or the Investor Securities or the transactions contemplated hereby or
thereby, except for such approvals as will have been obtained and shall be in
full force and effect as of the Closing Date, and copies of which shall have
been furnished to you at or prior to the Closing and except for notice filings
required in connection with health care regulatory requirements.
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4.8. ERISA.
4.8.1. Welfare Plans. Each Welfare Plan is in material compliance
with the applicable provisions of ERISA and the Code. Neither the Company
nor any Subsidiary of the Company has any contingent, future or other
obligations or liabilities under or with respect to any Welfare Plan which
provides for the continuation of benefits at the expense of any of them
after retirement or other termination of employment (except as required by
COBRA or applicable state continuation coverage law, or except to the
extent such obligations or liabilities are not reasonably expected to have
a Material Adverse Effect).
4.8.2. Pension Plans. Each Pension Plan is in material compliance
with the applicable provisions of ERISA and the Code, including without
limitation any applicable minimum funding requirements. There have been no
reportable events within the meaning of Section 4043 of ERISA that are
subject to the 30-day notice to the PBGC as set forth in regulations with
respect to any Pension Plan. In the event of the termination of all Pension
Plans, neither the Company nor any Subsidiary of the Company would have any
liability under Sections 4062, 4063, 4064 of ERISA except to the extent
such liability would not be reasonably be expected to have a Material
Adverse Effect. As of the most recently prepared actuarial report for each
Pension Plan, the accumulated benefit obligations of each Pension Plan does
not exceed the fair market value of the assets of such Pension Plan by an
amount that is reasonably expected to have a Material Adverse Effect. No
Pension Plan is a Multiemployer Plan.
4.8.3. Effect of Transactions. The execution and delivery of this
Agreement and the Related Agreements and the consummation of the
transactions contemplated hereby and thereby is not reasonably expected to
involve any prohibited transaction within the meaning of ERISA.
4.8.4. Plan Assets. The Company is an Operating Company and none
of the underlying assets of the Company or any Subsidiary of the Company
are or should reasonably be deemed Plan Assets with respect to you or any
Employee Benefit Plan which owns any of the Securities.
4.9. Foreign Trade Regulations; Government Regulations.
4.9.1. Foreign Trade Regulations. Neither the execution and
delivery of this Agreement or any other Related Agreement, nor the issuance
and sale of the Investor Securities by the Company hereunder and the
application of the proceeds thereof, has constituted or resulted in or will
constitute or result in the violation of any Foreign Trade Regulation.
4.9.2. Governmental Regulation. Neither the Company nor any
corporation controlling the Company or under common control with the
Company is subject to
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regulation under the Public Utility Holding Company Act of 1935, the
Investment Company Act of 1940, the Interstate Commerce Act or the Federal
Power Act, or is subject to any Legal Requirement (other than Legal
Requirements applicable to borrowers or issuers of securities generally)
which regulates the incurring of Indebtedness by the Company, or any of its
Affiliates, for money borrowed or the issuing by any of them of any equity
security. No approval or authorization of any governmental authority is
required to permit the execution, delivery or performance by the Company of
this Agreement or the consummation of any of the transactions contemplated
hereby.
4.10. Litigation. There is no Action against any Subject Entity, pending
(or, to the knowledge of the Company, threatened), except for such of the
foregoing as are not reasonably expected to, individually or in the aggregate,
result in any material liability or expense or otherwise result in any Material
Adverse Effect. There is no Action, pending (or, to the knowledge of the
Company, threatened), which seeks rescission of, seeks to enjoin the
consummation of, or questions the validity of, this Agreement or any other
Related Agreement or any of the transactions contemplated hereby or thereby. No
judgment, decree or order of any Governmental Authority (i) has been issued
against any Subject Entity or (ii) to the knowledge of the Company, has been
issued against any Person other than a Subject Entity in each case which is
reasonably expected to have any Material Adverse Effect.
4.11. Solvency. The Company, both before and after giving effect to this
Agreement and the transactions contemplated hereby, is and will be solvent
(within the meaning contemplated by Section 548 of Title 11 of the United States
Code and any similar state statute which may be applicable), has and will have
assets having a fair value in excess of the amount required to pay its probable
liabilities on its existing debts as they become absolute and matured, and has
and will have access to adequate capital for the conduct of its business and the
ability to pay its debts from time to time incurred in connection therewith as
such debts mature.
4.12. Availability for Resale. The Securities are eligible for resale
pursuant to the provisions of Rule 144A.
4.13. Disclosure. Neither this Agreement nor any agreement, certificate,
statement or document furnished by or on behalf of the Company in connection
herewith, contains any untrue statement of material fact or omits to state a
material fact necessary in order to make the statements contained herein not
misleading. There is no fact known to the Company which has had, or in the
future is reasonably likely to have (so far as the Company can now foresee), a
Material Adverse Effect.
5. INVESTMENT REPRESENTATIONS. You hereby represent and warrant to the
Company with respect to the purchase by you of the Investor Securities as
follows; provided, however, that nothing contained in this Section 5 shall
prevent you from transferring such Investor Securities in compliance with the
provisions of Section 11 hereof; and provided, further, that the disposition of
your property shall at all times be and remain in your control.
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<PAGE> 18
5.1. Accredited Investor. You are an "accredited investor" as such term is
defined in Rule 501(a) of Regulation D of the Securities Act.
5.2. Experience. You have substantial experience in evaluating and
investing in private placement transactions of securities in companies similar
to the Company so you are capable of evaluating the merits and risks of your
investment in the Company and have the capacity to protect your own interests in
making your investment in the Company.
5.3. Investment. You are acquiring the Investor Securities for investment
and not with the view to, or for resale in connection with, any distribution
thereof. You understand that the Investor Securities to be purchased have not
been, and will not be registered under the Securities Act by reason of a
specific exemption from the registration provisions of the Securities Act, the
availability of which depends upon, among other things, the bona fide nature of
your investment intent and the accuracy of your representations as expressed
herein.
6. CONDITIONS TO PURCHASE. Your obligation to purchase any of the Investor
Securities pursuant to this Agreement is subject to compliance by the Company
with its agreements herein contained, and to the satisfaction, simultaneously
with or prior to the Closing, of the following conditions, which may be waived
by you in the exercise of your sole discretion:
6.1. Related Agreements. The Related Agreements (other than the Option
Agreement) shall have been duly authorized, executed and delivered and shall be
in full force and effect in the respective forms referred to in Section 4.4
hereof with no term or condition thereof having been amended, modified or waived
without your prior written consent. All material covenants and conditions
contained in the Related Agreements which are to be performed or complied with
at or prior to closing under the Related Agreements shall have been performed,
complied with or (subject to the provisions of the immediately preceding
sentence) waived prior thereto. The Transactions shall have been consummated by,
or shall be consummated contemporaneously with, the Closing.
6.2. Legal Opinions. You shall have received from Kirkland & Ellis and
Tonkon, Torp, Galen, Marmaduke & Booth, counsels to the Company, their opinions
in form and substance reasonably satisfactory to you.
6.3. Representations and Warranties; Officers' Certificate. The
representations and warranties contained in Section 4 hereof shall be true and
correct on and as of the Closing with the same force and effect as though made
on and as of the Closing; between December 31, 1995 and the Closing there shall
have been no Material Adverse Effect as the result of any fire, flood,
explosion, accident, drought, strike, lockout, riot, sabotage, confiscation,
condemnation or purchase of any property by governmental authority, activities
of armed forces or acts of God or the public enemy, legislative or regulatory
order or change, judicial decision or any other event or development whether or
not related to those enumerated above; and you shall have received
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<PAGE> 19
on the Closing Date a certificate to these effects signed by the President and
the Chief Financial Officer of the Company.
6.4. Origination Fee. You shall have received on or prior to the Closing an
origination fee of $100,000 in immediately available funds.
6.5. Payment of Transaction Costs. At the time of the Closing, the Company
shall have paid all reasonable fees, expenses, and disbursements incurred by you
at or prior to the time of the Closing in connection with the transactions
contemplated by this Agreement and of Related Agreements, including, without
limitation, the reasonable fees, expenses, and disbursements of your counsel.
6.6. Proper Proceedings. All proper corporate proceedings shall have been
taken by the Company to authorize this Agreement and the transactions
contemplated hereby.
6.7. Legality; Governmental Authorization. Neither the purchase of the
Investor Securities nor the consummation of any of the transactions contemplated
hereunder shall be prohibited by any Legal Requirement, or shall subject you to
any penalty, special tax, or other onerous condition. All necessary consents,
approvals, licenses, permits, orders and authorizations of, and registrations,
declarations and filings with, any governmental or administrative agency or any
other Person with respect to any of the transactions contemplated by this
Agreement or the other Related Agreements shall have been duly obtained or made
and shall be in full force and effect.
6.8. General. All instruments and legal and corporate proceedings in
connection with the transactions contemplated by this Agreement shall be
reasonably satisfactory in form and substance to you, and you shall have
received copies of all documents, including without limitation records of
corporate proceedings and opinions of counsel, which you may have reasonably
requested in connection therewith, such documents where appropriate to be
certified by proper corporate or governmental authorities.
Your obligation to purchase Investor Securities pursuant to this Agreement
at any Subsequent Closing is subject to compliance by the Company with Section
6(g) of the Shareholders Agreement, and to the satisfaction, simultaneously with
or prior to any Subsequent Closing, of the condition contained in 6.5 (with all
references to the Closing replaced by a reference to any Subsequent Closing),
which may be waived by you in your sole discretion.
7. COVENANTS APPLICABLE WHILE ANY INVESTOR SECURITIES ARE OUTSTANDING. The
Company covenants that so long as any of the Investor Securities remains
outstanding it will comply with the following provisions:
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<PAGE> 20
7.1. Financial Statements. Each Subject Entity will maintain a system of
accounting in which full, true and correct entries will be made of all dealings
and transactions in relation to its business and affairs in accordance with
generally accepted accounting principles.
7.1.1. Annual Statements. The Company will furnish to each holder
of Investor Securities as soon as available, and in any event within 100
days after the end of each fiscal year of the Company (120 days in the case
of fiscal 1996), (i) the consolidated and (if requested) consolidating
balance sheet of the Subject Entities as at the end of such fiscal year and
the consolidated and (if requested) consolidating statements of income,
stockholders' equity and cash flows for such year of the Subject Entities,
together (beginning in fiscal 1998) with comparative figures for the
immediately preceding fiscal year, accompanied by (i) the reports or
certificates of independent certified public accountants of recognized
standing, to the effect that such consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
applied on a basis consistent with prior years (except as to changes
described therein with which such accountants concur) and fairly present
the financial condition of the Subject Entities at the dates thereof and
the results of their operations for the periods covered thereby, (ii) the
statement of such accountants that they have caused the provisions of this
Agreement to be reviewed and that in the course of their audit of the
Company nothing has come to their attention to lead them to believe that
any covenant hereunder has been breached, or, if such is not the case,
specifying such covenant and the nature of the breach thereof, it being
understood that the examination of such accountants cannot be relied upon
to give them knowledge of any such breach except as would be disclosed in
the course of an audit conducted in accordance with generally accepted
auditing standards, and (iii) the certificate of the President or the Chief
Financial Officer or Vice President-Controller of the Company that such
officer has caused the provisions of this Agreement to be reviewed and have
no knowledge of any breach, or if any such officer has such knowledge,
specifying such breach, and the nature thereof, and what action the Company
has taken, is taking or proposes to take with respect thereto.
7.1.2. Quarterly Reports. The Company will furnish to each holder
of Investor Securities as soon as available and, in any event, within 45
days after the end of each of the first three fiscal quarters of each
fiscal year of the Company, (i) the unaudited consolidated and (if
requested) consolidating balance sheet of the Subject Entities as at the
end of such quarter and the consolidated and (if requested) consolidating
statements of income, consolidated statements of stockholders' equity and
cash flows for the fiscal quarter and portion of the fiscal year then
ending of the Subject Entities (all in reasonable detail), accompanied by
the corresponding figures for the corresponding portions of the previous
fiscal year, (ii) a certificate of the President and the Chief Financial
Officer of the Company that such statements have been properly prepared in
accordance with generally accepted accounting principles consistently
applied (except as to changes described therein and except for the absence
of footnotes thereto) and fairly present the financial position of the
Subject Entities at the dates thereof and the results of their
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<PAGE> 21
operations for the periods covered thereby, subject only to normal year-end
audit adjustments, and (iii) the certificate of the President or the Chief
Financial Officer or Vice President-Controller of the Company that such
officer has caused the provisions of this Agreement to be reviewed and have
no knowledge of any covenant hereunder having been breached, or if such
officer has such knowledge, specifying such breach and the nature thereof
and what action the Company has taken, is taking or proposes to take with
respect thereto.
7.1.3. Monthly Reports. As soon as practicable, and in any event
within 45 days after the end of each calendar month of each fiscal year
(other than the last month of each fiscal quarter of the Company), the
Company will furnish to each Major Holder of each class of Investor
Securities then outstanding the operating reports of the Subject Entities
as of the end of such month in the form customarily prepared by management
for internal use.
7.1.4. Annual Budgets. Not later than 30 days following the end of
each fiscal year of the Company (or 60 days following the fiscal year
ending December 31, 1997), the Company will furnish to each Major Holder a
proposed month by month operating and capital budget for the following
fiscal year of the Subject Entities, including projected cash flows.
Together with each report furnished pursuant to Section 7.1.1, 7.1.2 or
7.1.3 hereof, the Company shall furnish to each Major Holder a budgetary
analysis comparing actual figures by the Subject Entities for such month
with the operating and capital budget for that year previously furnished to
such Major Holder.
7.1.5. Other Reports. The Company will furnish to each Major
Holder (i) promptly after review by the Company's Board of Directors, all
management letters furnished to the Company by its auditors, (ii) promptly
after the sending or making available for filing of the same, copies of all
reports and financial statements which the Company shall send or make
available to the holders of its securities, and all registration
statements, proxy statements and all reports, if any, which the Company
shall file with the Securities and Exchange Commission, and (iii) all
material reports, certificates and other written information provided to
any lender by any Subject Entity.
7.1.6. Notice of Litigation, Defaults, etc. The Company will
promptly, following a senior officer of the Company obtaining knowledge
thereof, give each Major Holder written notice of any Action to which any
Subject Entity may hereafter become a party which after giving effect to
applicable insurance may result in any Material Adverse Change. Promptly
upon any senior officer of the Company obtaining knowledge of any covenant
hereunder having been breached or of any default or event of default under
any agreement relating to indebtedness, the Company will furnish to each
Major Holder a notice specifying the nature and period of existence thereof
and in the case of a default or event of default what action the Company
has taken, is taking or proposes to take with respect thereto.
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7.1.7. Other Information. From time to time upon request of any
Major Holder, the Company will furnish to such Major Holder such other
information regarding the business, affairs, operations, prospects, and
condition, financial or otherwise, as such Major Holder may reasonably
request. Officers and representatives of each Major Holder shall have the
right during normal business hours and upon reasonable notice to examine
the books and records of the Subject Entities, to make copies, notes and
abstracts therefrom, and to make an independent examination of such books
and records, for the purpose of verifying the accuracy of the reports
delivered by any of them pursuant to this Section 7.1 or otherwise, and of
ascertaining compliance with this Agreement.
Each holder of Investor Securities understands that some of the information
furnished to it pursuant to this Section 7.1 may not be available to the public,
and includes confidential information and agrees that it will make all
reasonable efforts to keep all information so furnished to it pursuant to this
Section 7.1 confidential and will make no use or disclosure to other Persons of
such information until such information shall have become public; provided,
however, that it shall not be precluded from making disclosure regarding such
information (i) to counsel, accountants or other professional advisors, (ii) to
any lender to the Company, (iii) in connection with the enforcement of any
rights hereunder, (iv) as required by law or applicable regulation or (v) to any
parents or corporate affiliates or to any prospective purchaser of Investor
Securities (so long as such Person agrees to keep such information confidential
in accordance with this Section 7.1).
7.2. Transactions with Affiliates. Except as set forth on Exhibit 7.2, no
Subject Entity shall effect any transaction with any Affiliate on a basis less
favorable to such Subject Entity than would be the case if such transaction had
been effected with a Person which was not an Affiliate; provided, however, that
the foregoing shall not apply to transactions among the Company and its Wholly
Owned Subsidiaries; and provided, further, except as set forth on Exhibit 7.2,
that there shall be no transactions with, or payments or other transfers of
property, rights or other value to, holders (other than holders of Investor
Securities, the Company and its Wholly Owned Subsidiaries) of any Equity
Security of any Subject Entity without the prior written consent of the Required
Holders, which shall not be unreasonably withheld.
7.3. ERISA.
7.3.1. Compliance with ERISA, etc. The Company and its
Subsidiaries will meet all minimum funding requirements applicable to the
Pension Plans imposed by ERISA or the Code and will at all times comply in
all material respects with the provisions of ERISA and the Code which are
applicable to the Pension Plans and the Welfare Plans, including without
limitation, the proscription against causing any Pension Plan to engage in
a "prohibited transaction," as described in section 4975 of the Code or
section 406 of ERISA, which is not otherwise exempt (or for which an
individual exemption is not otherwise issued) except to the extent any
failure so to meet or to comply is not reasonably
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<PAGE> 23
expected to have a Material Adverse Effect. Neither the Company nor any of
its Subsidiaries will permit any event or condition to exist which would
permit any Plan to be terminated under circumstances which would cause the
Lien provided for in section 4068 of ERISA to attach to the assets of the
Company or any of its Subsidiaries, except to the extent that the
imposition of such lien would not have a Material Adverse Effect. The
Company will forthwith notify each holder of any Security if there is any
reportable event (as defined in section 4043 of ERISA) with respect to any
Pension Plan (other than a reportable event for which the 30-day
notification to the PBGC has been waived by regulations), or if the Company
or any of its Subsidiaries or the Pension Benefit Guaranty Corporation (the
"PBGC") takes action to terminate any Single Employer Plan, and the Company
will furnish such holders with a copy of any notice of any such reportable
event which is required to be filed with the PBGC any notice delivered by
the PBGC evidencing its institution of such proceedings or its intent to
institute such proceedings, or any notice to the PBGC that such a Pension
Plan is to be terminated, as the case may be. The Company will also furnish
such holders with copies of any request with respect to any such Single
Employer Plan for waiver of the funding standards or extension of the
amortization periods under sections 303 and 304 of ERISA or section 412 of
the Code, no later than 5 business days after the date on which the request
is submitted to the Department of Labor or the Internal Revenue Service, as
the case may be. The Company will forthwith notify such holders upon
learning of the occurrence of any partial or complete withdrawal from a
Multiemployer Plan which is reasonably expected to result in the incurrence
of any material withdrawal liability by the Company or any of its
Subsidiaries under Subtitle E of Title IV of ERISA. In the event of a
withdrawal of the type referred to in the preceding sentence, the Company
will also promptly inform such holders of the scope and extent of such
liability, to the best of its knowledge.
7.3.2. Operating Company. The Company shall take all actions
reasonably necessary to allow it, acting directly or through a Subsidiary
or Subsidiaries, to continue to constitute an Operating Company, or
otherwise not to cause any of the underlying assets of the Company or any
of its Subsidiaries to be deemed Plan Assets with respect to you or any
Employee Benefit Plan which owns any of the Investor Securities.
7.4. Resale Under Rule 144A. The Company, at all times during which it is
neither subject to the reporting requirement of Section 13 or 15(d) of the
Exchange Act, nor exempt from reporting pursuant to Rule 12g3-2(b) under the
Exchange Act, will provide in written form, upon the written request of any
holder of Investor Securities, or a prospective purchaser of securities of the
Company from such holder, all information required by Rule 144A(d)(4)(i) of the
General Regulations promulgated by the Commission under the Securities Act
("144A Information"). With respect to the holder of Investor Securities, the
obligations of the Company under this Section 7.4 shall at all times be
contingent upon such holder's obtaining from a prospective purchaser an
agreement to take all reasonable precautions to safeguard the 144A Information
from disclosure to anyone other than employees, advisors or agents of the
prospective purchaser who
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<PAGE> 24
required access to the 144A Information for the sole purpose of evaluating its
purchase of the Securities.
7.5. Confidentiality. Neither the Company nor any Subsidiary shall disclose
any information about you, including but not limited to your identity, in any
document except where such disclosure is (i) required by law, (ii) required by
the Commission or (iii) approved by your prior written consent. If such
disclosure is required by law, the Company shall notify you in writing prior to
making such disclosure. The Company is authorized to disclose information about
you to the Lenders in connection with the Credit Agreement.
7.6. Registration Statements. No Subject Entity will file any registration
statement (other than on Form S-8) under the Securities Act covering any
offering of debt or equity securities unless it shall first have given each
holder of Investor Securities 60 days advance written notice thereof. Each
holder of Investor Securities shall have the right, at any time when in its sole
and exclusive judgment it is or might be deemed to be a controlling person of
any Subject Entity for purposes of the Securities Act, (i) to participate in the
preparation of such registration statement and to require the inclusion therein
or deletion therefrom of material which in its judgment should be included or
deleted, as the case may be, (ii) to retain at its own cost and expense counsel
and independent public accountants to assist it in such participation, and (iii)
to obtain an opinion from the Company's counsel and a "cold-comfort" letter from
the Company's auditors, each in customary form, each addressed to it and
covering such matters as it may reasonably specify in connection with such
registration statement. Unless a reference to a holder of Investor Securities by
name is required by any provision of the Securities Act or the rules and
regulations promulgated thereunder, no such registration statement or other
document shall refer to such holder by name without the prior written consent of
such holder. The indemnity and contribution provisions set forth in Section 6 of
the Registration Rights Agreement shall apply mutatis mutandis to any
registration statement or other document referred to in this Section 7.6, except
that references therein to the holders of Registrable Securities shall be deemed
to be references to each holder of Investor Securities.
8. COVENANTS APPLICABLE WHILE ANY SHARES OF PREFERRED STOCK CONSTITUTING
INVESTOR SECURITIES ARE OUTSTANDING.
8.1. Charter Amendments. The Charter and By-laws of the Company shall not
be amended, modified or supplemented in a manner that poses a material risk of
having, directly or indirectly, any Material Adverse Effect or any material
adverse effect on any then outstanding Investor Securities or on the rights,
remedies or interests of any holder thereof under this Agreement or any of the
other Related Agreements. Within 30 days of the Closing, the Company will use
its best efforts to replace its certificate with a new Certificate satisfactory
to you that has the same substantive provisions (except as set forth in Exhibit
8.1) as the Certificate but that does not permit the issuance of certificates of
designation.
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8.2. Related Agreements. Neither the Company nor any of its Subsidiaries
shall agree to any amendment or modification of, or grant any waiver or fail to
enforce any of its rights pursuant to, any of the Related Agreements without the
prior consent of the Required Holders (which shall not be unreasonably
withheld), except for amendments and modifications that do not pose a material
risk of having, directly or indirectly, any Material Adverse Effect or any
material adverse effect on any then outstanding Investor Securities or on the
rights, remedies or interests of any holder thereof under this Agreement or any
of the other Related Agreements.
8.3. Existence, Etc. The Company will, and will cause each of its
Subsidiaries to:
a. preserve and maintain its legal existence and all of its
material rights, privileges, licenses and franchises (provided
that nothing in this Section 8.3 shall prohibit any transaction
expressly permitted under Section 8.5 hereof); provided, however,
that the Company may permit the dissolution of any of its
Subsidiaries (and any such Subsidiary may suffer such
dissolution) if, at the time of such dissolution, such Subsidiary
has no assets, engages in no business and otherwise has no
activities other than activities related to the maintenance of
its corporate existence in good standing;
b. comply with the requirements of all applicable Legal Requirements,
as in effect from time to time, if failure to comply with such
requirements could reasonably be expected to have a Material
Adverse Effect;
c. pay and discharge all taxes, assessments and governmental charges
or levies in excess of $500,000 imposed on it or on its income or
profits or on any of its assets or property prior to the date on
which the penalties attach thereto, except for any such tax,
assessment, charge or levy the payment of which is being
contested in good faith and by proper proceedings and against
which adequate reserves are being maintained;
d. subject to Section 6.15 of the Credit Agreement, maintain all of
its assets and properties used or useful in its business in good
working order and condition, ordinary wear and tear excepted,
except to the extent the failure to maintain the same would not
have a Material Adverse Effect; and
e. keep adequate records and books of accounts, in which complete
entries will be made in accordance with GAAP.
Without limiting the generality of the foregoing, the Company will, and
will cause each of its Subsidiaries to: (i) do all things necessary to maintain
its corporate existence separate and apart from its Affiliates, including,
without limitation holding regular meetings of its shareholders and Board of
Directors and maintaining appropriate corporate books and record (including
current
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minute books); (ii) not suffer any limitation on the authority of its own
officers and directors to conduct its business and affairs in accordance with
their independent business judgment other than pursuant to Article VI of the
Credit Agreement, or authorize or suffer any Person other than its own officers
to conduct its business and affairs in accordance with the independent judgment,
or authorize or suffer any Person other than its own officers and directors to
act on its behalf with respect to matters (other than matters customarily
delegated to others under power of attorney) for which a corporation's own
officers and directors would customarily be responsible; and (iii) (A) maintain
or cause to be maintained by an agent or employee under its physical control and
possession all its books and records, (B) account for and manage all of its
liabilities separately from those of any other Person, including, without
limitation, payment by it of all payroll and other administrative expenses and
taxes from its own assets, (C) segregate and identify separately all of its
assets from those of any other Person and (D) maintain employees, and pay its
employees, officers and agents for services performed on its behalf.
8.4. Conduct of Business. Each Subject Entity will engage only in the
business conducted by it on the date hereof, or in businesses that are related
to such business.
8.5. Prohibition of Fundamental Changes. Except as specifically
contemplated by this Agreement and by the Related Agreements and as permitted by
Section 6.1 of the Credit Agreement, the Company will not, nor will it permit
any of its Subsidiaries to, enter into any transaction of merger or
consolidation or amalgamation, or liquidate, wind up or dissolve itself or
suffer any liquidation or dissolution. The Company will not, nor will it permit
any of its Subsidiaries to, convey, sell, lease, transfer or otherwise dispose
of, in one transaction or a series of transactions, all or substantially all, on
a consolidated basis, of the business, property or assets of the Company and its
Subsidiaries.
8.6. Repurchase. The Company shall not, nor shall it subject itself to any
obligation to, repurchase or otherwise acquire or retire any of its equity
interests or any securities convertible into or exchangeable for any of its
equity interests except as contemplated by Exhibit 8.6 hereto and except for
rights existing under the other Related Agreements or the Certificate.
8.7. Restrictions on Indebtedness. No Subject Entity will create, incur or
otherwise become or remain liable with respect to any Indebtedness except the
following:
8.7.1. The Senior Financing.
8.7.2. Indebtedness permitted under Section 6.2 of the Credit
Agreement.
8.7.3. Indebtedness of any Subsidiary of the Company to the
Company.
8.8. Restrictions on Guarantees. The Subject Entities will not become or
remain liable with respect to any Guarantee of any obligation of any other
Person except the following:
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8.8.1. Guarantees required under the Credit Agreement.
8.8.2. Guarantees permitted by Section 6.3 of the Credit
Agreement.
8.8.3. Guarantees by the Company of the obligations of
Subsidiaries of the Company.
8.9. Distributions. Neither the Company nor any of its Subsidiaries shall
make any distribution with respect to the Company's common stock. Neither the
Company nor any of its Subsidiaries shall make any cash Distribution with
respect to the Junior Preferred Stock while there are any shares of Senior
Preferred Stock outstanding.
8.10. Board Visitation Rights. The Company will give to each Major Holder
of Senior Preferred Stock and Junior Preferred Stock that does not already have
a Director Designee: (a) reasonable prior written notice of the time, place and
subject matter of any proposed meeting of its board of directors, and (b)
reasonable prior written notice of the date and subject matter of any proposed
action by written consent of its board of directors. Each such notice shall
include true and complete copies of all documents furnished to any director in
connection with such meeting or consent. Each such Major Holder will be entitled
to send one Person to attend any such meeting, or if a meeting is held by
telephone conference to have one Person participate therein but no more than two
representatives of the Major Holders may attend or participate in any such
meeting), but the foregoing right of attendance or participation shall not in
and of itself include the right to vote on matters presented to the board of
directors.
8.11. Change of Control.
8.11.1. Upon the occurrence of a Change of Control of the
Company, you shall have the right to require the Company to redeem the
Senior Preferred Stock at a price equal to the price payable by the Company
upon an Optional Redemption of Senior Preferred Stock, as set forth in the
Certificate.
8.11.2. Upon the occurrence of a Change of Control of the
Company, you shall have the right to require the Company to redeem the
Junior Preferred Stock at a price equal to the price payable by the Company
upon a Mandatory Redemption of Junior Preferred Stock, as set forth in the
Certificate.
8.11.3. A "Change of Control" shall be deemed to occur if the
Company sells substantially all of its assets or if the Equity Owners as a
group, after giving effect to the Closing, cease to own, directly or
indirectly (a) at least 40% of the Equity Securities of the Company, if
the Company's Equity Securities are then publicly traded, or (b) at least
50% of the Equity Securities of the Company, if the Company's Equity
Securities are not publicly traded.
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9. COVENANTS APPLICABLE WHILE ANY WARRANTS, WARRANT SHARES OR SHARES OF COMMON
STOCK CONSTITUTING INVESTOR SECURITIES ARE OUTSTANDING.
9.1. Limitations on Issuance of Equity Securities. The Company will not
issue any of its Equity Securities to any Person; provided, however, that the
Company may (i) issue Equity Securities in accordance with this Agreement, the
Investment Agreement, Section 6 of the Shareholder Agreement, the Option Plan,
and, as set forth on Exhibit 9.1, and (ii) issue Equity Securities upon
conversion of securities issued pursuant to clause (i) above, and (iii) subject
to compliance with the provisions of Section 9.2 hereof (if applicable), issue
shares of Common Stock to persons not Affiliates of the Company for
consideration not less than the fair market value of such shares. Except as set
forth on Exhibit 4.2.2, all of the outstanding Equity Securities of each
Subsidiary of the Company shall at all times be owned, beneficially and of
record, by the Company, free and clear of all Liens, except for Liens permitted
hereunder.
9.2. First Refusal Rights. The Company shall not issue or sell any of its
Equity Securities, or enter into any Contractual Obligation providing for the
issuance (contingent or otherwise) of, any of its Equity Securities (each an
"Issuance" of "Subject Securities"), except in compliance with the following
provisions of this Section 9.2.
9.2.1. Right of Participation.
9.2.1.1. Not fewer than thirty days prior to the
consummation of the Issuance, a notice (the "Preemption Notice") shall
be furnished by the Company to each holder of Investor Securities. The
Preemption Notice shall include:
(a) The principal terms of the proposed Issuance, including
without limitation the amount and kind of Subject Securities to
be included in the Issuance, the maximum and minimum (which shall
be not less than 90% of such maximum) price per unit of the
Subject Securities and the name and address of the Persons to
whom the Subject Securities will be Issued (collectively, the
"Proposed Subscriber"); and
(b) An offer by the Company to issue, at the option of such holder
of Investor Securities, to such holder of Investor Securities, up
to such holder's Applicable Percentage of the Subject Securities
which would be otherwise issued in the Issuance, on the same
terms and conditions as the Subject Securities are purchased by
the Proposed Subscriber.
9.2.1.2. If a holder of Investor Securities desires to
accept the offer contained in the Preemption Notice, it shall send,
within twenty days after the receipt of the Preemption Notice, a
written commitment to the Company specifying the amount of Subject
Securities (not in any event to exceed such holder's
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<PAGE> 29
Applicable Percentage of the Subject Securities to be included in the
Issuance) which such holder desires to be issued. If any holder of
Investor Securities has not so accepted such offer, such holder shall
be deemed to have waived (for itself and any transferee or assignee of
its Investor Securities) all of its rights with respect to this
Issuance, and the Company shall thereafter be free to issue the
Subject Securities to the Proposed Subscriber, at a price no less
than 95% of the minimum price set forth in the Preemption Notice and
on otherwise no more favorable terms in any material respect than as
set forth in the Preemption Notice, without any further obligation to
such holder. If, prior to consummation, the terms of such proposed
Issuance shall change with the result that the price shall be less
than 95% of the minimum price set forth in the Preemption Notice, it
shall be necessary for a separate Preemption Notice to have been
furnished, and the terms and provisions of this Section 9.2
separately complied with, in order to consummate such Issuance
pursuant to this Section 9.2.
The acceptance of such holder shall be irrevocable except as
hereinafter provided, and such holder shall be bound and obligated to
acquire in the Issuance on the same terms and conditions, with respect
to each unit of Subject Securities issues in the Issuance, such amount
of Subject Securities as such holder shall have specified in its
written commitment.
If at the end of the ninetieth (90th) day following the date
of the receipt of the Preemption Notice the Company has not completed
the Issuance, any holder of Investor Securities who has accepted the
offer in a Preemption Notice shall be released from its obligations
under the written commitment, the Preemption Notice shall be null and
void, and it shall be necessary for a separate Preemption Notice to
have been furnished, and the terms and provisions of this Section 9.2
separately complied with, in order to consummate such Issuance
pursuant to this Section 9.2.
9.2.1.3. The Company may condition the participation of any
holder of Investor Securities in an Issuance upon the purchase by it
of any securities (including without limitation debt securities) other
than Subject Securities ("Other Securities") in the event that the
participation of the Proposed Subscriber in such Issuance is so
conditioned. In such case, each holder of Investor Securities shall
acquire in the Issuance, together with the Subject Securities to be
acquired by it, Other Securities in the same proportion to the Subject
Securities to be acquired by it as Other Securities are acquired by
the Proposed Subscriber in proportion to the Subject Securities
acquired in the Issuance by the Proposed Subscriber, on the same terms
and conditions, as to each unit of Subject Securities and Other
Securities issued to the Proposed Subscriber, as the Proposed
Subscriber shall be issued units of Subject Securities and Other
Securities.
9.2.1.4. Each holder of Investor Securities and its
Affiliates shall take or
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cause to be taken all such reasonable actions as may be necessary or
reasonably desirable in order expeditiously to consummate each
Issuance pursuant to this Section 9.2 and any related transactions,
including, without limitation, executing, acknowledging and delivering
consents, assignments, waivers and other documents or instruments with
governmental authorities; and otherwise cooperating with the Company;
provided, however, that no holder of Investor Securities or any
Affiliate thereof shall be required to agree to any amendment or
modification of, or waiver under, or other change to, this Agreement,
the Investor Securities or any other Related Agreement.
9.2.1.5. All costs and expenses incurred by any holder of
Investor Securities or the Company in connection with any proposed
Issuance of Subject Securities (whether or nor consummated), including
without limitation all attorney's fees and charges, all accounting
fees and charges and all finders, brokerage or investment banking
fees, charges or commissions, shall be paid by the Company; provided,
however, that if a holder of Investor Securities or any of its
Affiliates retains separate legal counsel or other advisors in
connection with such proposed Issuance, the fees and expenses of such
separate attorneys or other advisors shall be borne by such holder.
9.2.1.6. The closing of an Issuance pursuant to Section 9.2
shall take place at such time and place as the Company shall specify
by notice to each participating holder of Investor Securities. At the
closing of any Issuance under this Section 9.2, such holders of
Investor Securities shall be delivered the notes, certificates or
other instruments evidencing the Subject Securities (and, if
applicable, Other Securities) to be issued to it, registered in the
name of such holder of its designated nominee, free and clear of any
Liens, with any transfer tax stamps affixed, against delivery by such
holders of the applicable consideration.
9.2.2. Excluded Transactions. The preceding provisions of this Section
9.2 shall not restrict:
(a) Any Issuance of Equity Securities pursuant to clause (i)
of Section 9.1 hereto;
(b) Any Issuance of Common Stock upon the exercise or
conversion of any Investor Securities or any Equity
Securities outstanding on the date hereof or issued after
the date hereof in compliance with the provisions of this
Section 9.2;
(c) Any Issuance of Common Stock pursuant to a public
offering registered under the Securities Act, other than
shares issued pursuant to an employee plan registered on
Form S-8 or any similar plan or form.
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9.2.3. Termination. The foregoing provisions of this Section
9 shall terminate immediately following the closing of a public offering
registered under the Securities Act (other than an offering of shares
issued pursuant to an employee plan registered on Form S-8 or any similar
plan or form) immediately after giving effect to which Common Stock not
held by Affiliates of the Company, which is freely tradeable and the sale
of which is not in any way subject to Rule 144 (including without
limitation Rule 144(k)) under the Securities Act, having an aggregate
public market value of not less than $30,000,000 is outstanding (a
"Qualifying Public Offering").
9.3. Board Representation. The Company shall use its best efforts to cause
the holders of Common Stock, Warrants, and Warrant Shares constituting Investor
Securities (the "Common Holders") to have the collective right to elect one
member (their "Director Designee") to the Board of Directors of the Company.
10. PAYMENT ON INVESTOR SECURITIES; TRANSFER; REPLACEMENT.
10.1. Payment. All payments made in respect of the Investor Securities held
by you shall be made in federal or other immediately available funds in lawful
money of the United States for credit, not later than 2:00 p.m., Eastern
Standard Time, to you at your account set forth on Schedule I hereto accompanied
by sufficient information to identify the source and application thereof or by
such other method or at such other address as a holder of Investor Securities
shall have from time to time given timely notice of to the Company.
10.2. Transfer and Exchange of Senior Preferred Stock. The Company shall
keep at its principal office a register in which shall be entered the names and
addresses of the registered holders of shares of Senior Preferred Stock issued
by it and particulars of the respective shares of Senior Preferred Stock held by
them and of all transfers of such shares. Upon surrender at such office of any
certificate representing shares of Senior Preferred Stock for registration of
exchange or (subject to compliance with the applicable provisions of Section
11), transfer, the Company shall issue, at its expense, one or more new
certificates, in such denomination or denominations as may be requested, for
shares of such Senior Preferred Stock and registered as such holder may request.
Any certificate representing shares of Senior Preferred Stock surrendered for
registration of transfer shall be duly endorsed, or accompanied by a written
instrument of transfer duly executed by the holder of such certificate or his
attorney duly authorized in writing.
10.3. Transfer and Exchange of Junior Preferred Stock. The Company shall
keep at its principal office a register in which shall be entered the names and
addresses of the registered holders of shares of Junior Preferred Stock issued
by it and particulars of the respective shares of Junior Preferred Stock held by
them and of all transfers of such shares. Upon surrender at such office of any
certificate representing shares of Junior Preferred Stock for registration of
exchange or (subject to compliance with the applicable provisions of Section
11), transfer, the
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Company shall issue, at its expense, one or more new certificates, in such
denomination or denominations as may be requested, for shares of such Junior
Preferred Stock and registered as such holder may request. Any certificate
representing shares of Junior Preferred Stock surrendered for registration of
transfer shall be duly endorsed, or accompanied by a written instrument of
transfer duly executed by the holder of such certificate or his attorney duly
authorized in writing.
10.4. Transfer and Exchange of Common Stock. The Company shall keep at its
principal office a register in which shall be entered the names and addresses of
the registered holders of shares of Common Stock issued by it and particulars of
the respective shares of Common Stock held by them and of all transfers of such
shares. Upon surrender at such office of any certificate representing shares of
Common Stock for registration of exchange or (subject to compliance with the
applicable provisions of Section 11), transfer, the Company shall issue, at its
expense, one or more new certificates, in such denomination or denominations as
may be requested, for shares of such Common Stock and registered as such holder
may request. Any certificate representing shares of Common Stock surrendered for
registration of transfer shall be duly endorsed, or accompanied by a written
instrument of transfer duly executed by the holder of such certificate or his
attorney duly authorized in writing.
10.5. Transfer, Exchange, Exercise and Conversion of Warrants. The Company
shall keep at its principal office a register in which shall be entered the
names and addresses of the holders of the Warrants and particulars of the
Warrants held by them and of all transfers, exchanges, conversions and
redemptions of Warrants. Upon surrender at such office or such other place as
shall be duly specified by the company of any Warrant for redemption,
conversion, exercise, exchange or (subject to compliance with the applicable
provisions of this Agreement, including without limitation the conditions set
forth in Section 11 hereof) transfer, the Company shall issue at its expense one
or more new Warrants in such denomination or denominations as may be requested,
and registered as such holder may request. Any Warrant surrendered for
registration of transfer shall be duly endorsed, or accompanied by a written
instrument of transfer duly executed by the holder of such certificate or his
attorney duly authorized in writing. The Company will pay shipping and insurance
charges, from and to each holder's principal office, upon any transfer,
exchange, conversion or redemption provided for in this Section 10.5.
10.6. Replacement of Lost Securities. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of a
security and, in the case of any such loss, theft or destruction, upon delivery
of an indemnity bond in such reasonable amount as the Company may determine (or,
in the case of a security held by you or another institutional holder or by the
nominee of you or such other institutional holder, of an unsecured indemnity
agreement from you or such other holder reasonably satisfactory to the Company)
or, in the case of any such mutilation, upon the surrender of the security for
cancellation to the Company at its principal office, the Company at its expense
will execute and deliver or will cause to be executed and delivered in lieu
thereof a new security of like tenor. Any security in lieu of which any such new
security has been so executed and delivered or caused to be executed and
delivered by the
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Company shall not be deemed to be an outstanding security for any purpose.
11. RESTRICTIONS ON TRANSFER. The Investor Securities shall be transferable
only upon satisfaction of the applicable conditions specified in this Section 11
11.1. Restrictive Legend. Except as otherwise permitted by Section 11.3
hereof, each Warrant shall bear a legend in substantially the form of the legend
set forth at the beginning of Exhibit 2.2 hereto, and each certificate
representing Warrant Shares, or shares of Senior Preferred Stock, Junior
Preferred Stock or Common Stock shall bear a legend in substantially the
following form:
"The shares represented by this certificate have not been registered under
the Securities Act of 1933, as amended, or under the securities laws of any
state, and may not be sold, or otherwise transferred, in the absence of such
registration or an exemption therefrom under such Act and under any such
applicable state laws. Furthermore, such shares may be sold or otherwise
transferred only in compliance with the conditions specified in the Securities
Purchase Agreement dated as of December __, 1996 among the issuer hereof and the
other parties thereto. Complete and correct copies of such Agreement (including
the Exhibits thereto) are available for inspection at the principal office of
the issuer hereof and will be furnished without charge to the holder of such
shares upon written request."
11.2. Notice of Proposed Transfer; Opinions of Counsel. Prior to any
transfer of any Investor Securities other than pursuant to an effective
registration statement under the Securities Act. the holder thereof will give
not less than three Business Days' prior written notice to the Company of such
holder's intention to effect such transfer, describing in reasonable detail the
manner of the proposed transfer. No holder of Investor Securities shall transfer
any Investor Securities other than pursuant to an effective registration
statement under the Securities Act until (i) such holder delivers to the Company
an opinion of Ropes & Gray or other counsel reasonably acceptable to the Company
addressed to the Company to the effect that the proposed transfer may be
effected without registration of such Investor Securities under the Securities
Act or applicable state securities laws, and (ii) the transferee agrees in
writing to be bound by all of the terms of this Agreement and the Investor
Securities to be transferred, and thereupon such holder shall be entitled,
within 30 days thereafter, to transfer such Investor Securities in accordance
with the terms of this Agreement and the notice delivered by such holder to the
Company.
11.3. Termination of Restrictions. The restrictions imposed by this Section
11 upon the transferability of Investor Securities shall cease and terminate as
to any particular Investor Securities and any securities issued in exchange
therefor or upon transfer thereof (i) when, (in the case of Sections 11.1 and
11.2 hereof) in the written opinion (addressed to the Company) of Ropes & Gray
or other counsel reasonably acceptable to the Company, such restrictions are no
longer required in order to assure compliance with the Securities Act, or (ii)
when such Investor Securities are being or have been sold pursuant to a Public
Sale. Whenever any of such restrictions shall cease and terminate as to any
Investor Securities, the holder thereof shall be
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entitled to receive, without expense, from the Company, new certificates not
bearing that part of the legend specified in Section 11.1 hereof that is no
longer applicable.
11.4. Special Restriction. No Investor Security shall be transferred (other
than in a Public Sale) to any Person unless such Person is a Financial
Institution. Investor Securities shall be transferable in blocks of no fewer
than 10% of the number of shares of such Investor Securities issued at the
Closing. In the case of the Warrants, the restriction of the preceding sentence
shall be applied based on the number of shares for which such Warrant could be
exercised.
12. DEFINITIONS. For purposes of this Agreement:
12.1 Terms Defined Elsewhere. The following terms defined elsewhere in this
Agreement in the Sections set forth below shall have the respective meanings
therein defined:
<TABLE>
<CAPTION>
Term Definition
<S> <C>
"Carryco Merger Agreement" Section 4.4.1
"Certificate" Section 2.1
"Change of Control" Section 8.11.3
"Closing" Section 3.2
"Closing Date" Section 3.2
"Common Holders" Section 9.3
"Common Stock" Section 2.3
"Company" Preamble
"Credit Agreement" Section 4.4.2
"Director Designee" Section 9.3
"Employment Agreements" Section 4.4.9
"GECC" Section 4.4.4
"GECC Preferred Stock" Section 4.4.4
"GTCR Fund IV" Section 4.4.3
"Investment Agreement" Section 4.4.3
"Investor Securities" Section 2.5
"Issuance" Section 9.2
"Junior Preferred Stock" Section 2.2
"Lenders" Section 4.4.2
"Other Securities" Section 9.2.1.3
"PBGC" Section 7.3.1
"Preemption Notice" Section 9.2.1.1
"Preferred Stock" Section 2.2
"Preferred Stock Repurchase Agreement" Section 4.4.4
"Principal" Section 4.4.3
"Principal Merger Agreement" Section 4.4.6
"Professional Services Agreement" Section 4.4.5
</TABLE>
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<TABLE>
<S> <C>
"Proposed Subscriber" Section 9.2.1.1
"Qualifying Public Offering" Section 9.2.3.
"Registration Rights Agreement" Section 4.3.8
"Related Agreements" Section 4.4
"Senior Financing" Section 4.4.2
"Senior Preferred Stock" Section 2.1
"Shareholders Agreement" Section 4.4.7
"Subject Securities" Section 9.2
"Subsequent Closing" Section 3.3
"Subsequent Closing Date" Section 3.3
"Transactions" Section 3.4
"Warrants" Section 2.4
"144A Information" Section 7.4
</TABLE>
Certain other terms are defined in the Exhibits hereto and are used therein with
the meanings so defined.
12.2 Action. The term "Action" shall mean any claim, action, cause of
action or suit (in contract or tort or otherwise), arbitration, inquiry,
proceeding or investigation by or before any Governmental Authority.
12.3 Affiliate. The term "Affiliate" (which shall be deemed to refer to the
Company unless another Person is specified) shall mean any Person directly or
indirectly controlling, controlled by or under direct or indirect common control
with the Company (or such other specified Person) and shall include (i) any
Person who is an officer, director or beneficial holder of at least 5% of the
outstanding equity interest of the Company (or such other specified Person) and
Members of the immediate Family of any such officer, director or holder, (ii)
any Person of which the company (or such other specified Person) or an Affiliate
(as defined in clause (i) above) of the Company (or such other specified Person)
shall, directly or indirectly, either beneficially own at least 5% of the
outstanding equity interest or constitute at least 5% participant or shall be an
officer or director of such Person, and Members of the Immediate Family, if any,
of such holder, director or officer, and (iii) in the case of a specified Person
who is an individual, Members of the Immediate Family of such Person; provided,
however, that you shall not be an Affiliate of the Company for purposes of this
Agreement.
12.4 AmSouth. The term "AmSouth" shall mean AmSouth Bancorporation, a
Delaware corporation.
12.5 Applicable Percentage. The term "Applicable Percentage" shall mean,
with respect to any holder of Investor Securities and any class of Subject
Securities, the percentage of all outstanding shares of that class of Subject
Securities which would be held by such holder assuming that all outstanding
Equity Securities of the Company are converted, or exchanged or exercised, in
accordance with the terms thereof.
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12.6. Brim Rollover Stockholders. The term "Brim Rollover Stockholders"
shall mean the persons listed on Schedule I of the Shareholders Agreement.
12.7. Business Day. The term "Business Day" shall mean any day on which
banking institutions in Nashville, Tennessee and New York, New York are
customarily open for the purpose of transacting business.
12.8. By-laws. The term "By-laws" shall include all written rules,
regulations, procedures and by-laws and all other documents relating to the
management, governance or internal regulation of a Person other than an
individual, or interpretive of the Charter of such Person, each as from time to
time amended or modified.
12.9. Capitalized Lease. The term "Capitalized Lease" shall mean any lease
which is or should be capitalized on the balance sheet of the lessee in
accordance with generally accepted accounting principles.
12.10. Charter. The term "Charter" shall include the articles or
certificate of incorporation (including any certificate of designation),
statute, constitution, joint venture or partnership agreement or articles or
other charter of any Person other than an individual, each as from time to time
amended or modified.
12.11. COBRA. The term "COBRA" shall mean the federal Consolidated Omnibus
Budget Reconciliation Act of 1985 or any successor statute, and the rules and
regulations thereunder, and in the case of any referenced section of any such
statute, rule or regulation, any successor section thereof, collectively and as
from time to time amended and in effect.
12.12. Code. The term "Code" shall mean the federal Internal Revenue Code
of 1986 or any successor statute, and the rules and regulations thereunder, and
in the case of any referenced section of any such statute, rule or regulation,
any successor thereof, collectively and from time to time amended and in effect.
12.13. Commission. The term "Commission" shall mean the Securities and
Exchange Commission or any other federal agency at the time administering the
Securities Act, the Exchange Act or both.
12.14. Consolidated. The term "consolidated" shall mean, when used with
reference to any term, that term as applied to the accounts of the Company (or
other indicated Person) and each of its Subsidiaries, consolidated in accordance
with generally accepted accounting principles after eliminating all
inter-company items and with appropriate deductions for minority interests in
Subsidiaries.
12.15. Contractual Obligation. The term "Contractual Obligation" shall
mean, with
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respect to any Person, any contract, agreement, deed, mortgage, lease, license,
indenture, commitment, undertaking, arrangement or understanding, written or
oral, or other document or instrument, including, without limitation, any
document or instrument evidencing or otherwise relating to any indebtedness but
excluding the Charter and By-laws of such Person, to which or by which such
Person is a party or otherwise subject or bound or to which or by which any
property or right of such Person is subject or bound.
12.16. Distribution. The term "Distribution" shall mean (i) the declaration
or payment of any dividend or other distribution on or in respect of any Equity
Security of any Subject Entity, other than dividends payable on Common Stock
solely in shares of Common Stock and (ii) the purchase, redemption or other
retirement of any Equity Security of any Subject Entity, whether directly or
indirectly through a Subsidiary or otherwise.
12.17. Employee Benefit Plan. The term "Employee Benefit Plan" shall mean
any employee benefit plan within the meaning of section 2510.3(3) of ERISA
subject to part 4 of Subtitle B of Title 1 of ERISA or to section 4975 of the
Code.
12.18. Equity Owners. The Persons that own the Common Stock of the Company
immediately after the Closing.
12.19. ERISA. The term "ERISA" shall mean the federal Employee Retirement
Income Security Act of 1974 or any successor statute, and the rules and
regulations thereunder, and in the case of any referenced section of any such
statute, rule or regulation, any successor section thereto, collectively and as
from time to time amended and in effect.
12.20. Exchange Act. The term "Exchange Act" shall mean the Securities
Exchange Act of 1934, or any successor federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect
from time to time.
12.21. Equity Securities. The term "Equity Securities" shall mean, with
respect to any Person which is not a natural person, all shares of capital stock
or other equity or beneficial interests issued by or created in or by such
Person, all stock appreciation or similar rights or grants of, or other
Contractual Obligation for, any right to share in the equity, income, revenues
or cash flow of such Person, and all securities or other rights, warrants or
other Contractual Obligations to acquire any of the foregoing, whether by
conversion, exchange, exercise, preemptive right or otherwise.
12.22. Financial Institution. A Person described in Rule 144A(a)(l)(i),
(iv), or (vi) promulgated under the Securities Act.
12.23. First Union. The term "First Union" shall mean First Union
Corporation of Virginia, a Virginia corporation.
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12.24. Foreign Trade Regulations. The term "Foreign Trade Regulations"
means (a) any act that prohibits or restricts, or empowers the President or any
executive agency of the United States of America to prohibit or restrict,
exports to or financial transactions with any foreign country or foreign
national, (b) the regulations with respect to certain prohibited foreign trade
transactions set forth at 15 C.F.R. Parts 730 et seq., 22 C.F.R. Parts 120-130
and 31 C.F.R. Parts 500 et seq. and (c) any order, regulation, ruling,
interpretation, direction, instruction or notice relating to any of the
foregoing, all as from time to time in effect.
12.25. Generally Accepted Accounting Principles. The term "generally
accepted accounting principles" shall mean generally accepted accounting
principles as defined by the Financial Accounting Standards Board, as in effect
on December 31, 1994 and as applied by the Subject Entities in their
consolidated financial statements dated December 31, 1994 referred to in clause
(a) of Section 4.3.1 hereof and consistently followed thereafter without giving
effect to any subsequent changes in such accounting principles; provided,
however, that for purposes of the financial statements to be delivered pursuant
to Section 7.1 hereof, "generally accepted accounting principles" shall mean
such principles as defined by the Financial Accounting Standards Board, as from
time to time in effect.
12.26. Governmental Authority. The term "Governmental Authority" shall mean
any U.S. federal, state or local or any foreign government, governmental
authority, regulatory or administrative agency, governmental commission, court
or tribunal (or any department, bureau or division thereof) or any arbitral
body.
12.27. Indebtedness. The term "Indebtedness" shall have the same meaning as
the term "Debt" has under the Credit Agreement.
12.28. Investment. The term "Investment" shall mean (i) any share of
capital stock, evidence of Indebtedness or other security issued by any other
Person, (ii) any loan, advance, or extension of credit to, or contribution to
the capital of, any other Person, (iii) any purchase of the securities or
business or integral part of the business of any other Person, or commitment or
option to make such purchase if, in the case of an option, the consideration
therefor exceeds $1,000, including without limitation the entering into of local
marketing agreements and similar agreements, and (iv) any other investment;
provided, however, that the term "Investment" shall not include (a) current
trade and customer accounts receivable arising in the ordinary course of
business and payable in accordance with customary trade terms or prepaid assets
arising in the ordinary course of business, (b) advances to employees for travel
expenses, drawing accounts and similar expenditures, or (c) demand deposits in
banks or trust companies the entire principal amount of which is subject to
deposit insurance provided by the Federal Deposit Insurance Corporation or the
Federal Savings and Loan Insurance Corporation.
12.29. Legal Requirement. The term "Legal Requirement" shall mean any
federal, state, local or foreign law, statute, standard, ordinance, code, order,
rule, regulation, resolution, promulgation, or any order, judgment or decree of
any court, arbitrator, tribunal or governmental
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authority, or any license, franchise, permit or similar right granted under any
of the foregoing, or any similar provision having the force and effect of law.
12.30. Lien. The term "Lien" shall mean (a) any mortgage, pledge, lien,
charge, security interest or other similar encumbrance or restriction of any
kind upon any property or assets of any character, or upon the income or profits
therefrom or upon the transfer thereof; (b) any acquisition of or agreement to
have an option to acquire any property or assets upon conditional sale or other
title retention agreement, device or arrangement (including a capitalized
lease); or (c) any sale, assignment, pledge or other transfer for security of
any accounts, general intangibles or chattel paper, with or without recourse.
12.31. Major Holder. The term "Major Holder" with respect to any class of
Investor Securities shall mean (i) you, so long as you hold that class of
Investor Securities, or (ii) any holder of 25% or more of the securities
constituting Investor Securities of that class of Investor Securities then
outstanding.
12.32. Material Adverse Change; Material Adverse Effect. The terms
"Material Adverse Change" and "Material Adverse Effect" shall mean,
respectively, any adverse change in or effect on the business, operations,
assets, prospects or condition, financial or otherwise, of any Subject Entity
which, when considered either singly or together with all other adverse changes
and effects with respect to which either such phrase is used in this Agreement,
is material to the Subject Entities considered as one enterprise.
12.33. Members of the Immediate Family. The term "Members of the Immediate
Family", as applied to any individual, shall include each parent, spouse, child,
brother, sister and the spouse of a child, brother, or sister of the individual,
and each trust created for the benefit of one or more of such persons and each
custodian of the property of one or more such persons.
12.34. Multiemployer Plan. The term "Multiemployer Plan" shall mean any
Pension Plan which is a "multiemployer plan" within the meaning of Section
4001(a)(3) of ERISA.
12.35. Operating Company. The term "Operating Company" shall mean an
"operating company" within the meaning of Department of Labor Regulation
ss. 2510.3-101(c) or successor rule or regulation, as from time to time amended
and in effect.
12.36. Option Plan. The term "Option Plan" shall mean an employee stock
option plan to be adopted by the Company together with any amendments thereto,
which shall provide for the issuance of options to purchase not more than 5% of
the outstanding Common Stock of the Company on a fully diluted basis, after
giving effect to the Closing and the transactions contemplated by Section 6 of
the Shareholders Agreement as in effect on the date hereof. Martin S. Rash and
Richard D. Gore shall not be eligible to receive option grants under the Option
Plan.
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<PAGE> 40
12.37. Pension Plan. The term "Pension Plan" shall mean each pension plan
(as defined in Section 3(2) of ERISA) subject to the minimum funding
requirements of Section 412 of the Code or Section 302 of ERISA established or
maintained, or to which contributions are made, by the Company or any of its
Subsidiaries or with respect to which the Company or any of its Subsidiaries has
any liability.
12.38. Person. The term "Person" shall mean an individual, partnership,
limited liability company, corporation, association, trust, joint venture or
unincorporated organization, and any government, governmental department or
agency or political subdivision thereof.
12.39. Plan Assets. The term "Plan Assets" shall mean "plan assets" within
the meaning of Department of Labor Regulation ss. 2510.3-101.
12.40. Public Sale. The term "Public Sale" shall mean a distribution
pursuant to a registration statement under the Securities Act or, if the
securities sold are of a class which is publicly traded as evidenced by listing
with a national securities exchange, on the NASDAQ National Market or otherwise,
a sale to the public which is exempt from the registration requirements of the
Securities Act under Rule 144 thereunder or otherwise.
12.41. Redemption. The term "Redemption" shall mean the redemption by the
Company of all of its outstanding shares of Redeemable Preferred Stock.
12.42. Required Holders. The term "Required Holders" shall mean, with
respect to any class or type of Investor Securities, the holder or holders at
the relevant time (excluding the Subject Entities) of more than 50% of the
number of outstanding shares, as the case may be, of the specified class or type
of Investor Securities.
12.43. Rule 144A. The term "Rule 144A" shall mean Rule 144A of the
Commission's rules and regulations promulgated under the Securities Act, and any
successor rule or regulation thereto, and in the case of any referenced section
of such Rule, any successor section thereto, collectively and as from time to
time amended and in effect.
12.44. Securities Act. The term "Securities Act" shall mean the Securities
Act of 1933, as amended, or any successor federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect
from time to time.
12.45. Single Employer Plan. The term "Single Employer Plan" shall mean any
Pension Plan which is not a Multiemployer Plan.
12.46. Stockholder. The term "Stockholder" shall mean each Person who holds
any Equity Security of the Company.
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<PAGE> 41
12.47. Subject Entity. The term "Subject Entity" shall mean the Company and
each of its Subsidiaries.
12.48. Subsidiary. The term "Subsidiary" shall mean any Person of which the
Company or any other specified Person now or hereafter shall at the time own
directly or indirectly through a Subsidiary at least a majority of the
outstanding capital stock (or other shares of beneficial interest) entitled to
vote generally.
12.49. Welfare Plan. The term "Welfare Plan" shall mean each welfare plan
(as defined in Section 3(1) of ERISA) established or maintained, or to which any
contributions are or were made, by the Company or Subsidiaries of the Company,
or with respect to which the Company or any of its Subsidiaries has any
liability.
12.50. Wholly Owned Subsidiary. The term "Wholly Owned Subsidiary" shall
mean any Subsidiary all of whose outstanding Equity Securities are owned by the
Company (or any other specified Person), directly or indirectly through a Wholly
Owned Subsidiary.
13. EXPENSES, INDEMNITY.
13.1. Expenses. Whether or not the transactions contemplated by this
Agreement shall be consummated, the Company hereby agrees to pay on demand all
reasonable out-of-pocket expenses incurred by you in connection with such
transactions and operations hereunder (other than expenses incurred in the
normal course of investment monitoring) and in connection with any amendments or
waivers (whether or not the same become effective) hereof and of the other
Related Agreements and all expenses incurred by any of you or any holder of any
Investor Securities issued hereunder in connection with the enforcement in good
faith of any rights hereunder, under any other Related Agreement or under the
Charter of the Company, including without limitation: (a) the reasonable cost
and expenses of preparing and duplicating this Agreement; (b) the reasonable
cost of delivering to your principal office, insured to your reasonable
satisfaction, the Investor Securities sold to you hereunder and any Investor
Securities delivered to you in exchange therefor or upon any conversion or
substitution thereof, in any such case insured to your satisfaction; (c) the
reasonable fees, expenses and disbursements of Ropes & Gray in connection with
the transactions contemplated by this Agreement; (d) all taxes (other than taxes
determined with respect to income and transfer taxes that may be payable upon a
transfer), including any recording fees and filing fees and documentary stamp
and similar taxes at any time payable in respect of this Agreement, any other
Related Agreement, or the issuance of any of the Investor Securities; (e) the
reasonable out-of-pocket expenses incurred by each Major Preferred Holder in
respect of one person in attending meetings of the Board of Directors or
committees thereof, and (f) the reasonable out-of-pocket expenses incurred by
each Common Holder, and the reasonable out-of-pocket expenses incurred by the
Director Designee in respect of the Director Designee attending meetings of the
Board of Directors or committees thereof; provided, however, that you and each
holder of Investor Securities shall bear the fees and disbursements of counsel
for such of you or such holder in connection with all opinions rendered
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<PAGE> 42
by such counsel pursuant to Section 11 hereof.
13.2. Indemnity.
13.2.1. The Company hereby further agrees to indemnify, exonerate and
hold you and each of your stockholders, officers, directors, employees and
agents free and harmless from and against any and all Actions, losses,
liabilities and damages, and any investigation or proceeding instituted by
any Governmental Authority or any other Person, and reasonable expenses in
connection therewith, including without limitation reasonable attorneys'
fees and disbursements, incurred in any capacity by the indemnitee or any
of them as a result of, or arising out of, or relating to any transaction
financed or to be financed in whole or in part directly or indirectly with
proceeds from the sale by the Company of any of the Investor Securities,
except for any of such indemnified liabilities arising on account of any
indemnitee's gross negligence, willful misconduct or bad faith.
13.2.2. Each of the Company and you hereby agree to indemnify each
other against and hold each other harmless from any claim, demand or
liability for any broker's, finder's or placement fees or lender's
incentive fees alleged to have been incurred by the Company or you, as the
case may be, in connection with the transactions contemplated by this
Agreement, including without limitation reasonable legal fees arising in
connection with any such claim, demand or liability; provided, however,
that the Company shall bear the fees and expenses referred to in Section
13.1.
13.3. The obligations of the Company to you under this Section 13 shall
survive the redemption, repurchase or transfer of any or all of the Investor
Securities.
14. NOTICES. Any notice or other communication in connection with this
Agreement or the Investor Securities shall be deemed to be delivered if in
writing (or in the form of a telex or telecopy to be given only during the
recipient's normal business hours unless arrangements have otherwise been made
to receive such notice by telex or telecopy outside of normal business hours)
addressed as provided below and if either (a) actually delivered at said address
or (b) in the case of a letter, seven business days shall have elapsed after the
same shall have been deposited in the United States mails, postage prepaid and
registered or certified:
If to the Company, to it at the address set forth on page 1, with a
courtesy copy (not necessary to constitute notice hereunder) to Kirkland &
Ellis, 200 East Randolph Drive, Chicago, Illinois 60601 (Attention: Kevin R.
Evanich, P.C.), or at such other address as such Person shall have specified by
notice actually received by you.
If to you, to your address set forth on page 1 hereof, or at such other
address as you shall have specified by notice actually received by the Company,
with a copy to Ropes & Gray, One International Place, Boston, Massachusetts
02110-2624, Attention: Mary E. Weber, Esq.
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<PAGE> 43
If to any other holder of record of any Investor Security, to it at its
address set forth in the relevant registers of the Company.
15. SURVIVAL. All covenants, agreements, representations and warranties made
herein or in any other document referred to herein or delivered to you pursuant
hereto or in connection herewith shall be deemed to have been material and
relied on by you, notwithstanding any investigation made by you or on your
behalf, and shall survive the execution and delivery to you of this Agreement
and of the Investor Securities.
16. AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively) only with the
written consent of the Company and Required Holders. Any amendment or waiver
effected in accordance with this Section 16 shall be binding upon each holder of
any Investor Securities and the Company.
17. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH
CANNOT BE WAIVED, THE COMPANY HEREBY WAIVES, AND COVENANTS THAT IT WILL NOT
ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY
JURY IN ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM, DEMAND, ACTION, OR CAUSE OF
ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT OR ANY OTHER RELATED
AGREEMENT OR THE SUBJECT MATTER HEREOF OR THEREOF OR ANY OBLIGATION HEREUNDER OR
THEREUNDER OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS
OF THE HOLDERS OF INVESTOR SECURITIES OR THE COMPANY OR ANY OF THEM IN
CONNECTION WITH ANY OF THE ABOVE, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE. THE COMPANY
ACKNOWLEDGES THAT IT HAS BEEN INFORMED BY YOU THAT THE PROVISIONS OF THIS
SECTION 18 CONSTITUTE A MATERIAL INDUCEMENT UPON WHICH YOU HAVE RELIED, ARE
RELYING AND WILL RELY IN ENTERING INTO THIS AGREEMENT, AND SUCH OF THE RELATED
AGREEMENTS TO WHICH YOU ARE A PARTY. You or the Company may file an original
counterpart or a copy of this Section 17 with any court as written evidence of
the consent of the Company to the waiver of its right to trial by jury.
18. SERVICE OF PROCESS. The Company, by its execution hereof, (a) hereby
irrevocably submits to the non-exclusive jurisdiction of the state courts of the
State of New York and to the non-exclusive jurisdiction of the United States
District Court for the Southern District of New York for the purpose of any
suit, action or other proceeding arising out of or based upon this Agreement or
any other Related Agreement or the subject matter hereof or thereof brought by
you or any of your successors or assigns, and (b) hereby waives to the extent
not prohibited by law, and agrees not to assert, by way of motion, as a defense
or otherwise, in any such proceeding, any claim that it is not subject
personally to the jurisdiction of the above-named courts, that its
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<PAGE> 44
property is exempt or immune from attachment or execution, that any such
proceeding brought in one of the above-named courts is improper or that this
Agreement or the subject matter hereof or thereof, may not be enforced in or by
such court. The Company hereby consents to service of process in any such
proceeding in any manner permitted by New York law and agrees that service of
process by registered or certified mail, return receipt requested, at its
address referred to in or specified pursuant to Section 14 hereof, is reasonably
calculated to give actual notice.
19. APPLICABLE REMEDIES. The Company hereby agrees that the holders of the
Investor Securities have no adequate remedy at law, for monetary compensation or
otherwise, for the damages that would be suffered if the Company were to fail to
comply with its obligations hereunder, and that the Company therefore agrees
that the holders of the Investor Securities shall be entitled to obtain specific
performance of the obligations of the Company herein and therein contained.
20. MISCELLANEOUS. This Agreement, the other Related Agreements, and the
Charter of the Company set forth the entire understanding of the parties hereto
with respect to the transactions contemplated hereby and supersede any prior
written or oral understandings with respect thereto. The invalidity or
unenforceability of any term or provision hereof shall not affect the validity
or enforceability of any other term or provision hereof. The headings in this
Agreement are for convenience of reference only and shall not alter or otherwise
affect the meaning hereof. This Agreement is intended to take effect as a sealed
instrument and may be executed in any number of counterparts which together
shall constitute one instrument and shall be governed by and construed in
accordance with the domestic substantive laws of The State of New York without
giving effect to any choice or conflict of law provision or rule that would
cause the application of the domestic substantive laws of any other
jurisdiction. This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns.
Whether or not any express assignment has been made in this Agreement,
provisions of this Agreement that are for your benefit as the holder of any
Investor Securities are also for the benefit of, and enforceable by, all
subsequent holders of Investor Securities, except as otherwise expressly
provided herein.
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<PAGE> 45
If the foregoing corresponds with your understanding of our agreement,
kindly sign this letter and the accompanying copies thereof in the appropriate
space below and return one counterpart of the same to the Company whereupon this
letter shall become and be a binding agreement between you and the Company.
Very truly yours,
SEAL BRIM, INC.
Attest: By: /s/ Martin S. Rash
Title: --------------------------------------
Title: C.E.O.
Accept and Agreed to:
LEEWAY & CO.
By: /s/ Edward J. Lavin Jr.
-----------------------------
Title: Vice President
<PAGE> 1
Exhibit 4.7
SECOND AMENDMENT TO CREDIT AGREEMENT
AND
MODIFICATION OF LOAN DOCUMENTS
THIS SECOND AMENDMENT TO CREDIT AGREEMENT AND MODIFICATION OF LOAN
DOCUMENTS, dated August _, 1997 (this' "Amendment"), is by and between PRINCIPAL
HOSPITAL COMPANY, an Oregon corporation formerly known as Brim, Inc. (the
"Borrower"), the financial institutions from time to time party to the Credit
Agreement (as hereinafter defined) (the "Lenders") and FIRST UNION NATIONAL
BANK, formerly known as First Union National Bank of North Carolina, as Agent
for the Lenders (in such capacity, the "Agent"), and amends the Credit Agreement
dated as of December 17, 1997, as amended by a First Amendment dated March 26,
1997 (the "First Amendment"), between the Borrower, the Lenders and the Agent
(the "Credit Agreement"). Capitalized terms not otherwise defined herein shall
have the meanings assigned to such terms in the Credit Agreement.
RECITALS
A. Pursuant to the Credit Agreement, the Lenders extended to the
Borrower Term Loans in the aggregate principal amount of $35,000,000 and
Revolving Credit Loans in the aggregate principal amount of up to $65,000,000.
B. The Borrower has requested that the Agent and the Lenders amend the
Credit Agreement to modify certain covenants, all in accordance with the terms
hereof.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Borrower, the Required Lenders
and the Agent, for themselves, their successors and assigns, agree as follows:
ARTICLE I
AMENDMENTS
1.1 Definitions. The defined term "Annualized Capital Expenditures" set
forth in ARTICLE I is hereby deleted. The defined term "Fixed Charges" set forth
in ARTICLE I is hereby deleted in its entirety and there is substituted in its
place the following:
"Fixed Charges" shall mean, as of the last day of any fiscal
quarter, (a) Scheduled Principal Payments, plus (b) the sum of the
following as of the fiscal quarter then ending: (i) Annualized Interest
Expense payable in cash, (ii) Annualized Lease Expense, (iii) actual
Capital Expenditures year-to-date for such fiscal year and (iv)
Annualized Cash Taxes.
1.2 Financial Covenants. SECTION 6.15 is hereby deleted in its entirety
and there is substituted in its place the following:
<PAGE> 2
6.15 Capital Expenditures. Permit Capital Expenditures (i) for
the fiscal year ending December 31, 1997 to exceed $8,300,000 and (ii)
for any fiscal year, beginning with the fiscal year beginning January
1, 1998, to exceed five percent (5%) of Consolidated Net Revenues for
the four (4) fiscal quarters ending on the last day of the previous
year, adjusted for inflation based on the consumer price index as
determined by the Agent, plus proceeds of insurance with respect to any
loss of Collateral (to the extent used to replace or replace such
Collateral), plus proceeds of the disposition of assets permitted by
SECTION 6.5.
1.3 Revolving Credit Borrowing Availability/Palestine Limited
Partnership. For purposes of the Revolving Credit borrowing Availability,
commencing on the date of this Amendment, the Borrower may include actual
annualized EBITDAR of Palestine Limited Partnership for the relevant period
multiplied by three (3), notwithstanding the amount of the obligations
guaranteed by Palestine Limited Partnership.
ARTICLE II
LOAN DOCUMENTS
Any individual or collective reference to any of the Loan Documents in
any of the other Loan Documents to which the Borrower or any Guarantor is a
party shall mean, unless otherwise specifically provided, such Loan Document as
amended by this Amendment, and as it is further amended, restated, supplemented
or modified from time to time and any substitute or replacement therefor or
renewals thereof, including without limitation, all references to the Credit
Agreement, which shall mean the Credit Agreement as amended hereby and as
further amended from time to time.
ARTICLE III
OJAI VALLEY COMMUNITY HOSPITAL
3.1 Purchase Extension. Pursuant to SECTION 5.17 of the Credit
Agreement, the Borrower was going to acquire Ojai Valley Community Hospital by
June 30, 1997 and such date was extended by letter agreement until July 31,
1997. The Required Lenders hereby agree to amend SECTION 5.17 of the Credit
Agreement to change the reference from "July 31, 1997" to "August 15, 1997.
ARTICLE IV
CONDITIONS PRECEDENT
This Amendment and the obligations of the Lenders to continue to extend
credit under the terms of the Credit Agreement are subject to the satisfaction
of all of the following conditions precedent:
4.1 Execution of this Amendment. This Amendment shall have been
executed and delivered by the Borrower, the Agent and the Required Lenders, it
being expressly understood that the terms of this Amendment require the express
consent of Lenders holding 66 2/3% or more of the sum of the
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<PAGE> 3
aggregate principal amount of the Term Loans and Revolving Credit Commitments
outstanding as of the dare hereof.
4.2 No Default. After giving effect to this Amendment, no Default or
Event of Default shall have occurred and be continuing, and the Agent and the
Lenders shall have received a certificate from the chief executive officer or
the chief financial officer of the Borrower to such effect.
4.3 Guarantor Confirmation. The Agent and the Lenders shall have
received written confirmation by the Guarantors of their obligations under the
Guaranty Documents.
4.4 Governmental Approvals. All necessary approvals, authorizations
and consents, if any be required, of all governmental bodies (including courts)
having jurisdiction with respect to the transactions contemplated by this
Amendment shall have been obtained.
4.5 No Injunction, Etc. No action, proceeding, investigation,
regulation or legislation shall have been instituted, threatened or proposed
before any court, governmental agency or legislative body to enjoin, restrain or
prohibit, or to obtain substantial damages in respect of, or which is related to
or arises out of this Amendment or the consummation of the transactions
contemplated hereby or which, in the Lenders' sole discretion, would make it
inadvisable to consummate the transactions contemplated by this Amendment.
4.6 No Material Adverse Change. In the reasonable judgment of the
Agent, there shall not have occurred any material adverse change in the
business, business prospects, financial condition or results of operations of
the Borrower or any Guarantor, or any event, condition or state of facts that
would be reasonably expected materially and adversely to affect the business,
business prospects, financial condition or results or operations of the Borrower
or any Guarantor.
ARTICLE V
GENERAL
5.1 Full Force and Effect. As expressly amended hereby, the Credit
Agreement and each Loan Document shall continue in full force and effect in
accordance with the provisions thereof on the date hereof. As used in the Credit
Agreement, "hereinafter," "hereto, " "hereof" and words of similar import shall
mean, unless the context otherwise requires, the Credit Agreement as amended by
this Amendment.
5.2 Representations and Warranties. After giving effect to this
Amendment, the representations and warranties set forth in the Credit Agreement
are true and correct as of the date hereof, except to the extent such
representations and warranties relate solely to or are specifically expressed as
of a particular date or period.
5.3 Release. The Borrower hereby releases and discharges the Agent and
each of the Lenders, their directors, officers, agents, and employees, from any
and all causes of action, suits, claims, demands. liabilities and obligations
whatsoever, in law or in equity, whether the same are now known or unknown or
whether the facts on which the same are based are now known or unknown, which
they ever had, now have or hereafter may have by reason of any matter, act or
omission whatsoever occurring
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<PAGE> 4
on or before the date of this Amendment, except for any claims arising out of
any wanton or willful misconduct or gross negligence on the part of the Agent or
any Lender.
5.4 Applicable law. This Amendment shall be governed by and construed
in accordance with the laws and judicial decisions of the State of North
Carolina without reference to conflicts of law principles.
5.5 Counterparts; Terms. This Amendment may be executed in two or more
counterparts, each of which shall constitute an original, but all of which when
taken together shall constitute but one instrument.
5.6 Expenses. The Borrower agrees to pay all reasonable out-of-pocket
expenses incurred by the Agent in connection with the preparation, execution and
delivery of this Amendment, including, without limitation, all fees and
disbursements of Agent's counsel.
5.7 Headings. The headings of this Amendment are for the purposes of
reference only and shall nor affect the construction of this Amendment.
5.8 Valid Amendment. The parties acknowledge that, when executed and
delivered by the Borrower, the Agent and the Required Lenders, this Amendment
complies in all respects with SECTION 10.8 of the Credit Agreement, which sets
forth the requirements for amendments thereto.
(signatures begin next page)
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<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed in their corporate names by their duly authorized corporate officers
as of the date first above written.
PRINCIPAL HOSPITAL COMPANY
By: /s/ Richard D. Gore
----------------------------------------
Name: Richard D. Gore
-------------------------------------
Title: Executive VP and CFO
------------------------------------
FIRST UNION NATIONAL BANK, as Agent
and as Issuing Bank
By: /s/ Joseph H. Towell
---------------------------------------
Name: Joseph H. Towell
-------------------------------------
Title: Senior Vice President
------------------------------------
(signatures continued)
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<PAGE> 6
LENDERS:
FIRST UNION NATIONAL BANK
By: /s/ Joseph H. Towell
---------------------------------------
Name: Joseph H. Towell
------------------------------------
Title: Senior Vice President
-----------------------------------
AMSOUTH BANK OF ALABAMA
By: /s/ Keith S. Law
-------------------------------------
Name: Keith S. Law
-----------------------------------
Title: Vice President
----------------------------------
LEHMAN COMMERCIAL PAPER INC.
By: /s/ Michele
-------------------------------------
Name: Michele
-----------------------------------
Title: Authorized
----------------------------------
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ F. Tavangar
-------------------------------------
Name: Farboud Tavangar
-----------------------------------
Title: First Vice President
----------------------------------
BANQUE PARIBAS HOUSTON AGENCY
By: /s/ Glenn E. Msaley
--------------------------------------
Name: Glenn E. Msaley
-----------------------------------
Title: Vice President
----------------------------------
By: /s/ T. A. Donnon
-------------------------------------
Name: Timothy A. Donnon
-----------------------------------
Title: Regional General Manager
----------------------------------
(signatures continued)
6
<PAGE> 7
KEY BANK OF OREGON
By: /s/ Charles S. Stoop
-------------------------------------
Name: Charles S. Stoop
-----------------------------------
Title: Assistant Vice President
----------------------------------
NATIONAL CITY BANK OF KENTUCKY
By: /s/ Roderic M. Brown
-------------------------------------
Name: Roderic M. Brown
-----------------------------------
Title: Vice President
----------------------------------
UNION BANK OF CALIFORNIA, N.A.
By: /s/ Lynn E. Vine
-------------------------------------
Name: Lynn E. Vine
-----------------------------------
Title: Vice President
----------------------------------
FIRST AMERICAN NATIONAL BANK
By: /s/ Sandy Hamrick
-------------------------------------
Name: Sandy Hamrick
-----------------------------------
Title: Vice President
----------------------------------
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<PAGE> 1
Exhibit 10.1
INVESTMENT AGREEMENT
DATED AS OF NOVEMBER 21, 1996
BY AND BETWEEN
BRIM, INC.
AND
GOLDER, THOMA, CRESSEY, RAUNER FUND IV, L.P.
<PAGE> 2
INVESTMENT AGREEMENT
This Agreement is made and entered into as of this 21st day of
November, 1996 by and between Brim, Inc. (the "Company") and Golder, Thoma,
Cressey, Rauner Fund IV, L.P., a Delaware limited partnership ("Purchaser") and
Principal Hospital Company, a Delaware corporation ("Principal").
RECITALS
This Agreement describes a series of transactions, some of which shall
be consummated pursuant to the terms hereof and some of which shall be
consummated pursuant to the terms of certain agreements described or referenced
herein, by which the Company will be reorganized and recapitalized (the
"Recapitalization") and will divest certain assets and operating entities and
will acquire by merger Principal. Due to the complexity of these transactions,
they will be briefly described in steps in the following recitals:
STEP ONE: THE CARRYCO MERGER
A. Prior to the closing of the Investment (as defined below) by
Purchaser, certain of the officers of the Company all of whom are shareholders
of the Company and as of the date hereof collectively own approximately 67% of
the Company's fully diluted common stock (the "Carryover Shareholders") will
form a new Oregon corporation to be known as Carryco, Inc. ("Carryco"). The
Carryover Shareholders will contribute to Carryco a number of shares of common
stock of the Company that will have a value estimated to be $4 million, as
determined by reference to the anticipated cash payment that the other current
common shareholders will receive upon consummation of all of the transactions
provided for herein.
B. Thereafter and prior to the closing of the Investment, the Company
and Carryco will adopt a plan and agreement of merger pursuant to which Carryco
will be merged with and into the Company (the "Carryco Merger"). The Company
will be the surviving entity. As consideration to the current holders of the
common stock of the Company for the Carryco Merger, each share of outstanding
common stock of the Company will be exchanged for one share of a newly
designated redeemable junior preferred stock of the Company (the "Redeemable
Junior Preferred"), and each option to purchase common stock of the Company will
be converted into the option to purchase a like number of shares of the
Redeemable Junior Preferred. The outstanding preferred stock of the Company (the
"GECC Preferred") will not be affected by the Carryco Merger. As consideration
to the Carryover Shareholders for the Carryco Merger, each Carryover Shareholder
will receive shares of a newly designated junior preferred stock and shares of
common stock of the Company, each in the same proportion as the shares of common
and junior preferred stock to be issued to Purchaser in connection with the
transaction described in Paragraph H(i) that comprises a portion of the
Investment. The Carryco Merger will occur approximately one day prior to the
closing of the Investment.
2
<PAGE> 3
C. Prior to the closing of the Carryco Merger, the Company will amend
its Articles of Incorporation to authorize the issuance of a newly designated
series of preferred stock and a newly designated series of senior preferred
stock, all of which shall by their terms be junior in priority to the GECC
Preferred Stock.
D. Upon consummation of the Carryco Merger, the Company will cancel,
as treasury shares, the shares of its common stock acquired from Carryco
through the Carryco Merger.
E. Prior to the closing of the Investment, the Company will form a new
wholly owned subsidiary to be known as Principal Merger Company.
STEP TWO: THE DIVESTITURES
Following the Carryco Merger and immediately prior to the closing of
the Investment, the Company will dispose of certain assets and subsidiaries in
the following series of transactions (collectively, the "Divestitures"):
D. By Agreement and Plan of Merger of even date herewith (the "BSL
Merger Agreement") the Company has agreed to merge its wholly owned subsidiary,
Brim Senior Living, Inc. ("BSL"), with and into Encore Senior Living, LLC, a
Delaware limited liability company ("Encore"), some of whose members consist of
certain officers of the Company or its Subsidiaries, which officers are also
shareholders of the Company and who as of the date hereof collectively own
approximately 58% of the Company's fully diluted common stock, and to sell to
Encore for a purchase price of $15 million (the "BSL Purchase Price") certain
assets owned by the Company and used in connection with the operation of its
senior living business (the "BSL Transaction").
E. By Purchase and Sale Agreement of even date herewith (the "Excluded
Assets Purchase Agreement") the Company has agreed to sell to a newly formed
limited liability company whose members consist of certain officers and
employees of the Company, all of whom are shareholders of the Company and who as
of the date hereof collectively own approximately 75% of the Company's fully
diluted common stock, for a purchase price of $406,500 (the "Excluded Assets
Purchase Price") plus the assumption of debt related thereto certain assets of
the Company which are not directly related to its health care or its senior
living operations (the "Excluded Assets Transaction").
F. By Purchase and Sale Agreement of even date herewith (the "MSL
Purchase Agreement") the Company has agreed to sell to C-C Lantana, Inc, a
Delaware corporation, which is a wholly owned subsidiary of CC-Development
Group, Inc., for a purchase price of $3 million (the "MSL Purchase Price") all
of the issued and outstanding common stock of its wholly owned subsidiary,
Meridian Senior Living, Inc. ("MSL"), and by Purchase and Sale Agreement of even
date
3
<PAGE> 4
herewith (the "LP Purchase Agreement") the Company has agreed to sell to David
McAllister and James Williams, officers of the Company, who collectively own
approximately 27% of the Company's fully diluted common stock, for a purchase
price of $1,000 (the "LP Purchase Price") its limited partnership interest in
Meridian Park Village Limited Partnership (collectively, the "the "Freedom
Village Transaction" and together with the BSL Transaction, the "Senior Living
Transaction").
STEP THREE: THE FINANCING
G. Following the Carryco Merger and immediately prior to the closing of
the Investment, the Company will enter into a credit agreement with First Union
National Bank of North Carolina pursuant to that Commitment Letter dated
September 13, 1996 (the "First Union Commitment Letter"), a true and correct
copy of which is attached hereto as Exhibit A (the "Credit Facility"), which
Credit Facility shall provide for a loan in the principal amount of no less than
$54,000,000 (the "First Union Loan Proceeds").
STEP FOUR: THE INVESTMENT
H. Contemporaneously with closing the Credit Facility, (i) Purchaser
and/or its designees will purchase from the Company shares of a newly designated
class of junior preferred stock and of common stock and (ii) an investor
selected by Purchaser will purchase from the Company shares of a newly
designated class of senior preferred stock pursuant to that Commitment Letter
dated September 17, 1996, a true and correct copy of which is attached hereto as
Exhibit A (the "Investment Commitment Letter") (collectively, the "Investment").
STEP FIVE: THE REDEMPTION/THE ESCROWS
I. Immediately following the closings of the Credit Facility, the
Investment and the Divestitures and using the BSL Purchase Price, the MSL
Purchase Price, the First Union Loan Proceeds and the Investment Proceeds (as
defined below), the Redeemable Junior Preferred will be called for redemption
and then redeemed by the Company and the GECC Preferred will be repurchased by
the Company (collectively, the "Redemption") and the Escrow Account and the
Agent/Legal Fees Expense Account will be established.
STEP SIX: THE SUBSEQUENT TRANSACTION
K. By Agreement and Plan of Merger to be executed and delivered after
the Closing among the Company, Principal Merger Company (a transitory subsidiary
of the Company) and Principal, the parties thereto will provide for the merger
of Principal Merger Company with and into Principal so that, following the
merger Principal will be a wholly-owned subsidiary of the Company (the
"Subsequent Transaction") and in consideration therefor the shareholders of
Principal will receive common stock of the Company.
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<PAGE> 5
Hereinafter the Recapitalization, the Financing, the Investment, the
Divestitures and the Redemption will sometimes be collectively referred to as
the "Transactions."
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants of the parties set forth herein, IT IS HEREBY AGREED AS
FOLLOWS:
ARTICLE I
THE REORGANIZATION, RECAPITALIZATION AND REDEMPTION
1.01. Carryco Merger. Subject to the terms and conditions hereof, prior
to the Closing Date (as defined below), the Carryover Shareholders shall
organize Carryco. The Carryover Shareholders and their proportionate
capitalization of and interest in Carryco shall be as set forth on Exhibit B
hereto. Carryco and the Company shall adopt a Plan and Agreement of Merger,
substantially in the form set forth as Exhibit C hereto, providing for the
Carryco Merger. The Carryco Merger shall be consummated on or about the day
prior to the Closing Date as provided for in Paragraph 2.01 hereof and shall be
conditioned on the Purchaser or the Purchaser's designees having deposited into
escrow with a mutually acceptable escrow agent, the Investment Proceeds (as
defined below) along with instructions (which instructions shall be irrevocable
upon compliance by the Company and by the parties (including the Company) to the
BSL Merger Agreement, the MSL Purchase Agreement, the LP Purchase Agreement, the
Excluded Assets Purchase Agreement and the Carryco Merger with their obligations
under each such agreement) directing the release of said funds upon the
consummation of the Carryco Merger and the confirmation of the Company and the
Purchaser that the conditions to closing provided for in this Agreement have
been satisfied or waived.
1.02. The Divestitures. Following the Carryco Merger and immediately
prior to the Closing, the Company shall consummate the Divestitures on the terms
and conditions provided for in the BSL Merger Agreement, the MSL Stock Purchase
Agreement, the LP Purchase Agreement and the Excluded Assets Purchase Agreement.
As set forth more fully in the LP Purchase Agreement and the Excluded Assets
Purchase Agreement, the LP Purchase Price and the Excluded Assets Purchase Price
shall be payable by the purchasers to the Company in immediately available funds
at the closing of the transaction provided for in the LP Purchase Agreement and
in the Excluded Assets Transaction, respectively, and shall be retained by the
Company from and after the closing of said transactions. As set forth more fully
in the BSL Merger Agreement and the MSL Purchase Agreement, the BSL Purchase
Price and the MSL Purchase Price shall be payable by the purchasers at the
closings thereof as follows:
(a) Fourteen Million Two Hundred Thousand and no/100 Dollars
($14,200,000) of the BSL Proceeds shall be paid in immediately available funds
by wire transfer to the Company; and
(b) Seven Hundred Fifty Thousand and no/100 Dollars ($750,000) of the
BSL Proceeds shall be paid in immediately available funds to an interest bearing
escrow account established at Key Bank of Oregon (the "Escrow Agent") and
designated as the Brim/Senior Living Escrow Account
5
<PAGE> 6
(the "Senior Living Escrow Account") to be held by the Escrow Agent in
accordance with the terms of the escrow agreement executed in conjunction with
the Senior Living Transaction (the "Senior Living Escrow Agreement").
(c) Fifty Thousand and no/100 Dollars ($50,000) of the BSL Proceeds
shall be paid in immediately available funds to an interest bearing escrow
account established with the Escrow Agent and designated as the "Agent/Legal
Fees Escrow Account" to be held and applied by the Escrow Agent in accordance
with the terms of Paragraph 1.04(b)(iii) hereof and with the terms of the Senior
Living Escrow Agreement.
(d) One Million Nine Hundred Fifty Thousand and no/100 Dollars
($1,950,000) of the MSL Proceeds shall be paid in immediately available funds by
wire transfer to the Company.
(e) One Million and no/100 Dollars ($1,000,000) of the MSL Proceeds
shall be paid in immediately available funds to the Senior Living Escrow Account
to be held by Escrow Agent in accordance with the terms of the Senior Living
Escrow Agreement.
(f) Fifty Thousand and no/100 Dollars ($50,000) of the MSL Proceeds
shall be paid into the Agent/Legal Fees Escrow Account to be held and applied by
the Escrow Agent in accordance with the terms of Paragraph 1.04(b)(iii) hereof
and with the terms of the Senior Living Escrow Agreement;
1.03. The Financing. Following the Carryco Merger and the consummation
of the Divestitures, the Company will enter into the Credit Facility.
1.04. The Investment.
(a) Prior to the Closing Date and in anticipation of the consummation
of the Redemption, the Company shall amend its charter to authorize the issuance
of two additional series of preferred stock, one series to be designated Series
A Senior Preferred Stock, having the rights and preferences set forth in Exhibit
D hereto (the "Senior Preferred Stock"), and the other series to be designated
Series B Junior Preferred Stock, having the rights and preferences set forth in
Exhibit E hereto (the "Junior Preferred Stock" and together with the Senior
Preferred Stock, the "New Preferred Stock", all of which shall, by their terms,
be junior in priority to the GECC Preferred Stock until the repurchase of the
GECC Preferred Stock upon consummation of the Redemption.
(b) On the Closing Date, subject to the terms and conditions set forth
herein, the Company shall issue (i) to Purchaser's designees and the Purchaser's
designees shall purchase from the Company 20,000 shares of the Senior Preferred
Stock, for an aggregate purchase price of $20 million, and (ii) to Purchaser
and/or its designees and the Purchaser and/or its designees shall purchase from
the Company such number of shares of the Junior Preferred Stock and shares of
Common Stock as shall be necessary to ensure that there are sufficient funds
available at Closing
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<PAGE> 7
to consummate the redemption of the Redeemable Junior Preferred and the GECC
Preferred in accordance with the terms hereof, which funds are currently
anticipated to be approximately $10,000,000. The aggregate purchase price for
the New Preferred Stock and the common stock to be purchased by Purchaser and
its designees is estimated to be approximately $30,000,000, and is referred to
herein as the "Investment Proceeds." On the Closing Date, the Investment
Proceeds and the First Union Loan Proceeds shall be payable to the Company as
follows:
(i) Sixty Nine Million Eight Hundred Thousand and no/100 Dollars
($69,800,000) shall be paid in immediately available funds by wire transfer to
the Company.
(ii) Four Million and no/100 Dollars ($4,000,000) shall be paid in
immediately available funds to an interest bearing escrow account established by
the Escrow Agent and designated as the "Brim/Principal Escrow Account" to be
held by the Escrow Agent.
(iii) Two Hundred Thousand and no/100 Dollars ($200,000) shall be paid
in immediately available funds to the Agent/Legal Fees Expense Account to be
used by Lee Zinsli, as the agent for the benefit of the former holders of the
Redeemed Preferred Stock and of the GECC Preferred Stock (the "Agent") to pay
any costs and expenses incurred by the Agent in connection with any claims made
under the indemnity provisions hereof and/or under the indemnity provisions of
the Senior Living Escrow Agreement. The funds in the Brim/Principal Escrow
Account shall be disbursed in accordance with the provisions of Article IX
hereof and/or any Escrow Agreement which may be executed pursuant thereto.
(c) Concurrently with the Closing, the Company shall repurchase all of
the GECC Preferred Stock pursuant to the terms of that Preferred Stock
Repurchase Agreement entered into with General Electric Capital Corporation in
the form attached hereto as Exhibit F (the "Preferred Stock Repurchase
Agreement").
1.05. Redemption of the Redeemable Junior Preferred and the GECC
Preferred.
(a) On or immediately prior to the Closing Date, the Company shall call
for redemption all of the then outstanding shares of the Redeemable Junior
Preferred (the "Redeemed Preferred Stock"). Purchaser acknowledges and agrees
that the shares of Redeemable Junior Preferred may include shares of Redeemable
Junior Preferred acquired upon the purchase or the exercise of the Options (as
defined in Paragraph 3.02) and which are described more fully in Section 3.02(a)
of the Company Disclosure Letter in accordance with Paragraph 1.05(b). In
connection with the redemption of the Redeemed Preferred Stock, prior to Closing
each holder will be advised of the procedures for surrendering to Key Bank of
Oregon, the payment agent (the "Payment Agent") the certificates representing
either the common stock which shall be converted into shares of Redeemable
Junior Preferred in accordance with the terms of the Carryco Merger or the
Redeemed Preferred Stock, as applicable. Upon surrender and exchange of a
certificate to the Payment Agent in care of the Agent, the holder will be paid
the amount of cash to which such holder is entitled
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<PAGE> 8
hereunder as a result of the closing of the Transactions less any amount
required to be withheld under applicable federal income tax regulations.
(b) Purchaser further acknowledges and agrees that between the date
hereof and the Closing Date the Board of Directors or the shareholders, as
applicable, of the Company shall have the right to take such action as may be
necessary to either (i) declare any of such Options which are unvested as of the
date hereof or as of the Closing Date to be vested as of the Closing Date (the
"Accelerated Options") and, subject to the terms of the Stock Option Plans under
which such Options were issued or to such other action as may be lawfully taken
by the Board of Directors or shareholders of the Company, each of the holders
thereof may exercise said Accelerated Options on or immediately prior to the
Closing Date and shall in the event of the exercise thereof first receive the
shares of Redeemable Junior Preferred which are due upon the exercise thereof
(which Redeemable Junior Preferred will become part of the Redeemed Preferred
Stock) and thereafter receive the amount due for the Redeemed Preferred Stock
held by such option holder on the Closing Date in accordance with Paragraph
1.05(a) less the exercise price per share provided for in each such Accelerated
Option or (ii) offer to purchase vested and unvested Options for a purchase
price equal to the difference between the price per share owing at Closing to
the holders of the Redeemed Preferred Stock and the exercise price under such
Options, which purchase price shall be due and payable concurrently with the
payment of the redemption price due to the holders of the Redeemed Preferred
Stock (the "Purchased Options").
1.06. The Redemption Price. Based on a continuing investment by the
Carryover Shareholders of Three Million Nine Hundred Fifty Thousand Nine Hundred
Forty and no/100 Dollars ($3,950,940), the aggregate redemption price for the
Redeemed Preferred Stock and the GECC Preferred Stock shall be Eighty Five
Million Nine Hundred Ninety Nine Thousand Sixty and no/100 Dollars ($85,999,060)
(the "Redemption Price").
1.07. Distribution of Redemption Price/Interest in Escrow Accounts.
Prior to the distribution of the Redemption Price the Company shall deduct
therefrom the amount of the Estimated Senior Living Tax Liability (as
hereinafter defined), the Senior Living Smith Barney Fee (as hereinafter
defined), the GECE Payment (as hereinafter defined) and any costs of the Senior
Living Transaction as contemplated by Paragraph 10.14 in excess of $200,000
(collectively, the "Price Adjustments"), and shall pay to the appropriate third
parties the amounts which are the subject of the Price Adjustments as and when
due in accordance with the terms hereof, such that the proceeds distributed to
the holder of the GECC Preferred Stock and the holders of the Redeemed
Preferred Stock in connection with the Closing shall be in the aggregate amount
of Eighty One Million Seven Hundred Ninety Thousand Eight Hundred Nineteen and
no/100 Dollars ($81,790,819) (the "Net Redemption Price") and shall be
allocated between the holder of the GECC Preferred Stock and the holders of the
Redeemed Preferred Stock (the latter of which for purposes hereof shall include
the holders of the Accelerated Options or the Purchased Options) as follows:
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<PAGE> 9
(a) GECC Preferred Stock: Thirty Million Three Thousand One Hundred Six
and no/100 Dollars ($30,003,106), representing an accrued dividend of Two
Million Six Hundred Twenty Four Thousand and no/100 Dollars ($2,624,000) and
Twenty Seven Million Three Hundred Seventy Nine Thousand One Hundred Six and
no/100 Dollars ($27,379,106) as the purchase price for the Seller's Shares.
(b) Redeemed Preferred Stock: Fifty One Million Seven Hundred Eighty
Seven Thousand Seven Hundred Thirteen and no/100 Dollars ($51,787,713);
provided, however, that with respect to the holders of the Accelerated Options
or the Purchased Options, as applicable, the portion of the Net Redemption Price
distributed to them shall, as set forth more fully in Paragraph l.05(b), be
equal to the difference between the price per share owing at Closing to the
holders of the Redeemed Preferred Stock and the exercise price under such
Options, with the excess retained by the Company as the consideration for the
Redeemed Preferred Stock evidenced by said Accelerated Options or Purchased
Options.
The foregoing assumes the costs of the Senior Living Transaction borne
by the holder of the GECC Preferred and the holders of the Redeemed Preferred
Stock equals $500,000, it being understood and agreed that pursuant to Paragraph
10.14, the first $200,000 of such costs shall be borne by the Company and any
excess of such costs shall be borne by the former shareholders of the Company
through an offset against the Redemption Price which is reflected in the Net
Redemption Price. In the event the costs are greater or less than said amount,
the Net Redemption Price shall be reduced or increased respectively on a dollar
for dollar basis by said difference and the amount distributed to each of GECC
and the holders of the Redeemed Preferred Stock shall be adjusted accordingly.
The foregoing also assumes that the Senior Living Tax Liability will be
in an amount equal to the Estimated Senior Living Tax Liability. In the event of
a change in the Senior Living Tax Liability at Closing in accordance with the
final sentence of Paragraph 1.08, the Net Redemption Price shall be reduced or
increased on a dollar for dollar basis by said difference and the amount
distributed to each of GECC and the holders of the Redeemed Preferred Stock
shall be adjusted accordingly.
In addition, after the Closing the former holders of the Redeemed
Preferred Stock, the GECC Preferred Stock, the Accelerated Options and/or the
Purchased Options and the Carryover Shareholders shall have an interest in the
Senior Living Escrow Account, in the Brim/Principal Escrow Account established
under the terms of this Agreement and in the Agent/Legal Fees Expense Account.
The interest of the holders of the Redeemed Preferred Stock and the GECC
Preferred Stock in the Brim/Principal Escrow Account and in the Agent/Legal Fees
Expense Account is set forth more fully in Paragraph IX hereof.
The following table is inserted for purposes of summarizing the amounts
set forth in Paragraphs 1.01 through this Paragraph 1.07:
9
<PAGE> 10
REDEMPTION AND ALLOCATION OF PROCEEDS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Healthcare Senior Living Total Consideration
Transaction Transaction
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Purchaser's Offer $78,000,000 $18,000,000 $96,000,000
- -------------------------------------------------------------------------------
Escrows: 4,200,000 1,850,000 6,050,000
GECC 1,505,644 663,200 2,168,845
Redeemed
Preferred
Shareholders 2,694,356 1,186,800 3,881,155
- -------------------------------------------------------------------------------
Carryover 3,950,940 3,950,940
Shareholders
Investment
- -------------------------------------------------------------------------------
Redemption Price 69,849,060 16,150,000 85,999,060
- -------------------------------------------------------------------------------
Less: Payment for (150,000) (150,000)
CC Release
- -------------------------------------------------------------------------------
Less: Tax on Senior (3,336,598) (3,336,598)
Living Spin Off
- -------------------------------------------------------------------------------
Less: Smith Barney (221,642) (221,642)
Fee
- -------------------------------------------------------------------------------
Less: Payments in (500,000) (500,000)
Excess of $200,000
related to Senior
Living Transaction
- -------------------------------------------------------------------------------
Net Redemption 69,849,060 11,941,759 81,790,819
Price
- -------------------------------------------------------------------------------
Cash to GECC 25,622,543 4,380,563 30,003,106
- -------------------------------------------------------------------------------
Cash to Redeemed
Preferred
Shareholders(1) $44,226,517 $ 7,561,196 $51,787,713
- -------------------------------------------------------------------------------
</TABLE>
- ----------
(1) Approximately $1.7 million of this amount will remain with the Company
after netting the option exercise price under the Accelerated Options and/or
Purchased Options against the price per share due to the holders of the Redeemed
Preferred Stock.
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<PAGE> 11
1.08. Estimated Senior Living Tax Liability. The Company and Purchaser
acknowledge and agree that the cash proceeds distributed to the holders of the
Redeemed Preferred Stock has been calculated based on the agreement of the
Company's and the Purchaser's independent certified public accountants that it
is anticipated that the Company will incur a state and federal tax liability in
the aggregate amount of $3,336,598 (determined based on the Company's financial
statements as of June 30, 1996) in conjunction with the Senior Living
Transaction, which liability will be due and payable in 1997 (the "Estimated
Senior Living Tax Liability"). Purchaser will cause the Company to prepare the
Company's state and federal tax returns for calendar year 1996 (the "1996 Tax
Returns") and upon the completion thereof shall be liable for the payment of
such taxes whether the same are more or less than the estimated Senior Living
Tax Liability and from and after the Closing Date none of the holders of GECC
Preferred Stock and Redeemable Preferred Stock, the Carryover Shareholders or
the purchasers in the Senior Living Transaction shall have any liability
therefor. In addition, the Purchaser acknowledges and agrees that the Company
shall be liable for any and all state and federal income taxes which are due and
payable after Closing or which were due and not paid in full prior to the
Closing Date and which, in either event, relate to periods prior to the Closing
Date with respect to the business which is the subject of the Senior Living
Transaction and that there shall be no adjustment to the amount of the
Investment Proceeds due pursuant to Paragraph 1.04(b) or the redemption price
provided for in Paragraph 1.06 as a result thereof. Notwithstanding the
foregoing, in the event (i) the actual Senior Living Tax Liability is less than
the Estimated Senior Living Tax Liability or (ii) the Company receives a tax
refund with respect to the Senior Living Tax Liability actually paid by it, in
either instance, solely as a result of a deemed reduction in the purchase price
paid with respect to the Senior Living Transaction arising from a claim against
any escrow accounts established at the closing thereof as security for the
indemnity obligations of the Company under the Purchase or Merger Agreements
executed pursuant thereto and the remittance of funds in said escrow to the
purchaser(s) in the Senior Living Transaction, 64.15% of the amount of such tax
savings or tax refund shall be remitted by the Company to the former holders of
the Redeemed Preferred Stock and 35.85% of the amount thereof shall be remitted
by the Company to the former holder of the GECC Preferred Stock. The Company and
Purchaser agree that at or immediately prior to Closing they shall review and
agree upon any necessary adjustments to the amount of the estimated Senior
Living Tax Liability reflected in this Paragraph 1.08 based on the financial
statements of the Company prepared as of the Closing Date.
1.09. GECE Payment. The Company and the Purchaser acknowledge and agree
that the cash proceeds distributed to the holders of the Redeemed Preferred
Stock shall be net of a One Hundred Fifty Thousand and no/100 Dollar ($150,000)
payment which is due to General Electric Credit Equities in connection with the
Senior Living Transaction (the "GECE Payment") and which shall be paid to GECE
concurrently with the closing of the Senior Living Transaction in the manner
agree upon by the Company and GECE.
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<PAGE> 12
ARTICLE II
CLOSING
2.01. Deliveries by the Company at Closing. In the event all of the
conditions to Closing (as defined below) set forth in Paragraphs 8.01 and 8.02
have been satisfied or waived, the Company shall deliver all certificates,
documents, exhibits, schedules, and other instruments required to be delivered
at Closing by the Company or its counsel pursuant to this Agreement, each of
which shall be fully executed and completed, as appropriate.
2.02. Deliveries by Purchaser at Closing. In the event all of the
conditions to Closing (as defined below) set forth in Paragraphs 8.01 and 8.02
have been satisfied or waived, Purchaser shall deliver and/or cause its
designees to deliver all of the certificates, documents, exhibits, schedules,
and other instruments required to be delivered at Closing by Purchaser and/or
its designees or its or their counsel, pursuant to this Agreement, each of which
shall be fully executed and completed, as appropriate and shall remit or cause
(pursuant to the terms of the instructions under which the same was delivered
into escrow prior to the consummation of the Carryco Merger) to be remitted to
the Company the consideration described in Paragraph 1.04.
2.03. Time and Place. The closing (the "Closing") of the Transactions
contemplated by this Agreement shall occur at the Chicago offices of Kirkland &
Ellis at 10:00 am, local time, on December 13, 1996, provided that as of said
date all of the conditions to Closing set forth in Paragraphs 8.01 and 8.02 have
been satisfied by the responsible party or waived by the party benefitted
thereby and thus entitled to waive the same (the "Closing Date"), or at such
other time or on such other date or at such other place as the Company and
Purchaser may mutually agree, but in no event later than December 17, 1996 (the
"Outside Closing Date"). In the event all of the conditions to Closing have not
been satisfied or waived as of the Outside Closing Date, either party shall
thereafter have the right to terminate this Agreement in accordance with the
terms of Article IX hereof.
ARTICLE III
THE COMPANY'S REPRESENTATIONS AND WARRANTIES
Except as otherwise provided in that letter of even date herewith
delivered by the Company to Purchaser concurrently with the execution of this
Agreement, including any and all appendices thereto and updates thereto
authorized by and/or approved by Purchaser in accordance with the terms of
Paragraph 10.08 hereof (the "Company Disclosure Letter"), the Company does
hereby represent and warrant to Purchaser and to Purchaser's designees who
execute a counterpart of this Agreement or a separate certificate pursuant to
Paragraph 4.08(f) as follows with respect to the Company and the Subsidiaries
(other than the Excluded Subsidiaries (as hereinafter defined) and the
business, assets, liabilities and operations thereof, it being understood and
agreed that the Company is not making any representations or warranties with
respect to the Excluded Subsidiaries or the business, assets, liabilities and
operations thereof):
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<PAGE> 13
3.01. Organization and Qualification.
(a) The Company is a corporation duly organized and validly existing
under the laws of the State of Oregon. Each of the Subsidiaries (as defined in
Paragraph 3.01(c) below) is a corporation, partnership or limited liability
company, duly organized and validly existing under the laws of the jurisdiction
reflected opposite its name in Section 3.01(a) of the Company Disclosure Letter.
The Company and each Subsidiary has full corporate or partnership power and
authority to conduct its business as and to the extent now conducted and to own,
use and lease its assets and properties.
(b) The Company and each of the Subsidiaries is duly qualified,
licensed or admitted to do business and is in good standing in each jurisdiction
in which the ownership, use or leasing of its assets and properties, or the
conduct or nature of its business, makes such qualification, licensing or
admission necessary. Section 3.01(b) of the Company Disclosure Letter sets forth
the foreign jurisdictions in which the Company and each of the Subsidiaries is
qualified to do business.
(c) Except for those entities disclosed in Part I of Section 3.01(c) of
the Company Disclosure Letter (individually, a "Subsidiary" and collectively,
the "Subsidiaries"), the Company does not directly or indirectly own any equity
or similar interest in, or any interest convertible into or exchangeable or
exercisable for, any equity or similar interest in, any corporation,
partnership, limited liability company, joint venture or other business
association or entity. For purposes of this Agreement, including, but not
limited to, the representations and warranties, covenants and conditions to
Closing set forth herein, any and all references to the Subsidiaries of the
Company shall specifically exclude those entities disclosed in Part II of
Section 3.01(c) of the Company Disclosure Letter (the "Excluded Subsidiaries"),
it being understood and agreed that immediately prior to the closing of the
Transactions, the Company shall have consummated the Senior Living Transaction
and the Excluded Assets Transaction and that in conjunction with the
consummation of the Senior Living Transaction and the Excluded Assets
Transaction certain stock and partnership interest transfers and/or subsidiary
dissolutions may occur concurrently with the closing of the Senior Living
Transaction and the Excluded Assets Transaction.
3.02. Capital Stock.
(a) As of the date hereof, the authorized capital stock of the Company
consists solely of 10 million shares of Common Stock, without par value, and the
GECC Preferred Stock which consists of 96,000 shares of Series A Preferred
Stock, without par value. The number of issued and outstanding shares of the
Common Stock and the holders thereof are listed in Section 3.02(a) of the
Company Disclosure Letter (the "Common Stock"). All of the shares of the GECC
Preferred Stock are issued and outstanding and are owned by General Electric
Capital Corporation. In addition, as of the date hereof, the Company has
granted those options to purchase shares of the common stock of the Company
listed in Section 3.02(a) of the Company Disclosure Letter to the persons
identified therein (the "Options" and together with the Common Stock and the
Preferred Stock, the "Shares").
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<PAGE> 14
Except as set forth in Section 3.02(a) of the Company Disclosure Letter and
except as specifically contemplated by Article I of this Agreement, there are no
outstanding subscriptions, options, warrants, rights (including "phantom" stock
rights), preemptive rights or other contracts, commitments, understandings or
arrangements, including any right of conversion or exchange under any
outstanding security, instrument or agreement (together, the "Rights"),
obligating the Company or any Subsidiary to issue or sell any shares of its
capital stock or to grant, extend or enter into any Right with respect thereto
nor any voting trusts, proxies or other commitments, understandings,
restrictions or arrangements in favor of any person other than the Company with
respect to the voting of or the right to participate in dividends or other
earnings on any capital stock or other equity security of the Company or any of
the Subsidiaries.
(b) The outstanding shares of Common Stock and GECC Preferred Stock are
duly authorized, validly issued, fully paid and nonassessable.
(c) Except as set forth in Section 3.02(c) of the Company Disclosure
Letter and except for the obligations undertaken by the Company under Article I
hereof and under the Preferred Stock Repurchase Agreement, there are no
outstanding contractual obligations to which the Company is a party to
repurchase, redeem or otherwise acquire any of the Shares.
(d) Except as set forth in Section 3.02(d) of the Company Disclosure
Letter, there are no outstanding obligations by the Company to provide funds in
excess of $100,000 to, or to make any investment (in the form of a loan, capital
contribution or otherwise) in excess of $100,000 in, any other person, excluding
any of the Subsidiaries. Purchaser acknowledges and agrees that Section 3.02(d)
of the Company Disclosure Letter does not include any commitments with respect
to equipment purchases or leases, which are described in Section 3.10(b) of the
Company Disclosure Letter.
(e) The Common Stock and the New Preferred Stock when issued at Closing
to Purchaser and/or its designees shall be duly authorized, validly issued,
fully paid (assuming the payment of the Investment Proceeds therefor by
Purchaser and/or its designee) and non-assessable and shall be issued free and
clear of all Liens (as hereinafter defined).
3.03. Authority Relative to this Agreement. The Company has full
corporate power and authority to enter into this Agreement and each other
instrument, document and agreement necessary to consummate the transactions
contemplated hereby, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly and validly approved by the
Board of Directors of the company, and no other corporate proceedings on the
part of the Company are necessary to authorize the execution, delivery and
performance of this Agreement by the Company and the consummation by the Company
of the transactions contemplated hereby, it being understood and agreed that the
consummation of the Transactions is subject to the approval of the shareholders
of the Company,
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which the Company shall use its best efforts to secure in accordance with the
provisions of Paragraph 7.04(a). This Agreement has been duly and validly
executed and delivered by the Company and, subject to securing the HSR Approval,
the Regulatory Approvals, the Third Party Consents (as each such term is defined
in Article VII) and the shareholder approval contemplated by Paragraph 7.04,
constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally and by
general equitable principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
3.04. Approvals and Consents. Subject to obtaining such consents or
making such filings as may be described in Section 3.04 of the Company
Disclosure Letter and as may be described in Paragraphs 7.02 and 7.03 of this
Agreement, the execution and delivery of this Agreement by the Company does not,
and the performance by the Company of its obligations hereunder and the
consummation of the transactions contemplated hereby will not:
(a) conflict with, result in a violation or breach of, constitute (with
or without notice or lapse of time or both) a default under, result in or give
to any person any right of payment or reimbursement, termination, cancellation,
modification or acceleration of, or result in the creation or imposition of any
liens, claims, mortgages, encumbrances, pledges, security interests, equities
and charges of any kind (each a "Lien") upon any of the assets or properties of
the Company or any of the Subsidiaries under, any of the terms, conditions or
provisions of:
(i) the articles of incorporation or bylaws (or other comparable
charter or organizational documents) of the Company or any Subsidiary,
(ii) any Company Management Contract (as such.term is defined in
Paragraph 3.10(c)),
(iii) any Company Lease (as such term is defined in Paragraph
3.10(c)), or
(iv) (A) any statute, law, rule, regulation or ordinance (together,
"Laws") of any state or of the United States, or any judgment, decree,
order or writ (together, "Orders"), of any court, tribunal,
arbitrator, authority, agency, commission, official or other
instrumentality of the United States or any domestic or foreign state
(a "Governmental or Regulatory Authority"), applicable to the Company
or any of the Subsidiaries or any of its or their respective assets or
properties, or (B) to the knowledge of the Company, any Laws or Orders
of any jurisdiction or governmental authority not specified in clause
(A), or (C) any Company Contract, as defined in Paragraph 3.10(b), or
(D) any Company Permit (as defined in Paragraph 3.09 below).
(b) require any consent, approval or action of, filing with or notice
to any Governmental or Regulatory Authority or other public or private third
party under any of the terms, conditions or
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<PAGE> 16
provisions of any Law or Order of any Governmental or Regulatory Authority to
which the Company or any of the Subsidiaries is a party or by which the Company
or any of the Subsidiaries or any of its or their respective assets or
properties is bound; or
(c) require any consent, approval or action of, filing with or notice
to any Governmental or Regulatory Authority or other public or private third
party under any of the terms, conditions or provisions of any Company Management
Contract, Company Contract or Company Lease to which the Company or any of the
Subsidiaries is a party or by which the Company or any of the Subsidiaries or
any of its or their assets or properties is bound.
3.05. Financial Statements.
(a) The Company has delivered to Purchaser prior to the execution of
this Agreement a true and complete copy of the audited consolidated balance
sheet of the Company and its consolidated Subsidiaries as of December 31, 1995
(the "1995 Financial Statements") and a true and complete copy of the unaudited
consolidated balance sheet of the Company and its consolidated Subsidiaries
(after giving effect to the Excluded Assets Transaction and the Senior Living
Transaction) as of the six months ended June 30, 1996 (the "June 30, 1996
Financial Statements") and the related statements of operations, stockholders'
equity, and cash flows for the fiscal period ended as of each such date, all
such audited financial statements with the reports thereon by KPMG Peat Marwick
LLP (collectively, the "Company Financial Statements").
(b) The Company Financial Statements were prepared in accordance with
GAAP (except as may be indicated therein or in the notes thereto) and fairly
present the consolidated financial position of the Company and its consolidated
Subsidiaries (after giving effect, in the case of the June 30, 1996 Financial
Statements, to the Excluded Assets Transaction and the Senior Living
Transaction) as at the respective dates thereof and the consolidated results of
their operations and cash flows for the respective periods then ended.
(c) The June 30, 1996 financial statements reflect on a Pro Forma basis
the consummation of the Senior Living Transaction and the Excluded Assets
Transaction.
(d) The Company has delivered to Purchaser prior to the execution of
this Agreement a true and correct copy of its interim unaudited consolidated
balance sheet of the Company and its consolidated Subsidiaries as of July 31,
1996, August 31, 1996 and September 30, 1996 and related statements of
operations, stockholder's equity and cash flows for the fiscal periods ended as
of each such date (collectively, the "Interim Financial Statements"). The
Interim Financial Statements fairly present the consolidated financial position
of the Company and its consolidated Subsidiaries (without giving effect to the
Excluded Assets Transaction and the Senior Living Transaction) as at the
respective periods then ended and were prepared in a manner consistent with the
past practices of the Company.
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<PAGE> 17
(e) The Company shall deliver to Purchaser between the date hereof and
the Closing Date, a true and correct copy of its interim unaudited consolidated
balance sheet of the Company and its consolidated Subsidiaries and related
statements of operations, stockholder's equity and cash flows for each month
included therein prepared for any periods subsequent to the periods included in
the Interim Financial Statements (collectively, the "Subsequent Interim
Financial Statements"). The Subsequent Interim Financial Statements will be
prepared in a manner so as to fairly present the consolidated financial position
of the Company and its consolidated Subsidiaries (without giving effect to the
Excluded Assets Transaction and the Senior Living Transaction) as at the
respective periods then ended and consistent with the past practices of the
Company.
3.06. Absence of Certain Changes or Events. Except as set forth in
Section 3.06 of the Company Disclosure Letter or as contemplated by this
Agreement, (a) since June 30, 1996 there has not been any change, event or
development out of the ordinary course of business having, or that would be
reasonably expected to have a continuing, as compared to temporary, adverse
effect on the Company and the Subsidiaries, in any one instance of more than
$100,000 or in the aggregate of more than $500,000 and (b) except as disclosed
in Section 3.06 of the Company Disclosure Letter, (i) between June 30, 1996 and
the date hereof each of the Company and the Subsidiaries has conducted its
businesses only in the ordinary course and with due regard to the proper
maintenance and repair of any real property or personal property owned or leased
by it or them and (ii) between June 30, 1996 and the date hereof, neither the
Company nor any of the Subsidiaries has engaged in any of the transactions
described in Paragraph 5.01(a). Nothing herein shall be construed as requiring
the Company to disclose to Purchaser or its designees general changes in the
health care industry which may, could or would have an affect on the Company
tither prior to or after the Closing, it being understood and agreed that the
Purchaser is, and its designees will be, sophisticated investors in and
purchasers of health care companies and can and will keep themselves advised as
to any such general developments.
3.07. Legal Proceedings. Except as disclosed in Section 3.07 of the
Company Disclosure Letter, there are no actions, suits, arbitrations or
proceedings pending or, to the knowledge of the Company, threatened against,
relating to or affecting, nor are there any Governmental or Regulatory Authority
investigations or audits pending or to the knowledge of the Company threatened
against, relating to or affecting, the Company or any of the Subsidiaries or any
of its or their assets and properties. For purposes hereof disputes with third
party payors over the reimbursement due or paid to the Owned Company Facilities
or the Leased Company Facilities shall not be deemed to be a legal proceeding,
but should be the subject of the disclosure, if any, set forth under Paragraph
3.16.
3.08. Information Supplied. Any documents to be filed by the Company
with any Governmental or Regulatory Authority in connection with this Agreement
and the other transactions contemplated hereby will not, on the date it is filed
or required to be filed, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not misleading, except that no representation is made by the Company
with respect to
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information supplied in writing by or on behalf of Purchaser and/or its
designees expressly for inclusion therein. The Company further represents and
warrants that no representation or warranty by the Company contained in this
Agreement contains or will contain any untrue statement of a material fact, or
omits or will omit to state any material facts required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading.
3.09. Compliance with Laws and Orders.
(a) The Company and each of the Subsidiaries holds all permits,
licenses, variances, exemptions, orders and approvals of all Governmental and
Regulatory Authorities necessary for the leasing, ownership or operation of the
hospitals and other related health care facilities owned (the "Owned Company
Facilities") or leased (the "Leased Company Facilities") by the Company and the
Subsidiaries and for the lawful conduct of the business of the Company and the
Subsidiaries (the "Company Permits") at the Company Facilities (as defined
below). A true and correct list of each of the Owned Company Facilities, each
hospital and related healthcare facility managed by the Company or its
subsidiaries (the "Managed Company Facilities"), the Leased Company Facilities
and any other related health care facilities owned, leased or operated by the
Company, including, but not limited to, outpatient clinics and medical office
buildings, is set forth in Section 3.09 of the Company Disclosure Letter
(collectively, the "Company Facilities").
(b) Each of the Company and the Subsidiaries is in substantial
compliance with the terms of the Company Permits held by it. Except as disclosed
in Section 3.09 of the Company Disclosure Letter, to the knowledge of the
Company, the Company and each of the Subsidiaries is in substantial compliance
with any Law and in full compliance with any Order of any Governmental or
Regulatory Authority applicable to it. For purposes hereof, the Company and the
Subsidiaries shall be deemed to be in substantial compliance with the Company
Permits and with any Law if its failure to comply therewith is the subject of a
plan of correction which has been accepted by the applicable Governmental or
Regulatory Authority.
3.10. Compliance with Agreements: Certain Agreements.
(a) Except as disclosed in Section 3.10(a) of the Company Disclosure
Letter, neither the Company nor any of the Subsidiaries is in breach or
violation of, or in default in the performance or observance of any term or
provision of, and no event has occurred which, with notice or lapse of time or
both, would be reasonably expected to result in a default under:
(i) its articles of incorporation or bylaws (or other comparable
charter documents);
(ii) any Company Management Contract;
(iii) any Company Lease;
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(iv) any Company Partnership Agreement (as defined below); or
(v) any Company Contract.
(b) Except with respect to those agreements listed in Section 3.10(b)
of the Company Disclosure Letter, true and correct copies of which have been
made available to Purchaser prior to the execution of this Agreement, the
receipt of which is hereby acknowledged by Purchaser, or as provided for in this
Agreement, to its knowledge, neither the Company nor any of the Subsidiaries is
a party to, nor are any of its or their assets bound or affected by, any oral or
written agreements of the following nature (the "Company Contracts"):
(i) consulting agreement, contract, arrangement or understanding not
terminable whether with or without penalty on 90 days' or less notice involving
the payment of more than $50,000 per annum individually or $100,000 per annum in
the aggregate for all such agreements;
(ii) union or collective bargaining agreement;
(iii) agreement contract, arrangement, commitment, understanding or
obligation with any Key Employee (as hereinafter defined) of the Company or any
of the Subsidiaries the benefits of which are contingent or vest, or the terms
of which are materially altered, upon the occurrence of a transaction involving
the Company of the nature contemplated by this Agreement;
(iv) agreement, contract, arrangement, commitment, understanding or
obligation with respect to any Key Employee of the Company or any Subsidiary
providing any term of employment or compensation guarantee extending for a
period longer than 90 days after the date hereof and for the payment of more
than $50,000 per annum individually or $100,000 per annum in the aggregate for
all such agreements;
(v) agreement or plan, including any stock option, stock appreciation
right, restricted stock or stock purchase plan, any of the benefits of which
will be increased, or the vesting of the benefits of which will be accelerated,
by the occurrence of any of the transactions contemplated by this Agreement or
the value of any of the benefits of which will be calculated on the basis of any
of the transactions contemplated by this Agreement;
(vi) agreement, contract, arrangement, commitment, understanding or
obligation to which it is a party limiting in any material respect its freedom
or the freedom of any Key Employee to compete in any line of business with any
person;
(v) agreement, contract, arrangement, commitment, understanding or
obligation (i) evidencing any liability (A) in excess of $100,000, or (B) any
liability for the obligations of any person in excess of $100,000 or (C)
regardless of the amount thereof, that is not to be fully performed or that
cannot be terminated whether with or without penalty within ninety (90) days
after
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the Closing Date or (ii) defining the terms on which any other debt in excess of
$100,000 has been or may be issued or incurred; provided, however, that for
purposes of this Paragraph 3.l0(a)(vii), an accrual or third party contractual
allowance reflected on the Company Financial Statements shall not be deemed to
be a liability subject to disclosure under the terms hereof; or
(viii) agreement, contract, arrangement, commitment, understanding or
obligation relating to it, its present or prospective business, operations,
properties or assets in which any Key Employee has any interest, direct or
indirect, including a description of any transactions between it and any Key
Employee or any entity in which any Key Employee has any interest (other than
transactions between any corporation and a publicly held corporation in which
the Key Employee holds less than five percent (5%) of the issued and outstanding
shares of capital stock).
(c) For purposes of this Agreement the following defined terms used in
this Paragraph and elsewhere in this Agreement shall have the meanings set forth
below:
(i) "Company Management Contract" means any agreement to which the
Company or any Subsidiary is a party providing for management,
administrative or other services to be rendered in connection with the
operation, administration, or supervision of any managed Company
Facility, which contracts include as of the date of this Agreement,
those Company Management Contracts listed in Section 3.l0(c) of the
Company Disclosure Letter, true and correct copies of which have been
made available to Purchaser prior to the execution of this Agreement
the receipt of which is hereby acknowledged by Purchaser.
(ii) "Company Lease" means those leases to which the Company or any
Subsidiary is a party with respect to those hospitals and other
related health care facilities listed in Section 3.10(c) of the
Company Disclosure Letter, true and correct copies of which have been
made available to Purchaser prior to the execution of this Agreement,
the receipt of which is hereby acknowledged by Purchaser.
(iii) "Company Partnership Agreement" means those partnership
agreements in which the Company or any Subsidiary holds a general
and/or limited partnership interest listed in Section 3.10(c) of the
Company Disclosure Letter, true and correct copies of which have been
made available to Purchaser prior to the execution of this Agreement,
the receipt of which is hereby acknowledged by Purchaser.
(iv) "Key Employee" means all officers, managers and other employees
and consultants of the Company or any Subsidiary whose current annual
salary or rate of compensation (including bonus and incentive
compensation) is $100,000 or more, as set forth more fully in Section
3.10(c) of the Company Disclosure Letter.
3.11. Taxes. The Company has filed all tax returns which are required
to have been filed in any jurisdiction with respect to the Company and each of
the Subsidiaries, and has paid, before
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they have become delinquent, all taxes shown to be due and payable on such
returns and, to the knowledge of the Company, all other taxes and assessments
payable by the Company on behalf of itself or any of the Subsidiaries, to the
extent the same have become due and payable, except for any taxes and
assessments the amount, applicability or validity of which is currently being
contested in good faith by appropriate proceedings and with respect to which the
Company has set aside on its books reserves to the extent required by, and
segregated in accordance with, GAAP. Except as set forth in Section 3.11 of the
Company Disclosure Letter, (i) the Company has no knowledge of any proposed
material tax assessment against the Company or any of the Subsidiaries. (ii) to
the knowledge of the Company all tax liabilities of the Company and the
Subsidiaries are adequately provided for on the books of the Company and (iii)
to the knowledge of the Company all of the tax returns previously filed by the
Company and which, as of the date hereof, have not been audited by the
applicable Governmental or Regulatory Authority having jurisdiction thereof,
were true and correct in all material respects at the time filed by the Company.
The Company has not received any notice of any past due or unpaid tax or
assessment which as of the date hereof has not either been paid or is being
contested in good faith by appropriate proceedings and with respect to which the
Company has set aside on its books reserves to the extent required by, and
segregated in accordance with, GAAP.
3.12. Employee Benefit Plans: ERISA.
(a) Section 3.12 of the Company Disclosure Letter sets forth a list of
all of the bonus, deferred and incentive compensation, profit sharing,
retirement, vacation, sick leave, leave of absence, hospitalization, severance
and fringe benefit plans, all "employee pension benefit plans" (as defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) and all "employee welfare benefit plans" (as defined in Section 3(1)
of ERISA) which the Company maintains, to which the Company contributes or has
an obligation to contribute, or with respect to which the Company has any
liability or reasonable expectation of liability, whether or not any such plan
has terminated and whether or not any such plan is or was maintained or
contributed to by any current or former member of the Company's Controlled Group
(within the meaning of Section 414 of the IRC) (the "Plans").
(b) With respect to each of the Plans, the Company further represents
and warrants as follows:
(i) None of the Plans (A) is subject to Title IV of ERISA or the
minimum funding requirements of Section 412 of the Internal Revenue
Code of 1986, as amended (the "IRC") or Section 302 of ERISA, (B) is a
plan of the type described in Section 4063 of ERISA or Section 413(c)
of the IRC, (C) is a "multi employer plan" (as defined in Section 3(37)
of ERISA) or (D) provides for medical or life insurance benefits to
current or future retired or former employees of the Company (other
than as required under IRC Section 4980B or applicable state law).
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(ii) Each Plan is, in all material respects, in compliance, and has
been administered, maintained and funded in all material respects in
accordance with the applicable provisions of ERISA and the IRC and all
other applicable laws, rules and regulations, including, but not
limited to, medical continuation under IRC Section 4980B. None of the
Company, any Controlled Group member, any fiduciary or, to the
knowledge of the Company, any other person has, with respect to any
Plan, (A) engaged in any transaction prohibited by ERISA, the IRC or
other applicable law; (B) breached any fiduciary duty owed by it; or
(C) failed to file and distribute timely and properly all reports and
information required to be filed or distributed in accordance with
ERISA or the IRC.
(iii) All contributions, premiums or payments which are due on or
before the Closing Date with respect to the Plans have been timely, or
will have been prior to the Closing Date, paid.
(iv) Each Plan which is intended to be qualified under Section 401(a)
of the IRC (A) has been timely amended to reflect all requirements of
the Tax Reform Act of 1986 ("TRA 86") and all subsequent legislation
which is required to be adopted prior to the end of the TRA 86 remedial
amendment period and (B) has received from the Internal Revenue Service
a favorable determination letter which considers the terms of the Plan
as amended for such tax law changes. To the best knowledge of the
Company, nothing has occurred since the date of such letter that could
adversely affect the qualified status of such Plan or the tax-exempt
status of any related trust.
(v) No under funded defined benefit plan has been, during the five
years preceding the Closing Date, transferred out of the Company's
Controlled Group.
(vi) Except as set forth in Section 3.12 of the Company Disclosure
Letter, the Company has not incurred, and has no reason to expect that
it will incur, any material liability to the Internal Revenue Service,
the Department of Labor, the Pension Benefit Guaranty Corporation, any
multi employer plan or otherwise under Title IV of ERISA (including any
withdrawal liability) or under the IRC with respect to any Plan or any
other plan that the Company or any member of its Controlled Group
maintains or ever has maintained or to which any of them contributes,
ever has contributed, or ever has been required to contribute.
(vii) Purchaser acknowledges and agrees that the Company has made
available to Purchaser a copy of each Plan and the Company represents
and warrants that each Plan so provided was a true, complete and
correct copy, to the extent applicable, of (A) all documents pursuant
to which the Plans are maintained, funded and administered, (B) the
three most recent annual reports (Form 5500 series) filed with the
Internal Revenue Service (with attachments), (C) the three most recent
financial statements, and (D) all governmental rulings, determinations,
and opinions (and pending requests for governmental rulings,
determination, and opinions).
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(c) Nothing in this Paragraph 3.12 shall be construed as a
representation or warranty by the Company with respect to any liability which
the Company or Purchaser may incur under any or all of the Plans as a result of
the acts or omissions of the Company or Purchaser in connection with the Plans
after the Closing.
3.13. Labor Matters. Except as set forth in Section 3.13 of the Company
Disclosure Letter, no unfair labor practice complaint for sex, age, race or
other discrimination claim has been brought against the Company or any of the
Subsidiaries in connection with its or their business before the National Labor
Relations Board, the Equal Employment Opportunity Commission or any other
Governmental Body during the three-year period ending as of the Closing Date nor
has the Company or any of the Subsidiaries received written notice of the
intention of any person to file any such claim which remains unresolved as of
the date hereof.
3.14. Environmental Matters.
(a) Except as disclosed in Section 3.14 of the Company Disclosure
Letter, which section contains all of the Phase I Assessments of the Leased
Facilities which were prepared by or at the direction of the Company prior to
the date thereof and which section Purchaser acknowledges and agrees contains
all of the Phase I Assessments of the Leased Facilities which were prepared by
or at the direction of Purchaser: (i) the Company complies with all applicable
Environmental Laws and possesses and complies with all applicable Environmental
Permits required under such laws to operate as it presently operates; (ii) to
the knowledge of the Company, no events are likely to occur between the date
hereof and the Closing Date at any of the Owned Company Facilities or Leased
Company Facilities that would prevent compliance with, or materially increase
the burden on the Company of complying with, applicable Environmental Laws or
Environmental Permits required under such laws; (iii) there are no Materials of
Environmental Concern in conditions and concentrations at any of the Owned
Company Facilities or Leased Company Facilities, that are reasonably expected to
give rise prior to Closing to liability of the Company under any Environmental
Law; and (iv) the Company has not received any written notification alleging
that it is liable for, or request for information pursuant to Section 104(e) of
the Comprehensive Environmental Response, Compensation and Liability Act
concerning, disposal of Materials of Environmental Concern at any location.
(b) For purposes of this Agreement the following defined terms used in
this Paragraph and elsewhere in this Agreement shall have the meanings set forth
below:
(i) "Environmental Laws" shall mean all Federal, state, or local
statutes, regulations, ordinances, codes, or decrees protecting the
quality of the ambient air, soil, surface water or groundwater, in
effect as of or, to the extent applicable, at any time prior to, the
date of this Agreement.
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(ii) "Environmental Permits" shall mean all permits, licenses,
registrations, and other authorizations required under applicable
Environmental Laws.
(iii) "Environmental Report" shall mean any report, study, assessment,
audit, or other similar document that addresses any issue of
noncompliance with, or liability under, any Environmental Law that may
affect the Company.
(iv) "Materials of Environmental Concern" shall mean any hazardous,
acutely hazardous, or toxic substance or waste defined and regulated
as such under the Environmental Laws, including without limitation the
federal Comprehensive Environmental Response. Compensation and
Liability Act and the federal Resource Conservation and Recovery Act.
(c) Nothing in this Paragraph 3.14 shall be construed as a
representation or warranty by the Company with respect to any liability which
the Company or Purchaser may incur under the Environmental Laws or any costs
which the Company or Purchaser may incur in complying with the Environmental
Laws as a result of either (i) changes in the Environmental Laws after the
Closing Date or(ii) the acts or omissions of the Company or Purchaser after the
Closing Date, including, but not limited to, any acts which result in the
release of Materials of Environmental Concern which may be present at any of the
Leased Company Facilities or Owned Company Facilities as of the date hereof but
which, as of the date hereof, are in a condition or quantity which do not
require the Company to secure any Environmental Permits or to take any other
action to be in compliance with the Environmental Laws with respect thereto.
3.15. Brokers or Finders. The Company represents that no agent, broker,
investment banker, financial advisor or other firm or person is or will be
entitled to any broker's or finder's fee or any other commission or similar fee
in connection with any of the transactions contemplated by this Agreement, other
than Smith Barney, which has acted as a financial advisor to the Company with
respect to the Transactions and which shall be compensated by the Company at
Closing for its services rendered in connection therewith. The Company further
represents and warrants that the fee due to Smith Barney shall be based on the
total consideration paid to the Company pursuant to this Investment Agreement
and any documents executed in connection with the Senior Living Transaction and
that, although the Company shall be required to pay in its entirety the fee due
to Smith Barney, the Company shall only be economically responsible for the
portion of the fee allocated to the Transactions which are the subject of this
Agreement, it being understood and agreed that the portion of the fee allocable
to the Senior Living Transaction (the "Senior Living Smith Barney Fee") shall
effectively be paid by the shareholders of the Company in that the same is
included in the Purchase Price Adjustments and accordingly shall be deducted
from the proceeds to which they are otherwise entitled prior to the distribution
thereof in accordance with Article I. The Company acknowledges and agrees that a
breach of its obligations under this Paragraph 3.15 shall survive the Closing.
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3.16. Cost Reports. The Company and each Subsidiary has duly and timely
filed all cost reports which are required as of the date hereof to be filed by
it in connection with the operation of the Company Facilities. A true and
correct list of all such cost reports which have been filed by the Company and
each Subsidiary and provided to Purchaser as of the date hereof is set forth in
Section 3.16 of the Company Disclosure Letter, the receipt of which cost reports
is hereby acknowledged by Purchaser. To the knowledge of the Company, all of
such cost reports are true, correct and complete in all material respects and,
except as set forth in Section 3.16 of the Company Disclosure Letter have been
prepared in all material respects in accordance with the requirements of the
Medicare and/or Medicaid Act, as applicable. Nothing herein shall be construed
as a representation or warranty by the Company with respect to the filing of the
cost reports with respect to the Managed Company Facilities.
3.17. Tangible Property and Assets.
(a) The Company and the Subsidiaries have good and marketable title to,
or have valid fee simple title or leasehold interests in, as applicable, or
valid rights under contract to use, all tangible property and assets owned
and/or used in and, individually or in the aggregate, material to the conduct of
its or their businesses (including all tangible property and assets reflected on
the latest audited balance sheet included in the Company Financial Statements,
other than property or assets disposed of since such date or held subject to a
lease or other contract permitted to expire in accordance with its terms since
such date, in either case in the ordinary course of business,) which property
and assets include the Company's corporate office building located in Portland,
Oregon, which the Company represents and warrants is the only real property
owned by it as of the date here of (the "Tangible Property and Assets").
(b) The Company's title to the Tangible Property and Assets described
in clause (a) is free and clear of all Liens other than (i) any statutory Lien
arising in the ordinary course of business by operation of law with respect to a
liability that is nor yet due or delinquent and (ii) any imperfection of title
or similar Lien which individually or in the aggregate with other such Liens
does not materially impair the value of the property or asset subject to such
Lien or the use of such property or asset in the conduct of the business of the
Company and the Subsidiaries taken as a whole and (iii) any Lien which shall be
satisfied and released of record as of the Closing Date. All such property and
assets are, in all material respects, in good working order and condition,
ordinary wear and tear excepted, and, to the knowledge of the Company, adequate
and suitable for the purposes for which they are presently being used.
(c) On the date hereof and on the Closing Date, the inventory and
consumable supplies located at and used in connection with the operation of the
Leased Company Facilities are and shall be in a good and useable condition and
sufficient in quantity and quality to operate such Leased Company Facilities in
a manner consistent with the past practices of the Company.
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(d) Neither the Company nor any of the Subsidiaries has received notice
of any pending or threatened condemnation or taking by power of eminent domain
or otherwise of any of the Tangible Assets or Property or, with respect to the
Company's corporate office, any notice of any tax or special lien or assessment
which would not be paid in full by the Closing Date.
(e) Except as set forth in Section 3.17(e) of the Company Disclosure
Letter, neither the Company nor any of the Subsidiaries has notice that any of
the Tangible Assets or Property is not in compliance with applicable building or
zoning codes and ordinances.
3.18. Certification and Accreditation. Except as otherwise set forth in
Section 3.l8 of the Company Disclosure Letter, the Leased Company Facilities are
certified to participate in Medicare and/or Medicaid and are duly accredited by
the Joint Commission on Accreditation of Healthcare Organizations, subject to no
contingencies other than those set forth in the correspondence described in
Section 3.18 of the Company Disclosure Letter. Purchaser acknowledges and agrees
that it has been provided with copies of the correspondence described in Section
3.18 of the Company Disclosure Letter and the Company represents and warrants
that it provided Purchaser with true and correct copies of the correspondence
described in Section 3.18 of the Company Disclosure Letter. Nothing herein shall
be construed as a representation or warranty by the Company with respect to the
certification or accreditation of the Managed Company Facilities, which
certification and accreditation is in the name of the owner of such Managed
Company Facilities and not in the name of the Company. As of the date hereof,
the Company has not received any written or verbal notice of any action,
investigation or other proceeding which has not been resolved as of the date
hereof to revoke, terminate or not renew any such certification or accreditation
with respect to the Leased Company Facilities.
3.19. Insurance. Section 3.19 of the Company Disclosure Letter sets
forth the insurance policies covering the Company's operations with respect to
the Leased Company Facilities and the Managed Company Facilities in effect as of
the date hereof, including the policy numbers, terms, identity of the insurers
and amounts and nature of coverage. All of such policies are now and will be
until Closing in full force and effect, with no premium arrearages. Purchaser
acknowledges and agrees that copies of all such policies and any endorsements
thereto with respect to the Leased Company Facilities and copies of any
endorsements with respect to the Managed Company Facilities have been made
available to Purchaser prior to the date hereof and the Company represents and
warrants that all such policies and endorsements made available to Purchaser
were true and correct.
3.20. Payments. Neither the Company nor any of the Subsidiaries has,
directly or indirectly, paid or delivered or agreed to pay or deliver any fee,
commission, or other sum of money or item or property, however, characterized,
to any person, government official or other party related to the businesses of
the Leased Company Facilities or the Managed Company Facilities which was, at
the time paid or delivered, illegal under any applicable federal, state or local
law.
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3.21. Intellectual Property.
(a) Neither the Company nor any of the Subsidiaries has received
protection under federal or state law of any trademarks, trade names, logos,
service marks, patents, patent rights, assumed names, trade secrets or
copyrights used by them in their business.
(b) The Company has filed a service mark application with the United
States Patent and Trade Mark Office for the logo utilized by the Nurse Call
Center operated by the Health Direct Program, and has filed a trademark
application with the United States Patent and Trademark Office for the
"HealthDirect" trademark but has not received any final determinations as of the
date hereof with respect to either such service mark or trademark filings.
(c) The Company has implemented, and is actively engaged in, a program
designed to monitor the compliance at the corporate office of the Company with
applicable laws governing the licensure of the computer hardware and software
used by them in their businesses. Such a compliance program has not yet been
implemented at the Leased Facilities and is not anticipated to be implemented at
the Managed Facilities. Nothing herein shall be construed as a representation or
warranty by the Company that the use by the Company and the Subsidiaries is in
full compliance with all applicable hardware and software licensure laws and/or
that the trademarks, trade names, logos, service marks, patents, patent rights,
assumed names, trade secrets or copyrights used by the Company do not infringe
on or violate the rights of any third parties; provided, however, that the
Company does hereby represent and warrant that, except as set forth in Section
3.21 of the Company Disclosure Letter with respect to certain copyright
violations which have been corrected as of the date hereof, it has not received
notice of, nor does it have actual knowledge of, any such infringement or
claimed infringement.
ARTICLE IV
PURCHASER'S AND PRINCIPAL'S
REPRESENTATIONS AND WARRANTIES
Purchaser hereby represents and warrants to the Company and to the
Carryover Shareholders as follows:
4.01. Organization. Purchaser is a limited partnership organized and in
good standing under the laws of the State of Delaware.
4.02. Authority Relative to this Agreement. Purchaser has full power
and authority to enter into this Agreement and each other instrument, document
and agreement necessary to consummate the transactions contemplated hereby, to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement
by Purchaser and the consummation by Purchaser of the transactions contemplated
hereby have been duly and validly approved by Purchaser, and no other
proceedings on the part of Purchaser or its
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general or limited partners are necessary to authorize the execution, delivery
and performance of this Agreement by Purchaser and the consummation by
Purchaser of the Transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by Purchaser and, subject to obtaining the
HSR Approval, the Third Party Consents and Regulatory Approvals described in
Paragraphs 7.02 and 7.03, constitutes a legal, valid and binding obligation of
Purchaser enforceable against Purchaser in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
4.03. Approvals and Consents. Subject to obtaining the HSR Approval,
and the Third Party Consents and Regulatory Approvals described in Paragraphs
7.02 and 7.03, the execution and delivery of this Agreement by Purchaser does
not, and the performance by Purchaser of its obligations hereunder and the
consummation of the transactions contemplated hereby will not:
(a) conflict with, result in a violation or breach of, constitute (with
or without notice or lapse of time or both) a default under, result in or give
to any person any right of payment or reimbursement, termination, cancellation,
modification or acceleration of, or result in the creation or imposition of any
Lien upon any of the assets or properties of Purchaser under any of the terms,
conditions or provisions of:
(i) the organizational documents of Purchaser;
(ii) any material contract or agreement to which Purchaser is a party
or by which the assets of Purchaser may be bound or affected; or
(iii) (A) any Laws of any state or of the United States or Orders of
any court, tribunal, arbitrator or Governmental or Regulatory
Authority, applicable to Purchaser or any of its assets or properties,
(B) to the knowledge of Purchaser, any Laws or Orders of any
jurisdiction or governmental authority not specified in clause (A), or
(C) any contracts to which Purchaser is a party or by which Purchaser
or any of its assets or properties is bound.
(b) require any consent, approval or action of, filing with or notice
to any Governmental or Regulatory Authority or other public or private third
party under any of the terms, conditions or provisions of any Law or Order of
any Governmental or Regulatory Authority to which Purchaser or any of the
Purchasers' Subsidiaries is a party or by which Purchaser or any of its assets
or properties is bound; or
(c) require any consent, approval or action of, filing with or notice
to any Governmental or Regulatory Authority or other public or private third
party.
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4.04. Information Supplied. Any documents to be filed by Purchaser with
any Governmental or Regulatory Authority in connection with this Agreement and
the other transactions contemplated hereby will not, on the date it is filed or
required to be filed, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading, except that no representation is made by Purchaser with
respect to information supplied in writing by or on behalf of the Company or the
Subsidiaries expressly for inclusion therein. Purchaser further represents and
warrants that no representation or warranty by Purchaser contained in this
Agreement contains or will contain any untrue statement of a material fact, or
omits or will omit to state any material facts required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading.
4.05. Brokers or Finders. Purchaser represents that no agent, broker,
investment banker, financial advisor or other firm or person has been engaged by
it and is or will be entitled to any broker's or finder's fee or any other
commission or similar fee from it in connection with any of the Transactions
contemplated by this Agreement.
4.06. Financing. Purchaser will provide the Company with any and all
documents evidencing, securing or otherwise executed in connection with the
Investment and the Credit Facility (the "Financing Transactions"). Both prior to
and after the execution of the documents evidencing the Financing Transactions,
Purchaser will further provide the Company, upon request, with periodic updates
with respect to the status of such Financing Transactions. As of the date
hereof, Purchaser has no actual knowledge of any facts or circumstances which
would prevent the Financing Transactions from being consummated on or prior to
the Outside Closing Date with the exception of the consents which may be
required under the Credit Facility from the landlords of the Leased Company
Facilities.
4.07. Due Diligence. Purchaser and its agents have had such access to
the Company and the Subsidiaries and the books, records and facilities thereof
as they deemed to be necessary to conduct a due diligence investigation with
respect to the Company and the Subsidiaries in order to enter into this
Agreement and to carry out the Transactions provided for herein. As of the date
hereof, Purchaser and its agents do not have actual knowledge of any facts or
circumstances with respect to the Company or any of the Subsidiaries which would
prevent them from consummating the Transactions on the terms and conditions
provided for herein, including, but not limited to, for the Investment Proceeds
provided for in Paragraph 1.04(b).
4.08. Investment Representations.
(a) The terms of the Investment provided for in Paragraph 1.04 have
been independently negotiated between the parties hereto and all the various
terms and provisions of this Agreement and all exhibits and schedules hereto
have been agreed to by Purchaser based upon its own deliberations, judgements
and business experience, independent of any material statement, whether or fact
or
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opinion, by the Company or its officers, directors, agents or employees, other
than the representations, warranties and covenants of the Company and the
Subsidiaries set forth in this Investment Agreement.
(b) Purchaser is making the Investment for investment purposes only and
not with the intent to resell the same. The Company has disclosed to such
Purchaser that the common stock and the New Preferred Stock being acquired by
Purchaser and/or by Purchaser's designees, has not been registered under the
Securities Act of 1933, as amended, or in any state in which it may be offered
for sale.
(c) Purchaser is an "accredited investor", as defined by Rule 501
promulgated under the Securities Act of 1933, as amended.
(d) Purchaser has, or prior to Closing will have, been furnished with
sufficient written information about the Company and the Subsidiaries and their
respective assets and liabilities to allow such Purchaser to make an informed
investment decisions prior to his or its investment.
(e) Purchaser's investment is not being made for the purpose of
speculating in securities.
(f) In the event of an assignment by Purchaser of any or all of its
rights and obligations hereunder with respect to the Investment, Purchaser will
cause its designees to either execute a counterpart of this Investment Agreement
or a separate certificate, which in either event confirms on behalf of each such
designee of the truth as applied to such designee of the representations and
warranties set forth in this Paragraph 4.08.
Principal hereby represents and warrants to the Company and to the
Carryover Shareholders as follows:
4.01A. Financing. Principal will provide the Company with any and all
documents concerning the Financing Transactions as and when executed. Both prior
to and after the execution of the documents evidencing the Financing
Transactions, Principal will further provide the Company, upon request, with
periodic updates with respect to the status of such Financing Transactions.
Principal has paid any and all commitment fees required as of the date hereof
for the lenders to proceed with the Financing Transactions. As of the date
hereof, Principal has no actual knowledge of any facts or circumstances which
would prevent the Financing Transactions from being consummated on or prior to
the Outside Closing Date with the exception of the consents which may be
required under the Credit Facility from the landlords of the Leased Company
Facilities.
4.02A. Due Diligence. Principal and its agents have had such access to
the Company and the Subsidiaries and the books, records and facilities thereof
as they deemed to be necessary to conduct a due diligence investigation with
respect to the Company and the Subsidiaries in order to enter into this
Agreement and to carry out the Transactions provided for herein. As of the date
hereof,
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Principal and its agents do not have actual knowledge of any facts or
circumstances with respect to the Company or any of the Subsidiaries which would
prevent the Transactions from being consummated on the terms and conditions
provided for herein, including, but not limited to, for the amount of the
Investment Proceeds provided for in Paragraph 1.04(b).
ARTICLE V
COMPANY COVENANTS
5.01. Pre Closing. The Company covenants that between the date hereof
and the Closing:
(a) Except as contemplated by this Agreement (including the Company
Disclosure Letter) or with the consent of either Purchaser or Principal, which
consent shall not be unreasonably withheld, conditioned or delayed and which
approval shall be deemed to have been given if not denied within four (4)
business days after Purchaser's and Principal's receipt of a written approval
request from the Company directed to Purchaser and to the Chief Executive
Officer or Chief Financial Officer of Principal, the Company or the
Subsidiaries, as applicable, will operate the businesses which are the subject
of the Transactions only in the ordinary course of business and with due regard
to the proper maintenance and repair of any real property or personal property
owned or leased by it or them. In furtherance and not in limitation of the
foregoing:
(i) Neither the Company nor any Subsidiary will make any material
change in the operation of the business of, nor, except in the
ordinary course of the business of owning and/or operating, as
applicable, the Company Facilities, sell or agree to sell any items of
machinery, equipment or other fixed assets of any of the Company
Facilities having a value in any one instance of $100,000 or more or
having a value of $500,000 or more in the aggregate nor otherwise
enter into any agreements affecting any of the Company Facilities
having a value in any one instance of $100,000 or more or having a
value of $500,000 or more in the aggregate;
(ii) Neither the Company nor any Subsidiary will enter into any
contract or commitment affecting any of the Company Facilities or the
assets or liabilities reflected in the Company Financial Statements
except in the ordinary course of business or as otherwise specifically
permitted by this Paragraph 5.01 nor, except as specifically
contemplated by this Agreement, will the Company or any Subsidiary
declare or pay any dividend or other distribution other than
distributions in the ordinary course of business from a Subsidiary to
the Company or from one Subsidiary to another Subsidiary; provided,
however, that nothing herein shall be construed as prohibiting the
Company prior to the Closing Date from engaging in any or all of the
following activities:
(A) selling, transferring or conveying to a newly formed legal entity
which it contemplates will be owned by certain of the shareholders of
the Company, those assets and liabilities listed in Section 7.01 of
the Company Disclosure Letter (the "Excluded Assets")
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for a cash purchase price of $406,500 plus (i) the assumption of that
mortgage dated November 20, 1990 executed by Brim Senior Living, Inc.
in favor of US National Bank of Oregon and (ii) the assumption of any
and all liabilities with respect to the Excluded Assets whether the
same relate to the period prior to or after the Closing of the
Excluded Assets Transaction,
(B) selling, transferring or conveying the assets and/or stock
interests described in Exhibit G hereof hereto necessary to consummate
the Senior Living Transaction for an aggregate cash purchase price of
$18,000,000 plus an amount equal to all Excluded Subsidiary Loans made
with the approval of Encore to BSL or MSL prior to or after the date
hereof:
(C) continuing to advance funds on an intercompany loan basis from the
Company to the Subsidiaries, from the Subsidiaries to the Company and
from the Company with respect to the Excluded Assets and the Senior
Living Transaction (the latter of which is hereinafter defined as the
"Excluded Subsidiary Loans"; provided, however, that the Company shall
cause the Excluded Subsidiaries to repay at Closing the Excluded
Subsidiary Loans and shall provide Purchaser with evidence thereof as
required by Paragraph 5.02(j); and provided, further, that the Company
shall use the portion of the proceeds of the Senior Living Transaction
specifically allocated thereto to repay the Excluded Subsidiary Loans
made with respect to BSL, MSL or the Excluded Assets;
(D) paying at Closing any intercompany liabilities owing from the
Company to the subsidiaries involved in the Senior Living Transaction
which intercompany liability as of June 30, 1996 was owing solely to
Brim Senior Living, Inc. and was in the amount of $2,198,785.00;
(E) converting at Closing the investment of the Company in MSL from a
loan to an equity contribution, which investment as of June 30, 1996
was, and on the Closing Date will be, $5,155,264. The Company and
Purchaser acknowledge and agree that it is anticipated that additional
funds will be advanced by the Company prior to Closing to MSL. The
Company covenants and agrees that all of such advances shall be in the
form of intercompany loans and not investments and the Company shall
cause the same to be repaid at Closing and evidence thereof to be
delivered to Purchaser as required by Paragraph 5.02(j); provided,
however, that the Company shall use the portion of the proceeds of the
Senior Living Transaction specifically allocated thereto to repay the
same;
(F) distributing to the non-facility based employees of the Company at
or immediately prior to Closing the incentive compensation funds
reserved on the Company Financial Statements, which reserves as of the
Closing Date shall not exceed $793,829; and
(G) making severance payments to, and the vesting of matching 401(k)
contributions which would not otherwise vest for the benefit of,
employees of the Company terminated by
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the Company or by Purchaser prior to or after the Closing Date in
conjunction with or as a result of the transaction contemplated
herein; provided, however, that all such severance payments shall be
in accordance with the Company's severance policy in effect as of the
date of the execution of this Agreement or those specific severance
agreements described in Section 3.10(b) of the Company Disclosure
Letter.
(iii) The Company or the Subsidiaries, as applicable, will maintain
its and their assets in substantially the same condition as they are
in at the date hereof, ordinary wear and tear, insured casualty loss
and taking by eminent domain excepted.
(iv) The Company will promptly provide the Purchaser with the
Subsequent Interim Financial Statements as and when the same are
available.
For purposes of this Paragraph 5.01(a), the Company and the
Subsidiaries shall be deemed to be acting in the ordinary course of business if
the act, event or occurrence, including any changes or expenditures which are
the subject thereof, are reflected in the Company's 1996 Budget described in
Section 5.01(a) of the Company Disclosure Letter, a true and correct copy of
which has been provided to Purchaser, the receipt of which is acknowledged by
Purchaser. In addition, the execution and/or renewal of any Management Contracts
by the Company or any of the Subsidiaries between the date hereof and the
Closing Date shall be deemed to be in the ordinary course of the business of the
Company and the Subsidiaries and accordingly shall not require the approval of,
but shall require reasonable notice to, Purchaser of the execution and delivery
of any such Management Contracts; provided, however, that in the event any such
Management Contracts contemplate the advance of funds by the Company or any
Subsidiary to the owner of the relevant facility or health care entity, whether
by loan or capital contribution or otherwise, in excess of $100,000 in any one
instance or $500,000 in the aggregate, the approval of Purchaser shall be
required in accordance with the terms of this Paragraph 5.01.
(b) During normal business hours, the Company will provide Purchaser
and its agents and employees with access on twenty-four (24) hours notice to the
books and records of the Company and the Subsidiaries provided they do not
interfere with the operations of the Company and the Subsidiaries;
(c) Subject to the limitations set forth in Paragraph 7.04(a), the
Company will use its reasonable efforts to cause all of the conditions to
Closing set forth in Paragraphs 8.01 and 8.02 which are within the Company's
control to be satisfied prior to the Outside Closing Date and the Company will
not take, not permit any Subsidiary to take, any action inconsistent with its or
their obligations under this Agreement or which could hinder or delay the
consummation of the transactions contemplated by this Agreement or which is
intended to cause any representation, warranty or covenant made by the Company
in this Agreement or in any certificate, list, exhibit, or other instrument
furnished or to be furnished pursuant hereto, or in connection with the
transaction contemplated hereby, to be untrue in any material respect as of the
Closing Date;
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(d) Except with respect to the Excluded Assets Transaction and the
Senior Living Transaction, neither the Company nor any of its officers,
directors, advisors or others authorized to act on its behalf shall directly
initiate or solicit discussions relating to any alternative acquisition proposal
or similar transaction including, without limitation, a merger or other business
combination involving the Company and/or the Subsidiaries, or offer to acquire
or convey in any manner, directly or indirectly, all or substantially all of the
equity interests in, the voting securities of, or the assets of the Company or
any of the Subsidiaries; provided, however, that public announcements of the
transaction contemplated by this Agreement and responses to inquiries received
thereafter shall not be prohibited hereby and that the Company shall not be
deemed to be in breach of its obligations hereunder in the event the Board of
Directors determines in the exercise of its fiduciary duties that the Company is
required to provide information in response to any acquisition or merger
proposals or discussions which are initiated by a third party;
(e) Except as specifically contemplated herein the Company will not
materially amend or permit any Subsidiary to materially, amend its or their
Articles of Incorporation or Bylaws;
(f) Except with respect to the New Preferred Stock and the Common Stock
to be issued to Purchaser and/or its designees pursuant to Paragraph 1.02 and
the shares of Redeemable Junior Preferred Stock issued upon the consummation of
the Carryco Merger and upon the exercise prior to or at Closing of vested
Options, the Company will not issue or cause to be issued any additional shares
of the Company's common stock or preferred stock;
(g) Neither the Company nor any Subsidiary will agree to do or to cause
to be done any of the acts which it has covenanted not to do under this
Paragraph 5.01;
(h) The Company will use its best efforts to secure professional
liability insurance with respect to the services rendered by it to the Managed
Company Facilities in such amounts as may be reasonably acceptable to Purchaser,
which coverage shall include a prior acts insurance policy for periods prior to
the effective date thereof during which no such coverage was in effect;
(i) From and after the satisfaction or deemed satisfaction of the
condition to Closing set forth in Paragraph 8.01(p), the Company shall not amend
or modify in any respect any of the BSL Merger Agreement the Excluded Assets
Purchase Agreement, the MSL Purchase Agreement or the LP, Purchase Agreement,
(j) The Company shall not waive, nor consent to the waiver by the
purchaser under the BSL Merger Agreement, the Excluded Assets Purchase
Agreement, the MSL Purchase Agreement or the LP Purchase Agreement, of any third
party consents or approvals required as a condition to the Closing thereof nor
to a waiver of the condition to Closing set forth in the MSL Purchase Agreement
with respect to the execution and delivery of the BNP Loan Amendment Documents
(as defined therein).
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Purchaser acknowledges and agrees that nothing in this Paragraph 5.01
shall be construed as granting Purchaser any approval, notice or other rights
with respect to the day to day operations of the senior living business of the
Company which is the subject of the Senior Living Transaction and the day to day
operations of the medical office buildings and home health agency which are the
subject of the Excluded Assets Transaction.
5.02. Closing Date. On the Closing Date, the Company will deliver or
cause to be delivered to Purchaser the following documents:
(a) A certificate of a responsible officer of the Company dated as of
the Closing Date, certifying on behalf of the Company in such detail as
Purchaser may reasonably specify the fulfillment of the conditions set forth in
Paragraphs 8.0 l(a) and (b);
(b) Resolutions of the Company's Board of Directors and a vote of the
Company's shareholders, certified by the Secretary or Assistant Secretary of the
Company, authorizing and approving the Transactions contemplated herein;
(c) Certified copies of the Charter or Articles of Incorporation of the
Company and of each of the Subsidiaries and Certificates of Legal Existence or
Good Standing, as applicable, with respect to the Company and each Subsidiary
issued within the 10 days prior to the Closing Date by the Secretary of State
(or other authorized official) in each of the States in which the Company and
each Subsidiary is organized or qualified to do business as a foreign
corporation as set forth more fully in Section 3.01 of the Company Disclosure
Letter;
(d) True and correct copies of the Bylaws of the Company and each
Subsidiary certified by the Secretary or Assistant Secretary of each as of the
Closing Date;
(e) One or more certificates evidencing the shares of Common Stock and
the New Preferred Stock issued to Purchaser and/or its designees;
(f) An opinion or opinions of counsel to the Company dated as of the
Closing Date in form and substance reasonably acceptable to Purchaser;
(g) Employment Agreements with Messrs. John R. Miller, Steven P.
Taylor and A. E. Brim in the forms attached hereto as Exhibits H duly executed
by each of Messrs. Miller, Taylor and Brim (the "Employment Agreements");
(h) The resignations of the members of the Board of Directors and those
officers of the Company and certain of its Subsidiaries listed in Exhibit I;
(i) Evidence that all of the Excluded Subsidiary Loans have been paid
in full; and
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(j) Copies of all third party and governmental consents and approvals
(including, without limitation, all blue sky law filings, approvals and/or
exemption letters) obtained in connection with the consummation of the
transactions hereunder.
(k) Copies of any and all documents executed and delivered at the
closing of the Senior Living Transaction and the Excluded Asset Transaction,
including, but not limited to, bills of sale or cross receipts evidencing the
consummation thereof.
5.03. Post Closing: From and after the Closing Date, the Company
covenants and agrees as follows:
(a) Unless the Board of Directors or the officers of the Company, as
applicable, determines that other action is in the best interest of the
shareholders of the Company, considered as a whole, the Company shall not take
action to reduce the labor force of the Company beyond those actions reasonably
deemed necessary to enable the Company to operate efficiently and at a level of
profitability consistent with the Company's long range objectives.
(b) The Company shall develop a stock option, stock purchase or other
similar equity program and shall consider for participation therein certain
Company key employees who continue to work for the Company after the Closing
Date.
(c) For a period of three (3) years after the Closing, the Company
shall maintain offices in Portland, Oregon and shall conduct therefrom the
management of the hospitals managed by Brim Healthcare, Inc. as of the Closing
Date.
(d) Unless the Board of Directors determines that other action is in
the best interests of the shareholders of the Company, considered as a whole,
the Company shall request that certain of the current officers of the Company
and the Subsidiaries, identified in Exhibit J hereto, continue to serve for a
period of three (3) years after the Closing Date, subject to (A) the Company's
right (i) to remove any or all of such officers for cause, (ii) to remove any or
all of such officers without cause, in which instance the Company shall provide
severance to any such removed officers through the period ending one year from
the date of severance and (iii) to replace any of such officers who elect to
resign at Closing or thereafter and (B) such officer's right to resign at any
time.
(e) For a period of not less than three years after the Closing, the
Company shall (A) cause the Company's 401(K) Plan and Supplemental Retirement
Plan to remain in effect or shall make available to the employees of the Company
alternative benefit plans that offer no less favorable benefits than those
currently provided to the employees of the Company and the Subsidiaries under
such 401 (K) and Supplement Retirement Plans and (B) provide healthcare benefits
to the employees of Brim, Inc. and Brim Healthcare, Inc. (or the successors
thereto in the event of a merger or liquidation of either or both such entities
after Closing) substantially comparable to the benefits
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provided as of the date of this Investment Agreement, subject to the right of
the Company to provide such benefits through a managed care, rather than an
indemnity, plan.
(f) Unless the Board of Directors determines that other action is in
the best interests of the shareholders of the Company, considered as a whole,
the Company shall maintain employee benefits substantially comparable to the
benefits provided to the Company's employees as of the Closing Date; provided,
however, that the provisions of this Paragraph 5.03(f) shall not affect or limit
the Company's obligations under Paragraph 5.03(e),
(g) The Company shall pay as and when due under the terms of the
Company`s emplovee benefit plans in effect on the Closing Date, any severance
payments due to the employees of the Company (other than the officers listed in
Exhibit J whose severance payments shall be as specified in Paragraph 5.03(d))
who are given notice of termination by the Company on or within ninety (90) days
after the Closing Date.
(h) The Company shall purchase as of the Closing Date and shall keep
continuously in effect thereafter for a period of no less than three (3) years a
tail insurance policy from the carrier providing the Company's directors and
officers liability insurance as of the Closing Date with limits in an amount
equal to limits provided for in the Company's directors and officers liability
insurance as of the Closing Date and providing coverage with respect to claims
which are covered by the Company's directors or officers liability insurance as
of the Closing Date and which are brought during such three year period after
the Closing Date against the persons who were officers and directors of the
Company on or prior to the Closing Date.
(i) The Company shall not amend or otherwise modify its Articles of
Incorporation or Bylaws in any manner which would reduce or eliminate the
indemnity obligations of the Company to the persons who were officers or
directors of the Company on or prior to the Closing Date.
(i) The Company will indemnify, defend and hold harmless the persons
who were officers or directors of the Company on or prior to the Closing Date
with respect to their acts or omissions on behalf of the Company prior to the
Closing Date to the fullest extent permitted by law.
ARTICLE VI
PURCHASER'S AND PRINCIPAL'S COVENANTS
6.01. Purchaser; Pre Closing. Purchaser covenants that between the
date hereof and the Closing, except as contemplated by this Agreement or with
the consent of the Company, which consent shall not be unreasonably withheld,
conditioned or delayed and which approval shall be deemed to have been given if
not denied within four (4) business days after the Company's receipt of a
written approval request from Purchaser directed to the President of the
Company:
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(a) Purchaser will use its reasonable efforts to cause all of the
conditions to Closing set forth in Paragraphs 8.01 and 8.02, other than the
conditions set forth in Paragraph 8.01(a), (b), (e), (f), (g), (h), (i), (k) and
(n) and in Paragraph 8.02(e), (f), (g) and (h) which are solely within the
Company's control, to be satisfied prior to the Outside Closing Date and
Purchaser will not take any action inconsistent with its obligations under this
Agreement or which could hinder or delay the consummation of the transactions
contemplated by this Agreement or which is intended to cause any representation,
warranty, covenant made by Purchaser in this Agreement or in any certificate,
list, exhibit, or other instrument furnished or to be furnished pursuant hereto,
or in connection with the transaction contemplated hereby, to be untrue in any
material respect as of the Closing Date:
(b) Purchaser will not agree to do or to cause to be done any of the
acts which it has covenanted under this Paragraph 6.01 not to do.
(c) Purchaser will proceed with all reasonable diligence to consummate
the Financing Transactions in the name of the Company effective as of Closing on
the terms reflected in the First Union Commitment Letter and the Investment
Commitment Letter.
6.01A. Principal; Pre-Closing. Principal covenants that between the
date hereof and the Closing, except with the consent of the Company, which
consent may be withheld in the sole discretion of the Company, except as
otherwise provided herein:
(a) Principal shall not (A) sell or otherwise dispose of all or
substantially all of its assets, equity interests or voting securities or (B)
directly or indirectly initiate or solicit discussions relating to any
acquisition proposal or similar transaction including, without limitation, a
merger or other business combination or offer to acquire, directly or
indirectly, all or substantially all of the equity interests in, the voting
securities of, or the assets of any corporation or other legal entity which owns
or operates three hospitals or more, whether by lease, ownership or management
contract. Nothing herein shall be construed as prohibiting Principal from
pursuing the acquisition or leases of individual acute care hospitals between
the date hereof and the Closing Date. Principal shall not be deemed to be in
breach of this Paragraph 6.01A(a) in connection with any acquisition
discussions, negotiations or proposal engaged in or made by it in response to
(i) an "auction" type bid process or (ii) a contact initiated by a third party
or (iii) any transaction permitted by the terms of Paragraph 6.03(b).
(b) To pay all fees and other expenses required to consummate the
Financing Transactions.
6.02. Closing. On the Closing Date, in addition to the delivery of the
consideration for the New Preferred Stock and the Common Stock due under
Paragraph 1.04, Purchaser will deliver, or cause to be delivered (on behalf of
the Company, in the case of clauses (d), (e) and (f)) to the Company the
following documents:
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(a) A Certificate of Purchaser dated as of the Closing Date, certifying
on behalf of Purchaser in such detail as the Company may reasonably specify the
fulfillment of the conditions set forth in Paragraphs 8.02 (a) and (b);
(b) If applicable, certified resolutions of Purchaser's and/or its
designees' General Partner or other governing body authorizing and approving as
to Purchaser and/or such designees the Transactions contemplated herein and the
execution and delivery by Purchaser and/or its designees, as applicable, of all
of the documents contemplated herein to be executed and delivered by it, the
purchase by such Purchaser and/or its designees, as applicable, of the New
Preferred Stock and the Common Stock to be purchased by it pursuant to Paragraph
1.05 and the payment by Purchaser and/or its designees of the consideration for
the New Preferred Stock and the Common Stock due from it under Paragraph 1.05;
(c) If applicable, a Certificate of Good Standing with respect to
Purchaser and/or its designees issued within the 10 days prior to the Closing
Date by the Secretary of State of Delaware and/or the state of incorporation of
Purchaser's designees if other than Delaware;
(d) The Employment Agreements duly executed by an individual
authorized to act on behalf of the Company effective immediately after the
Closing;
(e) A Lease Agreement in the form attached hereto as Exhibit K duly
executed by an individual authorized to act on behalf of the Company effective
immediately after the Closing (the "BSL Lease");
(f) A Shared Services Agreement in the form attached hereto as
Exhibit L duly executed by an individual authorized to act on behalf of the
Company effective immediately after the Closing (the "Shared Services
Agreement"); and
(g) An opinion or opinions of counsel to Purchaser dated as of the
Closing Date in form and substance reasonably acceptable to the Company.
6.03. Other Covenants.
(a) Purchaser shall not solicit any of the officers, employees or
consultants of the Company or any of the Subsidiaries or interfere with the
consummation of, or pursue in its own name or on its own behalf, any
acquisition, management or lease opportunities which are under consideration or
negotiation by the Company as of the date hereof or as of the Closing Date and
with respect to which Purchaser has obtained knowledge during the course of its
negotiations with or due diligence investigation of the Company. Purchaser shall
not be deemed to be in breach of this Paragraph 6.03(a) and/or its obligations
under the Confidentiality Agreement (as defined below) in connection with any
acquisition, management or lease opportunities pursued by it in response to (i)
an "auction" type bid process or (ii) a contact initiated by a third party. The
obligations of the
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Purchaser under this Paragraph 6.03(a) shall survive the termination of this
Agreement pursuant to Article IX hereof for the period specified in Article X
hereof.
(b) Principal shall not solicit any of the officers, employees or
consultants of the Company or any of the Subsidiaries or interfere with the
consummation of, or pursue in its own name or on its own behalf, any
acquisition, management or lease opportunities which are under consideration or
negotiation by the Company as of the date hereof or as of the Closing Date and
with respect to which Principal has obtained knowledge during the course of its
negotiations with or due diligence investigation of the Company. Principal shall
not be deemed to be in breach of this Paragraph 6.03(b) and/or its obligations
under the Confidentiality Agreement in connection with any acquisition,
management or lease opportunities pursued by it in response to (i) an "auction"
type bid process or (ii) a contact initiated by a third party. The obligations
of Principal under this Paragraph 6.03(b) shall survive the termination of this
Agreement pursuant to Article IX hereof for the period specified in Article X
hereof.
ARTICLE VII
MUTUAL COVENANTS
7.01. General Covenants. Following the execution of this Agreement and
until the Closing Date, the Company and Purchaser agree:
(a) If any event should occur, either within or without the control of
any party, which would prevent fulfillment of the conditions to the obligations
of any party hereto to consummate the transactions contemplated by this
Agreement, to use its or their reasonable efforts to cure the same as
expeditiously as possible;
(b) To cooperate fully with each other in preparing, filing,
prosecuting, and taking any other actions which are or may be reasonable and
necessary to obtain the consent of any governmental instrumentality or any third
party, to accomplish the transactions contemplated by this Agreement;
(c) To deliver such other instruments of title, certificates, consents,
endorsements, assignments, assumptions and other documents or instruments, in
form reasonably acceptable to the party requesting the same and its counsel, as
may be reasonably necessary to carry out and/or to comply with the terms of this
Agreement and the transactions contemplated herein;
(d) To confer on a regular basis with the other, report on material
operational matters and promptly advise the other orally and in writing of any
change or event having, or which, insofar as can reasonably be foreseen could
have, a material adverse effect on such party or which would cause or constitute
a material breach of any of the representations, warranties or covenants of such
party contained herein;
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(e) To promptly provide the other (or its counsel) with copies of all
other filings made by such party with any state or federal governmental entity
in connection with this Agreement or the transactions contemplated hereby.
7.02. Hart-Scott-Rodino Filing.
(a) The Company and Purchaser agree to file with the Antitrust Division
of the United States Department of Justice and the Federal Trade Commission a
Notification and Report Form in accordance with the notification requirements of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act") and to
use its and their reasonable efforts to achieve the prompt termination or
expiration of the waiting period or any extension thereof provided for under the
HSR Act as a prerequisite to the consummation of the transactions provided for
herein (the "HSR Approval"); provided, however, that the Principal shall be
responsible for any filing fees due under the HSR Act.
(b) Nothing in this Paragraph 7.02 shall be construed as requiring the
Company to (i) sell or otherwise dispose of any of its assets which either alone
or in the aggregate, with all such other sales or dispositions, would constitute
the sale or disposition of a "significant subsidiary" (as defined in Rule 1-02
of Regulation S-X of the rules and regulations of the Securities and Exchange
Commission), (ii) take any action, the consummation of which cannot be
conditioned on the consummation of the transactions contemplated by this
Agreement, where such action would have a Company Material Adverse Effect (as
defined in Paragraph 8.01) or (iii) take any action which either would have a
Company Material Adverse Effect or would materially impair the value of the
transaction contemplated by this Agreement to the Company or Purchaser.
(c) Nothing in this Paragraph 7.02 shall be construed as requiring
Purchaser to (i) sell or otherwise dispose of any of its assets which either
alone or in the aggregate, with all such other sales or dispositions, would
constitute the sale or disposition of a "significant subsidiary," (ii) take any
action, the consummation of which cannot be conditioned on the consummation of
the transactions contemplated by this Agreement or (iii) take any action which
either would materially impair the value of the transaction contemplated by this
Agreement to the Company or Purchaser.
7.03. Third Party Consents/Regulatory Approval. The Company and the
Purchaser will use its and their reasonable efforts to obtain prior to the
Closing Date all consents, approvals and licenses necessary to permit the
consummation of the transactions contemplated by this Agreement, including, but
not limited to, such licensure and certification approval in each of the states
in which the Company Facilities are located as may be necessary to enable
Purchaser to consummate the Transactions (the "Regulatory Approvals"), and the
consent of its or their lenders, lessors and other third parties to the extent
required under any loan documents, lease agreements, management agreements or
other instruments to which it or its subsidiaries are a party (the "Third Party
Consents").
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7.04. Shareholder Approval. The Company shall promptly submit this
Agreement and the transactions contemplated herein and in the Senior Living
Transaction and the Excluded Assets Transaction for the approval of its
shareholders at a meeting of shareholders. Subject to the fiduciarv duties of
the Board of Directors of the Company under applicable law, the Board of
Directors of the Company has agreed to recommend to its shareholders approval of
the Transactions. Subject to the fiduciary duties of the Board of Directors of
the Company under applicable law, the Company shall use its reasonable efforts
to obtain shareholder approval and adoption of this Agreement and the
Transactions contemplated hereby. Subject to the notice requirements of the
Oregon Business Corporation Act, such meeting shall be held as soon as
practicable following the execution of this Agreement.
7.05. Public Announcements. The parties shall consult with each other
prior to the issuance by either party of any press release or any written
statement with respect to this Agreement or the transaction contemplated hereby.
7.06. Subsequent Transaction. On the next business day after the
Closing Date or as soon thereafter as may be agreed upon by the Company and
Purchaser, pursuant to the terms of a Plan and Agreement of Merger between the
Company and Principal to be executed substantially in the form attached hereto
as Exhibit M, Principal shall merge with Principal Merger Company, with
Principal to be the surviving entity and a wholly-owned subsidiary of the
Company.
ARTICLE VIII
CONDITIONS
8.01. Purchaser's Conditions. All obligations of the Purchaser under
this Agreement are subject to the fulfillment, prior to or as of the Closing
Date, of each of the following conditions any one or more of which may be waived
by written instrument signed by Purchaser or by written instrument signed by
Purchaser:
(a) Except as would not have a "Company Material Adverse Effect", as
defined below, the representations and warranties of the Company contained in
this Agreement or in any certificate or document prepared by the Company and
delivered in connection with this Agreement or the transaction contemplated
herein shall be true at and as of the Closing Date as though such
representations and warranties were then again made, other than any
representations or warranties which specifically relate to an earlier period,
which shall have been true as of the date thereof; provided, however, that in
the event this condition is not satisfied as of the Closing Date and the
representation or warranty which is untrue is capable of being cured, the
Closing Date shall be extended in order to allow the Company to satisfy this
condition; provided, however, in no event shall the Closing Date be extended
beyond the Outside Closing Date.
A "Company Material Adverse Effect" shall be any statement, condition
or event that would (A) materially adversely affect the ability of the Company
to consummate the Transactions, (B)
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adversely affect the licensure at Closing of any of the Leased Company
Facilities as acute care facilities under applicable state law or the
certification at Closing of any of the Leased Company Facilities which as the
Closing Date are certified under the Medicare and/or Medicaid Programs or result
in the termination of any of the Company Management Contracts, where, in each
case, such loss of licensure, certification or of the termination of any Company
Management Contracts at Closing would result in a Material Adverse Change, as
defined below, or (C) result in a "Material Adverse Change."
For purposes of this Paragraph 8.01, the term "Material Adverse Change"
shall be defined as an event or series of events affecting the Company (but
specifically excluding events which are disclosed pursuant to the terms hereof
in the Company's Disclosure Letter or in the exhibits hereto as of the date of
execution of this Agreement, or that are hereafter disclosed to Purchaser in
updates to the Company Disclosure Letter, without Purchaser's objecting thereto
pursuant to Paragraph 10.08), that (after taking into account any event or
series of events which will have a positive effect on the Company) will have an
adverse effect on the Company's earnings before interest, taxes, depreciation
and amortization on an annualized basis, calculated as of the Closing Date, in
excess of $800,000.
(b) Except to the extent failure to do so would not have a Company
Material Adverse Effect, the Company shall have performed all of its material
obligations under this Agreement that are to be performed by it prior to or as
of the Closing Date, including but not limited to the delivery of the documents
provided for in Paragraph 5.02, including, but not limited to the Employment
Agreements, and the redemption of all of the Redeemed Preferred Stock and of the
GECC Preferred Stock, the issuance of the Common Stock and New Preferred Stock
to Purchaser and/or its designee; provided, however, that in the event this
condition is not satisfied as of the Closing Date and the obligation which the
Company has not performed is capable of being cured, the Closing Date shall be
extended in order to allow the Company to satisfy this condition; provided,
however, in no event shall the Closing Date be extended beyond the Outside
Closing Date. The Company shall be deemed to have performed its obligations
under this condition in the event all of the documents necessary for said
performance have, as of the Closing Date, been delivered to such agent as may be
agreed upon by the Company and Purchaser.
(c) Except to the extent failure to do so would not have a Company
Material Adverse Effect, the Company and Purchaser shall have received the
Third Party Consents designated in Section 3.04 of the Company Disclosure
Letter and in Section 4.03 of the Purchaser Disclosure Letter and shall have
received the Regulatory Approvals and shall have satisfied any and all
conditions to the effectiveness thereof.
(d) The filing and waiting period requirements under the HSR Act shall
have been complied with and shall have expired or terminated.
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(e) The Preferred Stock Repurchase Agreement shall be in full force and
effect, neither party thereto shall have breached any of its obligations
thereunder and all conditions necessary to the consummation of the transaction
contemplated thereby (other than the consummation of the transaction
contemplated hereby) shall have been satisfied.
(f) The Excluded Assets Transaction shall have been consummated.
(g) The Senior Living Transaction shall have been consummated,
including the payment of all intercompany loans owing to or from BSL to the
Company.
(h) Since June 30, 1996, no Company Material Adverse Effect shall have
occurred.
(i) No order shall be in effect restraining, enjoining or otherwise
preventing the Closing.
(j) Except to the extent approved by Purchaser pursuant to Paragraph
10.O8, there shall be no changes in the Company's Disclosure Letter between the
date hereof and the Closing Date reflecting a Company Material Adverse Effect,
which Disclosure Letter may be updated from time to time by the Company in
accordance with Paragraph 10.08.
(k) The Amended and Restated Brim, Inc. Shareholders Agreement and the
Shareholders Agreement between the Company and the holder of the GECC Preferred
Stock shall have been terminated.
(1) The Company and First Union shall have entered into the Credit
Facility providing for loans to the Company of up to $54 million, which loans
are described more fully in the First Union Commitment Letter and which Credit
Facility shall be in form and substance reasonably satisfactory to the
Purchaser, the Bank Agreement shall be in full force and effect as of the
Closing and the Bank shall have advanced or be prepared to advance not less than
$54 million to the Company under the Bank Agreement upon confirmation that the
other parties to the Transactions provided for herein are prepared to consummate
the same.
(m) The Company and Purchaser's designee shall have entered into a
stock purchase agreement and related documents (collectively, as such agreement
and documents are amended, modified or waived from time to time in accordance
with this Agreement, the "Senior Preferred Purchase Agreement") providing for
the purchase by Purchaser's designee of not less than $20 million of the Senior
Preferred Stock, which purchase shall be as described more fully in the
Investment Commitment Letter and which Senior Preferred Purchase Agreement shall
be in form and substance reasonably satisfactory to the Purchaser, the Senior
Preferred Purchase Agreement shall be in full force and effect as of the Closing
and Purchaser's designee shall have consummated the transaction pursuant to the
terms of the Senior Preferred Purchase Agreement or shall be prepared to
consummate the same upon confirmation that the other parties to the Transactions
provided for herein are prepared to consummate the same.
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(n) The holders of no more than 5% of the Redeemed Preferred Stock
shall have exercised their dissenter's rights under ORS ss.60.551, et seq. or
under such resolutions of the Board of Directors of the Company as may be
adopted at the time of the approval of the Transactions granting such dissenters
rights to the extent the provisions of ORS ss.60.551, et seq. do not provide for
such rights and the Board of Directors of the Company in the exercise of its
fiduciary duties determines that it would be in the best interest of the Company
to grant such rights.
(o) The Carryco Merger shall have been consummated.
(p) Purchaser shall have completed and shall be satisfied with the
results of its due diligence review of the Excluded Assets Transaction and the
Senior Living Transaction, regarding the assignment, assumption of satisfaction
of the liabilities of the Company and its affiliates related to or arising in
connection with the entities, assets or operations being sold or transferred
thereby, and the existence, nature and scope of any continuing liability of the
Company or its affiliates with respect to such entities, assets or operations
following the closing of such transactions; provided, however, this condition
shall be deemed satisfied unless by the close of third business day following
Purchaser's receipt from the Company of the BSL Merger Agreement, Excluded
Assets Purchase Agreement, the MSL Purchase Agreement LP Purchase Agreement and
all exhibits and schedules thereto requested by Purchaser, in the form in which
the Company and the purchasers identified therein are prepared to execute,
Purchaser has specified in writing its objections thereto, which objections
shall state with specificity the sections to which Purchaser objects and the
reasons for its objection.
8.02. Company Conditions. All obligations of the Company under this
Agreement are subject to the fulfillment, prior to or as of the Closing Date, of
each of the following conditions any one or more of which may be waived by the
Company in writing:
(a) The representations and warranties of Purchaser contained in this
Agreement or in any certificate or document prepared by Purchaser and delivered
in connection with this Agreement or the Transactions contemplated herein shall
be true in all material respects at and as of the Closing Date as though such
representations and warranties were then again made, other than any
representations or warranties which specifically relate to an earlier period,
which shall have been true as of the date thereof; provided, however, that in
the event this condition is not satisfied as of the Closing Date and the
representation or warranty which is untrue is capable of being cured, the
Closing Date shall be extended in order to allow Purchaser to satisfy this
condition; provided, however, in no event shall the Closing Date be extended
beyond the Outside Closing Date.
(b) Purchaser and/or its designees shall have performed all of its or
their material obligations under this Agreement that are to be performed by it
or them prior to or as of the Closing Date, including, but not limited to the
delivery of the documents provided for in Paragraph 6.02 and the delivery of the
cash consideration due from it or them under Article I with respect to the
Common Stock and New Preferred Stock issued to Purchaser and/or its designees;
provided,
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however, that in the event this condition is not satisfied as of the Closing
Date and the obligation which Purchaser and/or its designees has not performed
is capable of being cured, the Closing Date shall be extended in order to allow
Purchaser and/or its designee to satisfy this condition; provided, however, in
no event shall the Closing Date be extended beyond the Outside Closing Date.
Purchaser and/or its designees shall be deemed to have performed its or their
obligations under this condition in the event all of the documents necessary for
said performance have, as of the Closing Date, been delivered to such agent as
may be agreed upon by the Company and Purchaser.
(c) Except to the extent the failure to do so would not have a Company
Material Adverse Effect, the Company and Purchaser shall have received the Third
Party Consents designated in Section 3.04 of the Company Disclosure Letter and
shall have received the Regulatory Approvals and shall have satisfied any and
all conditions to the effectiveness thereof.
(d) The filing and waiting period requirements under the HSR Act shall
have been complied with and shall have expired or terminated.
(e) The Preferred Stock Repurchase Agreement shall be in full force and
effect, neither party thereto shall have breached any of its obligations
thereunder and all conditions necessary to the consummation of the transaction
contemplated thereby (other than the consummation of the transaction
contemplated hereby) shall have been satisfied.
(f) The Excluded Assets Transaction shall have been consummated.
(g) The Senior Living Transaction shall have been consummated,
including the payment of all intercompany loans owing to or from BSL to the
Company.
(h) The Carryover Merger shall have been consummated.
(i) The Carryover Shareholders and the Purchaser shall have entered
into a shareholder agreement on terms and conditions acceptable to each party
thereto addressing the rights and obligations of the parties after the Closing
Date as shareholders of the Company, including, but not limited to, their right
to acquire additional shares of the Company's common or preferred stock and the
affect of the issuance of additional shares of the Company's common or preferred
stock on their percentage ownership interest in the Company, all as described
more fully in the Term Sheet attached hereto as Exhibit N (the "Shareholders
Agreement").
ARTICLE IX
TERMINATION/INDEMNIFICATION
9.01. Termination. This Agreement may be terminated by the parties
hereto upon the following conditions:
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(a) By mutual consent of the parties;
(b) By Purchaser, if the conditions to Closing set forth in Paragraph
8.01 have not been satisfied or waived by the Outside Closing Date or any
extension thereof provided for in Paragraph 8.01; provided, however, the
Purchaser shall have no right to terminate the Agreement under this Paragraph
9.01(b) if the condition has not been satisfied or waived as a result of the
breach by the Purchaser of its obligations hereunder;
(c) By the Company if the conditions to Closing set forth in Paragraph
8.02 have not been satisfied or waived by the Outside Closing Date or any
extension thereof provided for in Paragraph 8.02; provided, however, the Company
shall have no right to terminate the Agreement under this Paragraph 9.01 (c) if
the condition has not been satisfied or waived as a result of the breach by the
Company of its obligations hereunder;
(d) By either party if the United States Department of Justice or the
Federal Trade Commission requires any of the actions described in Paragraph
7.02.
9.02. Effect of Termination. In the event of the termination of this
Agreement by either party in accordance with Paragraph 9.01, this Agreement
shall be null and void and of no further force and effect and no party shall
have any further rights or obligations hereunder, other than the following:
(a) The obligations of the Company, the Purchaser and Principal to
return any documents as set forth in the Confidentiality Agreement dated June
25, 1996 executed by the Company and Principal (the "Confidentiality Agreement")
and to which the Purchaser agreed to be bound by that Letter of Intent dated
September 25, 1996 (as the same may be amended from time to time, the "Letter of
Intent"), and to keep confidential any Confidential Information (as defined
therein) obtained in furtherance thereof;
(b) The right of either party to seek specific performance or damages
or to pursue any other remedy which may be available to it at law or in equity
for the breach of any covenant or agreement of any other party hereto, in the
event of a termination pursuant to Paragraphs 9.01(b) or 9.01(c) resulting from
a failure of the conditions set forth in Paragraphs 8.01(b) or 8.02 (b),
respectively.
9.03. Indemnification. Provided that this Agreement has not been
terminated pursuant to Paragraph 9.01, from and after the Closing Date, the
Company shall indemnify the Purchaser, its partners and affiliates, Purchaser's
designees and their respective partners, officers, directors, employees and
affiliates from and against any and all claims, damages, losses, expenses, costs
(including reasonable attorneys fees), deficiencies, penalties, interest, fines,
obligations or liabilities of any kind and claims brought by third parties
(collectively "Losses") suffered or incurred by the Purchaser its partners and
affiliates, Purchaser's designees and their respective partners, officers,
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<PAGE> 48
directors, employees and affiliates or by the Company or its officers,
directors, employees or affiliates in the event of a breach by the Company of
its representations, warranties or covenants set forth in this Agreement;
provided, however, that the Purchaser's recourse for any and all such Losses
shall be limited to the funds on deposit in the Escrow Account (excluding the
funds in the Agent/Legal Fees Expense Account) described in Paragraph 1.04
hereof and shall be further limited by the provisions of Paragraph 9.06 below.
9.04. Indemnification Procedures.
(a) In the event that any circumstances exist or any claim is made
against Purchaser, its partners or affiliates, Purchaser's designees and their
respective partners, officers, directors, employees and affiliates or against
the Company, its directors, officers, employees or affiliates, after the Closing
Date (hereinafter the "Indemnified Party") which the Indemnified Party believes
will result in the Indemnified Party incurring a Loss, or in the event the
Indemnified Party believes it has incurred a Loss, it will promptly deliver to
the Escrow Agent and to the Agent written notice (the "Loss Notice") setting
forth a reasonable summary of the nature of the Loss and the facts giving rise
thereto and specifying the section of this Agreement to which such Loss relates
and the amount thereof.
(b) in the event the Loss Notice involves a claim made by a third
party, in the form of a demand letter or lawsuit, against the Indemnified Party
which the Purchaser believes represents a breach of representation, warranty or
covenant by the Company, it shall include a copy of such claim in the Loss
Notice and the Indemnified Party's reasonable estimate of the amount sought
under the terms thereof (the "Third Party Claim").
(c) The Agent shall have the right to dispute the Loss on behalf of the
former holders of the Redeemed Preferred Stock and the former holder of the
GECC Preferred Stock by the delivery of written notice (the "Dispute Notice") to
the Escrow Agent and to the Indemnified Party and the Company within twenty (20)
business days of the delivery to Escrow Agent and the Agent of the Loss Notice.
In the event of a Loss which relates to a Third Party Claim, the Agent shall
have the following options:
(i) The Agent may submit a Dispute Notice with respect to such Third
Party Claim, in which case the Agent shall be deemed to have waived its right,
on behalf of the former holders of the Redeemed Preferred Stock and the former
holder of the GECC Preferred Stock, to defend such Third Party Claim on behalf
of the Indemnified Party; or
(ii) The Agent may submit notice to the Purchaser, the Company and the
Escrow Agent within the twenty (20) day period in which a Dispute Notice would
otherwise be due that it has elected to retain counsel to defend the Third Party
Claim on behalf of the Indemnified Party (the "Defense Notice"), in which case
such election shall be deemed to be a waiver of any and all rights which the
Agent may have on behalf of the former holders of the Redeemed Preferred Stock
and the
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<PAGE> 49
former holder of the GECC Preferred Stock to contest the Purchaser's right to
seek indemnity from the Escrow Account should the Company's liability be
established with respect to said Third Party Claim.
(iii) In the event a Dispute Notice is submitted with respect to any
such Third Party Claim, the matter submitted to arbitration shall be limited to
whether the Third Party Claim represents the breach of a representation,
warranty or covenant hereunder.
(iv) In no event shall the Agent have the right to defend any such
Third Party Claim in the event the Purchaser reasonably determines that the
amount which is the subject of said Third Party Claim, when taken together with
any other matters which are then the subject of pending Loss Notices, will
exceed the then available proceeds in the Escrow Account, it being understood
and agreed that the Indemnified Party shall retain the sole right to defend such
Third Party Claim; provided, however, that in event the Indemnified Party settle
any such Third Party Claim without the prior consent of the Agent, which consent
shall not be unreasonably withheld, the reasonableness of the amount of such
settlement and/or the portion thereof which should be paid from the Escrow
Account may be submitted by the Agent to arbitration in accordance with the
provisions hereof.
(d) In the event the Agent submits a Dispute Notice within the twenty
(20) business day period provided for herein, the Agent and the Purchaser shall
submit the matters which are the subject of the Loss Notice to arbitration in
accordance with the provisions of Paragraph 9.05 hereof and the Escrow Agent,
the Agent, the Company and the Purchaser shall be bound by and shall act in
accordance with the determination of the arbitrator.
(e) In the event the Agent fails to deliver a Dispute Notice or a
Defense Notice within such twenty (20) business day period, the Escrow Agent
shall be authorized without further action by or approval of any party hereto to
disburse from the Escrow Account the amount which is the subject of the Loss
Notice to, or as directed by, the Indemnified Party which submitted the same
and, in the case of a Loss Notice which relates to a Third Party Claim, the
Indemnified Party shall be required to remit the same to the person or entity
which brought the Third Party Claim and to provide the Agent with evidence
thereof; provided, however, that the Indemnified Party shall have the right to
elect, in lieu of immediately remitting said funds to the party which brought
the Third Party Claim, to defend such Third Party Claim and to use the funds in
the Escrow Account to cover the cost of such defense and of any liability which
the Company is determined to have with respect thereto by a court of competent
jurisdiction or any settlement amount agreed upon by the parties provided that
in the event the amount so expended for legal fees and liability or settlement
payments shall exceed the amount originally sought in the Third Party Claim, the
Indemnified Party shall be solely responsible therefor and shall have no right
to seek additional indemnity from the Escrow Account with respect to such excess
amounts; and provided, further, that in the event the amount so expended for
legal fees and liability or settlement payments is less than the amount
originally sought in the Third Party Claim and released from the Escrow Account,
the Indemnified Party shall be required to return the excess to the Escrow Agent
for deposit in the Escrow Account.
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(f) The Agent shall have the right from time to time to draw on the
Agent/Legal Fees Expense Account to pay any costs incurred by him in arbitrating
a claim which is the subject of a Dispute Notice or defending a Third Party
Claim or any fees due to him under the terms of any agreements between the Agent
and the former holder of the GECC Preferred Stock and the former holders of the
Redeemed Preferred Stock and the Indemnified Party shall have no right to
control or otherwise object to the disbursement of the funds from the
Agent/Legal Fees Expense Account.
9.05. Arbitration.
(a) Any matters which are the subject of a Loss Notice and a Dispute
Notice shall be submitted for resolution to arbitration in such location as may
be agreed upon by the Purchaser and the Agent or, in the event the Purchaser and
the Agent are unable to agree upon a location within ten (10) days after the
date of a Dispute Notice, in Denver, Colorado, under the Commercial Arbitration
Rules of the American Arbitration Association before a single arbitrator
selected by mutual agreement of the Purchaser and the Agent to which shall be
added the provisions of the Federal Rules of Civil Procedure relating to the
production of evidence and the parties agree that the arbitrator may impose
sanctions in his/her discretion to enforce compliance with discovery and other
obligations.
(b) If the Purchaser, on the one hand, and the Agent, on the other
hand, do not agree on the arbitrator within twenty (20) business days after the
delivery by Agent of a Dispute Notice, the arbitrator shall be selected by them
from a list of five potential arbitrators provided by the American Arbitration
Association. Such list shall be provided within ten (10) davs of the expiration
of said twenty (20) business day period. The Purchaser shall first delete one
name from the list and then the Agent shall delete one name from the list. This
process shall continue in the same order until the last remaining person on the
list shall be the arbitrator. This selection process shall take place within two
business days following both parties' receipt of the list of five potential
arbitrators.
(c) Hearings in such arbitration shall commence within twenty (20)
business days of the selection of the arbitrator or as soon thereafter as the
arbitrator is available. The arbitrator shall deliver his/her opinion within
twenty (20) business days after completion of the arbitration hearing. The
arbitrator's decision shall be final and binding upon the parties and may be
entered and enforced in any court of competent jurisdiction by either of the
parties.
(d) Unless otherwise ordered by the arbitrator, the non-prevailing
party shall be responsible for the arbitrator's expenses.
(e) In the event the arbitrator determines that a Loss Notice which
relates to a Third Party Claim is the subject of an indemnifiable loss under the
terms of this Paragraph 9, the Indemnified Party shall have the right to make a
demand on the Escrow Account in an amount equal to any and all costs and
expenses incurred to the date of said determination and/or thereafter incurred
in defending such Third Party Claim but shall not have the right to make a
demand for any other
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portion of any Losses related thereto unless and until the liability of the
Company is determined on a final non-appealable basis in the action which is the
subject of such Third Party Claim or is otherwise determined by a settlement
agreement to which the Company is a party. In the event the arbitrator
determines that a Loss Notice which relates to a Third Party Claim is not the
subject of an indemnifiable loss, the Indemnified Party shall have no access to
the Escrow Account with respect to any Losses incurred in connection therewith
and shall be required to reimburse the Agent for any and all costs and expenses
incurred by him in successfully defending against such Loss Notice.
9.06. Limitation on Claims.
(a) Purchaser shall have no right to recover with respect to any Losses
until the amount of all such Losses is equal to or greater than Five Hundred
Thousand and no/100 Dollars ($500,000) individually or in the aggregate (the
"Loss Threshold") and thereafter Purchaser shall only be entitled to recover
Losses suffered or incurred by it or the Company in excess of the Loss
Threshold. In addition and subject to the further limitation set forth in
Paragraph 9.06(c), any and ail claims for the recovery of Losses must be brought
by Purchaser within eighteen (18) months after the Closing Date (the "Limitation
Period").
(b) Any and all funds remaining in the Escrow Account at the end of the
Limitation Period (the "Remaining Escrowed Funds"), along with the accrued
interest thereon, shall be released by the Escrow Agent to the former holders of
the Redeemed Preferred Stock, the former holders of the Accelerated Options
and/or the Purchased Options, the former holder of the GECC Preferred Stock and
to the Carryover Shareholders as follows: (i) 64.15% of the Remaining Escrowed
Funds, along with 64.15% of the accrued interest thereon, shall be disbursed to
the former holders of the Redeemed Preferred Stock, the former holders of the
Accelerated Options and/or Purchased Options and the Carryover Shareholders
based on the percentage of the Company's fully diluted common stock owned by
each such stockholder or option holder on November 6, 1996, as set forth in
Exhibit O hereto and (ii) 35.85% of the Remaining Escrowed Funds, along with
35.85% of the accrued interest thereon, shall be disbursed to the former holder
of the GECC Preferred Stock; provided, however, that as to any Loss Notices
submitted prior to the expiration of the Limitation Period in excess of the Loss
Threshold which do not involve a Third Party Claim and which remain unresolved
at the end of the Limitation Period, sufficient funds to cover the Losses which
are the subject thereof shall be retained by Escrow Agent in the Escrow Account
until the final resolution thereof between the Agent, on the one hand, and the
Company or the Purchaser, as applicable, on the other hand, in accordance with
the arbitration procedures set forth in Paragraph 9.05 or, in the event of a
Loss Notice which relates to a Third Party Claim which is admitted by the Agent
to be, or is determined by the arbitrator to, represent a breach of a
representation, warranty or covenant of the Company hereunder, until the final
resolution of such Third Party Claim however effected including by the decision
of a court of competentjurisdiction, by decision made upon administrative or
other non-judicial proceeding or by agreement of the parties thereto, at which
time the funds which are the subject of any such Loss Notice(s) shall be
disbursed in accordance with the order of the arbitrator, such court of
competent jurisdiction or such settlement agreement, as applicable, and,
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in the event any portion thereof is to be disbursed to the former shareholders
of the Company, such sum shall be disbursed in accordance with the percentages
reflected in this Paragraph 9.06(b).
(c) Notwithstanding anything to the contrary contained herein,
Purchaser acknowledges and agrees that the indemnity and escrow provisions
provided for herein are personal to Purchaser and accordingly that in the event
of a transaction involving the Company, other than one or more public offerings
of the stock of the Company, which results in a change in the controlling
shareholders thereof such that the shareholders immediately after the Closing
Date provided for herein own less than 50% of the stock of the Company (the
"Early Release Date"), any amounts then held in the Escrow Account which are not
the subject of a pending Loss Notice shall immediately upon the consummation of
such transaction be released to the former holders of the Redeemed Preferred
Stock and the former holder of the GECC Preferred Stock in the manner and
according to the percentages set forth in Paragraph 9.06(b) whether or not the
Limitation Period has expired as of such date. Any amounts remaining in the
Escrow Account after such Early Release Date shall be retained by Escrow Agent
in the Escrow Account until the final resolution thereof in accordance with the
procedures set forth in Paragraphs 9.04 and 9.05, at which time the funds which
are the subject of any such Loss Notice(s) shall be disbursed in accordance
with the provisions of Paragraph 9.06(b).
9.07. Escrow Agents' Fees. Any fees or expenses charged by the Escrow
Agent shall be shared by the Purchaser, on the one hand, and the Agent on behalf
of the former holders of the Redeemed Preferred Stock and the former holder of
the GECC Preferred Stock, on the other hand, on a 50-50 basis, and shall be paid
from any disbursements which the parties are entitled to receive from the Escrow
Account or from any interest earnings thereon.
9.08. Resignation or Removal of Escrow Agent. The parties acknowledge
and agree that the Escrow Agent shall have the right to resign or to be removed
by mutual agreement of the parties and the parties agree to negotiate in good
faith with respect to the designation of a replacement Escrow Agent in the event
of such resignation or replacement; provided, however, that in the event the
parties are unable to so agree prior to the effective date of said resignation
or removal, the Escrow Agent shall deposit any amounts then held by it in the
Escrow Account with a court of competent jurisdiction which shall hold the same
until the parties are able to agree upon a replacement Escrow Agent or one is
otherwise appointed by said court.
9.09. Indemnity of Escrow Agent. The parties acknowledge and agree that
the Escrow Agent shall not have any liability hereunder with respect to the
protection or disbursement of the funds in the Escrow Account absent gross
negligence or wilful misconduct by the Escrow Agent in performing its duties
hereunder and accordingly the parties do hereby agree to indemnify, defend and
hold harmless the Escrow Agent from and against any and all Losses which it may
incur as a result of the performance of its duties hereunder absent gross
negligence or wilful misconduct of the Escrow Agent.
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9.10. Further Assurances. The parties agree to execute and to deliver
any and all documents as may be reasonably requested by the Escrow Agent to
evidence its assumption of the duties and obligations provided for herein, the
limitation on its liability as provided for herein, and its right to indemnity
and to reimbursement by the parties in accordance with the terms hereof.
9.11. Adjustment of Investment Proceeds. Amounts paid for
indemnification under Article IX shall be deemed to be an adjustment to the
amount of the Investment Proceeds paid under Paragraph 1.04(b).
9.12. Access to Books and Records. From the Closing Date until the
final determination of any matters which are the subject of a Loss Notice and a
Dispute Notice, the Agent and his representatives will have access to the books,
records and accounts of the Purchaser and the Company and its and their
employees.
ARTICLE X
MISCELLANEOUS
10.01. Notices. Any notice, request or other communication to be given
by any party hereunder shall be in writing and shall be sent by registered or
certified mail, postage prepaid, by overnight delivery, hand delivery or
facsimile transmission to the following address:
To the Company Brim, Inc.
Prior to Closing: 305 NE 102nd Avenue
Portland, Oregon 97020
Attn: A. E. Brim, President
Phone: 503-256-2070
Fax: 503-254-7619
With copy to: The Nathanson Group
1411 Fourth Avenue, Suite 905
Seattle, WA 98101
Attn: Randi S. Nathanson
Phone: 206-623-6239
Fax: 206-623-1738
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To Purchaser: Golder, Thoma, Cressey, Rauner Fund IV. L.P.
6100 Sears Tower
Chicago, IL 60606-6402
Attn: Joe Nolan
Phone: 312-382-2227
Fax: 312-382-2201
With copies to: Waller Lansden Dortch & Davis
511 Union Street, Suite 2100
Nashville, TN 37219
Attn: Kevin D. Norwood
Phone: 615-244-6380
Fax: 615-244-6804
And with copies to: Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Attn: Kevin R. Evanich
Phone: 312-861-2000
Fax: 312-861-2200
To the Agent: Lee Zinsli
482 SW Riverbend Drive
West Linn, OR 97068
Phone: 503-656-2718
Fax: 503-655-8136
To the Company
after Closing: c/o Principal Hospital Company
5103 Paddock Village Court
Suite A-12
Brentwood, TN 37027
Attn: Martin Rash, President
Phone: 615-370-1377
Fax: 615-370-9539
with copies to: Waller Lansden Dortch & Davis
511 Union Street, Suite 2100
Nashville, TN 37219
Attn: Kevin D. Norwood
Phone: 615-244-6380
Fax: 615-244-6804
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Notices shall be deemed given three (3) business days after deposit in
the mail as provided herein or upon actual receipt if sent by overnight
delivery, facsimile transmission or hand delivery.
10.02. Assignment. No party may assign, directly or indirectly, its
rights or obligations hereunder without the prior written consent of the other
parties; provided, however, that, unless specifically agreed by the parties, no
such assignment shall release the assignor of its rights and obligations
hereunder. This Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their respective successors and permitted assigns,
including successors by operation of law pursuant to any merger, consolidation
or sale of assets involving either party. Nothing herein shall be construed as
prohibiting Purchaser from granting to its designees the right to participate in
the Investment in accordance with the provisions of Article I hereof.
10.03. Sole Agreement. This Agreement may not be amended or modified in
any respect whatsoever except by instrument in writing signed by the parties
hereto. This Agreement, the Disclosure Letter delivered pursuant hereto, the
documents executed and delivered pursuant hereto and the Confidentiality
Agreements, constitute the entire agreement between the parties hereto with
respect to the subject matter hereof and supersede all prior negotiations,
discussions, writings and agreements between them, including but not limited to
the Letter of Intent.
10.04. Captions. The captions of this Agreement are for convenience of
reference only and shall not define or limit any of the terms or provisions
hereof.
10.05. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Oregon.
10.06. Severability. Should any one or more of the provisions of this
Agreement be determined to be invalid, unlawful or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions hereof
shall not in any way be affected or impaired thereby.
10.07. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original; but such counterparts shall
together constitute but one and the same instrument.
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10.08. Company Disclosure Letter. Anything disclosed in this Agreement
or in the Company Disclosure Letter delivered pursuant to this Agreement or in
the Company Financial Statements shall be deemed to have been disclosed for any
and all purposes to which said information relates; provided, however, that the
disclosure in any section of the Company Disclosure Letter shall qualify any
other section of this Agreement only to the extent that it is reasonably
apparent from a reading of such disclosure that it also qualifies or applies to
such other section. Any updates or revisions to the Disclosure Letter delivered
by the Company after the date hereof shall for all purposes be deemed to be
incorporated into and made a part of the Company Disclosure Letter. The
Disclosure Letter may be updated from time to time prior to Closing and will be
updated as of, and at the Closing Date, if and to the extent necessary to
reflect changes in information disclosed therein, provided, however, that no
such additional disclosure shall be deemed to be accepted by Purchaser if such
disclosure reflects an event or series of events which would otherwise permit
Purchaser to terminate this Agreement for the failure of the conditions to
closing set forth in Paragraphs 8.01(a), (b) or (c) unless Purchaser
specifically accepts such disclosure in writing.
10.09. Knowledge Defined. To the extent that any of the representations
and warranties contained in this Agreement are limited by the phrases "to the
knowledge of" or "the Company has no knowledge of" or "Purchaser has no
knowledge of" or words or phrases of similar import, the same in the case of the
Company and the Subsidiaries, shall mean to the actual knowledge of Messrs.
K. David McAllister, A.E. Brim, John R Miller, Steven P. Taylor and James M.
Williams, after a diligent review of any documents or other information in their
possession or under their control and after making written inquiries of the
Chief Executive Officer, Chief Financial Officer and Director of Nursing of each
of the Leased Company Facilities, and in the case of Purchaser, shall mean to
the actual knowledge of Joseph Nolan after a diligent review of any documents or
other information in his possession or under his control and in the case of
Principal shall mean to the actual knowledge of Martin Rash and Richard Gore
after a diligent review of any documents or other information in their
possession or under their control. To the extent that any of the representations
and warranties contained in this Agreement refer to verbal notice to a party
such notice shall be deemed to have been received if delivered to any officer of
such party or to an officer of one of its subsidiaries.
10.10. Third Party Beneficiary. Except as provided in Paragraphs 1.08
and 9.06(b), with respect to the former common and preferred shareholders of the
Company, the former holders of the Purchased Options and/or Accelerated Options
and the Carryover Shareholders, and in Paragraph 5.03(g), with respect to the
employees described therein, and in Paragraphs 5.03(h), (i) and (j), with
respect to the persons who were officers or directors of the Company on or prior
to the Closing Date, nothing in this Agreement express or implied is intended to
and shall not be construed to confer upon or create in any person, other than
the parties hereto, which parties shall include Purchaser's designees who
execute a counterpart of this Agreement or separate certificate pursuant to
Paragraph 4.08(f), any rights or remedies under or by reason of this Agreement,
including without limitation, any right to enforce this Agreement.
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10.11. Waiver of Jury Trial. EACH OF THE PARTIES HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL ACTION BROUGHT ON OR WITH RESPECT TO
THIS AGREEMENT, INCLUDING TO ENFORCE OR DEFEND ANY RIGHTS HEREUNDER AND AGREES
THAT ANY SUCH ACTION SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
10.12. Attorneys' Fees. In the event of a dispute between the parties
hereto with respect to the interpretation or enforcement of the terms hereof,
the prevailing party in any action resulting therefrom shall be entitled to
collect from the other its reasonable costs and attorneys' fees, including its
costs and fees on appeal.
10.13.Construction. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state or local
statute or law shall be deemed also to refer to all rules and regulations
promulgated thereunder, unless the context requires otherwise. The word
"including" shall mean "including without limitation." In any instance in which
the consent of Purchaser is required, it shall be deemed to have been granted if
provided by Joe Nolan and in any instance in which the consent of Principal is
required, it shall be deemed to have been granted if provided by Richard Gore or
Martin Rash.
10.14. Expenses. Except as otherwise provided in Paragraph 9.05, each
party shall bear its own costs and expenses (including legal fees and expenses)
incurred in connection with this Agreement and the transactions contemplated
hereby; provided, however, that Principal shall be solely responsible for any
HSR Act filing fee and the Company shall be solely responsible for any fee due
to Smith Barney with respect to the Transactions. In addition, the Company shall
also bear the first $200,000 of any costs and expenses associated with the
Senior Living Transaction or the Excluded Assets Transaction, with any costs
related to the Senior Living Transaction and the Excluded Assets Transaction in
excess thereof being deducted from the redemption proceeds due to the holders of
the Redeemed Preferred Stock and the Redeemed GECC Preferred Stock prior to the
distribution thereof to said stockholders.
10.15. Survival. The representations and warranties of the Company
shall survive for a period of eighteen (18) months after the Closing and shall
be subject to the escrow and indemnity provisions of Article IX hereof. The
covenants of Purchaser set forth in Paragraph 6.03(a) and of Principal set forth
in Paragraphs 6.01A(a) and 6.03(b) shall survive the termination of this
Agreement for a period of three years and, except as modified by the terms of
Paragraphs 6.01A(a), 6.03(a) and 6.03(b), the covenants in the Confidentiality
Agreement by which the Purchaser and Principal agreed to be bound under the
terms of the Letter of Intent shall survive termination for the three year
period stated therein.
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IN WITNESS WHEREOF, the parties hereby execute this Agreement as of the day
and year first set forth therein.
BRIM, INC.
By: /s/ A. E. Brim
------------------------------------
Its: President
GOLDER, THOMA, CRESSEY, RAUNER FUND IV, L.P.
By: /s/ Joseph P. Nolan
------------------------------------
Its: Principal
Principal Hospital Company does hereby sign this Agreement for the sole purpose
of being bound by Paragraphs 4.01A, 4.02A, 5.01, 6.01A, 6.03(b), 7.02(a), 7.06,
9.02(a), 10.09, 10.13, 10.14 and 10.15 of the Investment Agreement.
PRINCIPAL HOSPITAL COMPANY
By: /s/ Martin S. Rash
------------------------------------
Its: President
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EXHIBIT INDEX
A First Union Commitment Letter and Investment Commitment Letter
B Carryover Shareholders: Names and Percentage Ownership in Carryco
C Form of Carryco/Brim Merger Agreement
D Senior Preferred Rights and Preferences
E Junior Preferred Rights and Preferences
F GE Stock Purchase Agreement
G Senior Living Assets
H Employment Agreements
I Resigning Officers and Directors
J Certain Officers Subject to Post Closing Covenants
K Office Lease
L Shared Services Agreement
M Brim/PHC Merger Agreement
N Shareholder Agreement Term Sheet
O Pre Closing Shareholders: Names and Percentage Interests
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AGENT'S ACKNOWLEDGMENT
The undersigned does hereby execute this Agreement for the sole purpose
of acknowledging his agreement on the terms and subject to the conditions set
forth in an Agency Agreement to be executed between him and representatives of
the former holders of the Redeemed Preferred Stock and the GECC Preferred Stock
(the "Agency Agreement") to act as the agent for the former holders of the
Redeemed Preferred Stock and the GECC Preferred Stock with respect to any claims
for Losses made by the Purchaser under Article IX of this Investment Agreement.
The undersigned does not hereby assume any liability for the acts or omissions
of any party to this Investment Agreement nor for any errors or omissions in
serving as the Agent except as otherwise provided in the Agency Agreement.
/s/ Lee Zinsli
-----------------------------
Lee Zinsli, Agent
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Exhibit 10.2
FIRST AMENDMENT TO INVESTMENT AGREEMENT
This Amendment is made and entered into as of this 17th day of
December, 1996 by and between Brim, Inc. (the "Company") and Golder, Thoma,
Cressey, Rauner Fund IV, L.P., a Delaware limited partnership ("Purchaser") and
Principal Hospital Company, a Delaware corporation ("Principal").
RECITALS
A. The Company, Purchaser and Principal are parties to that Investment
Agreement dated November 21, 1996 (the "Investment Agreement").
B. After execution of the Investment Agreement, the Company, Purchaser
and Principal agreed to amend the indemnity provisions thereof.
C. The Investment Agreement provides that it may be amended by written
instrument signed by the Company, Purchaser and Principal.
D. The Company, Purchaser and Principal are interested in documenting
the terms and conditions on which the indemnity provisions shall be amended.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants of the parties set forth herein, IT IS HEREBY AGREED AS FOLLOWS:
AGREEMENT
1. Section 1.04(b) is hereby deleted in its entirety and the following
inserted instead:
(b) On the Closing Date, subject to the terms and conditions set forth
herein, the Company shall issue (i) to Purchaser's designees and the
Purchaser's designees shall purchase from the Company 20,000 shares of
the Senior Preferred Stock, for an aggregate purchase price of $20
million, and (ii) to Purchaser and/or its designees and the Purchaser
and/or its designees shall purchase from the Company such number of
shares of the Junior Preferred Stock and shares of Common Stock as
shall be necessary to ensure that there are sufficient funds available
at Closing to consummate the redemption of the Redeemable Junior
Preferred and the GECC Preferred in accordance with the terms hereof,
which funds are currently anticipated to be approximately $10,000,000.
The aggregate purchase price for the New Preferred Stock and the common
stock to be purchased by Purchaser and its designees is estimated to be
approximately $30,000,000, and is referred to herein as the "Investment
Proceeds." On the Closing Date, the Investment Proceeds and the First
Union Loan Proceeds shall be payable to the Company as follows:
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(i) Sixty Nine Million Eight Hundred Thousand and no/100
Dollars ($69,800,000) shall be paid in immediately available
funds by wire transfer to the Company.
(ii) Four Million and no/100 Dollars ($4,000,000) shall be
paid in immediately available funds to an interest bearing
escrow account established by the Escrow Agent and designated
as the "Brim/Principal Escrow Account" to be held by the
Escrow Agent.
(iii) Fifty Six Thousand Six Hundred Sixty Eight and 81/100
Dollars ($56,668.81) shall be paid in immediately available
funds to an account designated by Purchaser for the benefit of
the Company in payment of the remaining balance of the
intercompany loans described in 5.0l(a)(ii)(E).
(iv) One Hundred Forty Three Thousand Three Hundred Thirty One
and 19/100 Dollars ($143,331.19) shall be paid in immediately
available funds to the Agent/Legal Fees Expense Account to be
used by Lee Zinsli, as the agent for the benefit of the former
holders of the Redeemed Preferred Stock and of the GECC
Preferred Stock (the "Agent") to pay any costs and expenses
incurred by the Agent in connection with any claims made under
the indemnity provisions hereof and/or under the indemnity
provisions of the Senior Living Escrow Agreement. The funds in
the Brim/Principal Escrow Account shall be disbursed in
accordance with the provisions of Article IX hereof and/or any
Escrow Agreement which may be executed pursuant thereto.
2. The table set forth in Section 1.07 and Section 1.08 are
hereby amended to reflect that pursuant to the last sentence of Section
1.08 the Company and Purchaser have reviewed the Estimated Senior
Living Tax Liability reflected in the Investment Agreement and have
agreed that the amount of the Estimated Senior Living Tax Liability
shall, for all purposes of the Investment Agreement, be $2,834,464.
3. Section 2.03 is hereby amended to provide that the Outside
Closing Date shall be December 18, 1996. The Company and Purchaser
acknowledge and agree that certain documents executed in connection
with the Transactions will be dated December 17, 1996. Nothing therein
shall be construed as inferring in any manner that the Closing
occurred, or that Purchaser or its designees were shareholders of the
Company, either prior to December 18, 1996 or prior to the consummation
of the Divestitures.
4. Section 9.03 is hereby deleted in its entirety and the
following inserted instead:
9.03. Indemnification. Provided that this Agreement has not
been terminated pursuant to Paragraph 9.01, from and after the
Closing Date, the Company shall indemnify the Purchaser, its
partners and affiliates, Purchaser's designees and their
respective partners, officers, directors, employees and
affiliates from and against any and all claims, damages,
losses, expenses, costs (including reasonable attorneys fees),
deficiencies, penalties,
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interest, fines, obligations or liabilities of any kind and
claims brought by third parties (collectively "Losses")
suffered or incurred by the Purchaser its partners and
affiliates, Purchaser's designees and their respective
partners, officers, directors, employees and affiliates or by
the Company or its officers, directors, employees or
affiliates in the event:
(a) Of a breach by the Company of its
representations, warranties or covenants set forth in this
Agreement; provided, however, that the Purchaser's recourse
for any and all such Losses shall be limited to the funds on
deposit in the Escrow Account (excluding the funds in the
Agent/Legal Fees Expense Account) described in Paragraph 1.04
hereof and shall be further limited by the provisions of
Paragraph 9.06 below; provided, further, that the Purchaser's
recourse for any and all Losses arising from a breach of the
covenants set forth in Paragraphs 5.0l(a)(ii)(C) and (E) shall
be subject to the Limitation Period set forth in Paragraph
9.06(a), but shall not be subject to the Loss Threshold set
forth in Paragraph 9.06(a).
(b) A request for a Supplementary Advance
Reimbursement is made by Brim, Inc. after Closing under the
terms of the BSL Merger Agreement and either (i) the parties
agree, after the audit thereof by Encore pursuant to the
rights granted to it under the BSL Merger Agreement, or (ii) a
determination is made pursuant to the arbitration provisions
set forth in the BSL Merger Agreement, that, in either case,
the amount was advanced in respect of the Development Projects
(as that term is defined in the BSL Merger Agreement) but was
not expended in accordance with the requirements of the BSL
Merger Agreement (the "Advance Reimbursement Indemnity");
provided, however, that the Purchaser's recourse for amounts
which are the subject of the Advance Reimbursement Indemnity
shall be limited to the funds on deposit in the Escrow Account
(excluding the funds in the Agent/Legal Fees Expense Account)
described in Paragraph 1.04 hereof shall be subject to the
Limitation Period set forth in Paragraph 9.06(a) but shall not
be subject to the Loss Threshold set forth in Paragraph
9.06(a).
(c) Any and all costs and expenses associated with
the Senior Living Transaction or the Excluded Assets
Transaction in excess of $1,000,000, for which the Redemption
Price was to be adjusted pursuant to Section 1.07 but which,
as a result of differences between the estimated Purchase
Price Adjustments used in calculating the Net Redemption Price
and the actual costs to the Company, were not fully accounted
for in calculating the Net Redemption Price paid at Closing
(the "Transaction Costs Indemnity"); provided, however, that
the Purchaser's recourse for amounts which are the subject of
the Transaction Costs Indemnity shall be limited to the funds
on deposit in the Escrow Account (excluding the funds in the
Agent/Legal Fees Expense Account) described in Paragraph 1.04
hereof shall be subject to the Limitation Period set forth in
Paragraph 9.06(a) but shall not be subject to the Loss
Threshold set forth in Paragraph 9.06(a).
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5. Section 9.06(a) is hereby deleted in its entirety and the following
inserted instead:
Except as otherwise specifically provided in Paragraph 9.03(a) with
respect to a breach of the covenants set forth in Paragraphs
5.0l(a)(ii)(C) and (E) and in Paragraph 9.03(b) with respect to the
Advance Reimbursement Indemnity and, Purchaser shall have no right to
recover with respect to any Losses until the amount of all such Losses
is equal to or greater than Five Hundred Thousand and no/100 Dollars
($500,000) individually or in the aggregate (the "Loss Threshold") and
thereafter Purchaser shall only be entitled to recover Losses suffered
or incurred by it or the Company in excess of the Loss Threshold. In
addition and subject to the further limitation set forth in Paragraph
9.06(c), any and all claims for the recovery of Losses must be brought
by Purchaser within eighteen (18) months after the Closing Date (the
"Limitation Period") with the exception of claims for the recovery of
Losses arising from a breach by the Company of its representation and
warranties set forth in Paragraph 3.11 which must be brought within
thirty one (31) months after the Closing Date (the "Tax Limitation
Period").
6. Section 9.06(b) is hereby deleted in its entirety and the following
inserted instead:
(i) Except as otherwise specifically provided in Paragraphs 9.06(b)(ii)
and (iii), any and all funds remaining in the Escrow Account at the end
of the Limitation Period (the "Remaining Escrowed Funds"), along with
the accrued interest thereon, shall be released by the Escrow Agent to
the former holders of the Redeemed Preferred Stock, the former holders
of the Accelerated Options and/or the Purchased Options, the former
holder of the GECC Preferred Stock and to the Carryover Shareholders
(collectively, the "Former Holders") as follows: (i) 64.15% of the
Remaining Escrowed Funds, along with 64.15% of the accrued interest
thereon, shall be disbursed to the Former Holders based on the
percentage of the Company's fully diluted common stock owned by each
such stockholder or option holder on November 6, 1996, as set forth in
Exhibit O hereto and (ii) 35.85% of the Remaining Escrowed Funds, along
with 35.85% of the accrued interest thereon, shall be disbursed to the
former holder of the GECC Preferred Stock.
(ii) Notwithstanding the foregoing, as to any Loss Notices submitted
prior to the expiration of the Limitation Period in excess of the Loss
Threshold which do not involve a Third Party Claim and which remain
unresolved at the end of the Limitation Period, sufficient funds to
cover the Losses which are the subject thereof shall be retained by
Escrow Agent in the Escrow Account until the final resolution thereof
between the Agent, on the one hand, and the Company or the Purchaser,
as applicable, on the other hand, in accordance with the arbitration
procedures set forth in Paragraph 9.05 or, in the event of a Loss
Notice which relates to a Third Party Claim which is admitted by the
Agent to be, or is determined by the arbitrator to, represent a breach
of a representation, warranty or covenant of the Company hereunder,
until the final resolution of such Third Party Claim however effected
including by the decision of a court of competent jurisdiction, by
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decision made upon administrative or other non-judicial proceeding or
by agreement of the parties thereto, at which time the funds which are
the subject of any such Loss Notice(s) shall be disbursed in accordance
with the order of the arbitrator, such court of competent jurisdiction
or such settlement agreement, as applicable, and, in the event any
portion thereof is to be disbursed to the Former Holders, such sum
shall be disbursed in accordance with the percentages reflected in
Paragraph 9.06(b)(i).
(iii) Notwithstanding the foregoing, the sum of Two Hundred Thousand
and no/100 Dollars or the Remaining Escrowed Funds, whichever is less
(the "Tax Escrow Funds") shall remain in escrow until the end of the
later of (A) the Tax Limitation Period or (B) the final resolution of
any Losses as to which a Loss Notice is pending at the end of the Tax
Limitation Period however such resolution is effected including by the
decision of a court of competent jurisdiction, by decision made upon
administrative or other nonjudicial proceeding or by agreement of the
parties thereto, at which time the Tax Escrow Funds shall be disbursed
either (X) to the Former Holders if no such Loss Notices are pending at
the end of the Tax Limitation Period or (Y) in accordance with the
order of the arbitrator, such court of competent jurisdiction or such
settlement agreement, as applicable, if such Loss Notices are pending
at the end of the Tax Limitation Period, and in either event any
portion of the Tax Escrow Funds which is to be disbursed to the Former
Holders shall be disbursed in accordance with the percentages reflected
in Paragraph 9.06(b)(i).
7. The following is inserted as Paragraph 9.13:
9. 13. Income Taxes. The Company and the Purchaser acknowledge and
agree that the funds in the Escrow Account described in Paragraph 1.04
shall, except as otherwise provided herein, be deemed for purposes of
the tax laws to be the property of the Former Holders and accordingly
that the Former Holders shall be required to pay income taxes on any
interest earned thereon. Notwithstanding the foregoing, if and to the
extent, pursuant to Paragraph 9.07, the Purchaser utilizes the interest
earned on the funds in the Escrow Account to pay its portion of the
fees or expenses charged by the Escrow Agent or receives a disbursement
for taxes as set forth below, such interest income shall be deemed for
purposes of the tax laws to be the property of the Purchaser and
accordingly the Purchaser shall be required to pay income taxes on the
amount of interest earnings so utilized by it. The Company and the
Purchaser further acknowledge and agree that each of the Former Holders
and the Purchaser shall have the right to withdraw from interest earned
on the funds in the Escrow Account sufficient funds to paid said income
taxes on the foregoing amounts at an assumed tax rate of 45% in the
case of the Former Holders and 42% in the case of the Purchaser and
that any interest on the Escrow Account available for disbursement
pursuant to the terms hereof shall be reduced by such amount.
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8. Except as specifically set forth herein, the Investment Agreement
shall remain in full force and effect as originally executed.
SIGNATURES ON FOLLOWING PAGE
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IN WITNESS WHEREOF, the parties hereby execute this Agreement
as of the day and year first set forth therein:
BRIM, INC.
By: /s/ A. E. Brim
----------------------------------
Its: President
---------------------------------
GOLDER, THOMA, CRESSEY, RAUNER FUND IV, L.P.
By: /s/ Bruce Rauner
------------------------------------
Its: Principal
----------------------------------
ACKNOWLEDGEMENT OF PRINCIPAL AND AGENT
The undersigned, being parties to the Investment Agreement do
hereby acknowledge the amendments to the Investment Agreement provided for above
and do hereby reaffirm their obligations under the Investment Agreement
notwithstanding the amendments provided for above.
PRINCIPAL HOSPITAL COMPANY
By: /s/ Martin S. Rash
-----------------------------------
Its: CEO
----------------------------------
/s/ Lee Zinsli
-----------------------------
LEE ZINSLI, AGENT
<PAGE> 1
Exhibit 10.4
PREFERRED STOCK PURCHASE AGREEMENT
PREFERRED STOCK PURCHASE AGREEMENT, dated as of November 25,
1996 (the "Agreement"), between Brim, Inc., an Oregon corporation (the
"Purchaser"), and General Electric Capital Corporation, a New York corporation
(the "Seller").
BACKGROUND
A. The Purchaser has entered into the following series of agreements:
(i) That Investment Agreement dated November 21, 1996 (the "Investment
Agreement") by and between Purchaser and Golder, Thoma, Cressey, Rauner Fund IV,
L.P. ("Golder Thoma") which contemplates, among other things, that Golder Thoma
and/or its designee will acquire certain newly issued shares of common and
preferred stock of the Purchaser (the "Investment Transaction").
(ii) That Merger Agreement dated November27, 1996 (the "BSL Merger
Agreement") by and among the Purchaser, Brim Senior Living, Inc. ("BSL") and
Encore Senior Living, LLC ("Encore"), pursuant to which, among other things, BSL
will be merged with and into Encore and certain assets of the Purchaser related
to the business conducted by BSL will be sold to Encore (the "BSL Merger and
Related Transactions").
(iii) That Stock Purchase Agreement dated November 27, 1996 (the "MSL
Stock Purchase Agreement") by and between the Purchaser and CC Lantana, Inc.
("CC") pursuant to which, among other things, CC will acquire from Purchaser all
of the issued and outstanding stock of its wholly owned subsidiary Meridian
Senior Living, Inc. (the "MSL Transaction").
(iv) That Purchase Agreement dated November 25, 1996 (the "Meridian
Purchase Agreement") by and among Purchaser and K. David McAllister and James
Williams pursuant to which, among other things, Messrs. Williams and McAllister
will acquire from Purchaser its limited partnership interest in Meridian Park
Village Limited Partnership (the "Meridian Park Transaction").
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(v) That Purchase Agreement dated November 25, 1996 (the "Plaza
Purchase Agreement") by and among Purchaser, certain subsidiaries of Purchaser
and Plaza Enterprises, LLC ("Plaza"), pursuant to which, among other things,
Plaza will acquire from Purchaser and such subsidiaries certain medical office
buildings and a home health business in which Purchaser and said subsidiaries
are currently engaged (the "Plaza Transaction").
Hereinafter the Investment Transaction, the BSL Merger and Related
Transactions, the MSL Transaction, the Meridian Park Transaction and the Plaza
Transaction will be collectively referred to as the "Transactions" and the
Investment Agreement, the BSL Merger Agreement, the MSL Stock Purchase
Agreement, the Meridian Purchase Agreement and the Plaza Purchase Agreement will
be collectively referred to as the "Transaction Documents."
B. In connection with its entering into the Transaction Documents, the
Purchaser has requested that the Seller enter into this Agreement pursuant to
which the Purchaser shall repurchase all 96,000 shares of Series A Cumulative
Convertible Preferred Stock of the Purchaser (the "Preferred Stock") owned by
Seller (the "Seller's Shares") upon the terms and subject to the conditions
hereinafter set forth.
TERMS
In consideration of the respective representations, warranties,
covenants and agreements of the parties set forth in this Agreement, the
parties hereto agree as follows:
1. Representations and Warranties of Seller. Seller hereby represents
and warrants to Purchaser that:
(a) Organization. Seller is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization, and has
all requisite power and authority to own, lease and operate its properties and
to carry on its business as now being conducted.
(b) Share Ownership. Seller owns 96,000 shares of Preferred Stock of
record or beneficially, as of the date hereof. Seller owns all such shares free
and clear of all liens, encumbrances, equities or claims.
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(c) Authority. Seller has all requisite corporate power and authority
to execute and deliver this Agreement, to perform its obligations hereunder and
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement by Seller, the performance of this Agreement by Seller and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action and no other corporate proceeding on the part
of Seller is necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Seller and, assuming the due authorization, execution and delivery
hereof by Purchaser, constitutes the valid and binding obligation of Seller,
enforceable against Seller in accordance with its terms, except as such
enforceability may be limited by creditors' rights laws or general principles of
equity.
(d) No Conflict: Required Filings and Consents.
(i) The execution and delivery of this Agreement by Seller does not,
and the performance of this Agreement by Seller and the consummation of the
transactions contemplated hereby will not, conflict with or violate any of the
Certificate of Incorporation or Bylaws of Seller, conflict with or violate any
laws applicable to Seller or by or to which any of Seller's properties or assets
is bound or subject or result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, or require payment under, or result in the creation of a lien
on any of the properties or assets of Seller, pursuant to any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which Seller is a party or by which Seller or
any of Seller's properties or assets is bound or subject, in each case, other
than any conflict, violation, breach, default, right, payment or lien which
would not, individually or in the aggregate, have a material adverse effect on
the Seller or on its ability to sell the Seller's Shares to Purchaser pursuant
to this Agreement.
(ii) The execution and delivery of this Agreement by Seller does not,
and the performance by Seller of this Agreement and the consummation of the
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transactions contemplated hereby will not, require Seller to obtain any consent,
approval, authorization or permit of, or to make any filing with or notification
to, any governmental entity, in each case, other than any consent, approval,
authorization, permit, filing or notification, which, if not made or obtained,
would not, individually or in the aggregate, have a material adverse effect on
the Seller or on its ability to sell the Seller's Shares to Purchaser pursuant
to this Agreement.
(e) Absence of Litigation. There is no claim, action, suit, proceeding
or investigation of any kind, at law or in equity (including actions or
proceedings seeking injunctive relief), by or before any governmental entity
pending or, to the knowledge of Seller, threatened against Seller or affecting
any of Seller's businesses, assets or rights that would impair Seller's ability
to consummate the transactions contemplated hereby and Seller is not a party or
subject to or in default under any judgment, order or decree of any governmental
entity that could impair its ability to consummate the transactions under this
Agreement.
(f) Brokers. No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Seller.
(g) Purchaser's Proxy Statement. Seller has received and reviewed a
copy of the Proxy Statement dated November 29, 1996 (the "Proxy Statement)
regarding the Transactions (as defined in the Investment Agreement).
2. Representations and Warranties of Purchaser. Purchaser hereby
represents and warrants to Seller that:
(a) Organization. Purchaser is a corporation duly organized and validly
existing under the laws of the State of Oregon and has all requisite corporate
power and corporate authority to own, lease and operate its properties and to
carry on its business as now being conducted.
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(b) Authority. Purchaser has all requisite corporate power and
corporate authority to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement by Purchaser, the performance of
this Agreement by Purchaser and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
(including, without limitation, approval by the Purchaser's Board of Directors)
and no other corporate proceeding on the part of Purchaser is necessary to
authorize this Agreement or to consummate the transactions contemplated hereby
other than the approval of the consummation of the transactions contemplated
hereby by the shareholders of Purchaser. This Agreement has been duly executed
and delivered by Purchaser and, assuming the due authorization, execution and
delivery hereof by Seller and approval of the Transactions by the shareholders
of Purchaser, constitutes the valid and binding obligation of Purchaser,
enforceable against Purchaser in accordance with its terms, except as such
enforceability may be limited by applicable creditors' rights laws or general
principles of equity.
(c) No Conflict: Required Filings and Consents.
(i) The execution and delivery of this Agreement by Purchaser does not,
and the performance of this Agreement by Purchaser and the consummation of the
transactions contemplated hereby will not, conflict with or violate the Restated
Certificate of Incorporation or By-Laws of Purchaser, conflict with or violate
any laws applicable to Purchaser or by or to which any of its properties or
assets is bound or subject or result in any breach of or constitute a default
(or an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or require payment under, or result in the creation of a lien
on any of the properties or assets of Purchaser, pursuant to any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which Purchaser is a party or by which
Purchaser or any of its properties or assets is bound or subject, in each case,
other than any conflict, violation, breach, default, right, payment or lien
which would not, individually or in the aggregate, have a material adverse
effect on the
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Purchaser or on its ability to purchase the Seller's Shares from
Seller pursuant to this Agreement.
(ii) The execution and delivery of this Agreement by Purchaser does
not, and the performance by Purchaser of this Agreement and the consummation of
the transactions contemplated hereby will not, require Purchaser to obtain any
consent, approval, authorization or permit of, or to make any filing with or
notification to, any governmental entity other than those provided for in the
Transaction Documents and other than any consent, approval, authorization,
permit, filing or notification, which, if not made or obtained, would not,
individually or in the aggregate, have a material adverse effect on the
Purchaser or on its ability to purchase the Seller's Shares from Seller pursuant
to this Agreement.
(d) Brokers. No broker, finder, or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Purchaser, other than that fee due to Smith Barney which has acted
as a financial advisor to Purchaser in connection with the Transactions, which
fee shall be paid by, and remain the sole responsibility of, Purchaser in the
case of the BSL Merger and Related Transactions and of Golder Thoma in the case
of the Investment Transaction, in each case, under the terms of the Transaction
Documents.
(e) Disclosure. The Proxy Statement does 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 in light of the circumstances under
which they were made not misleading. True and complete copies of each of the
Transaction Documents have been furnished to Seller and there are no other oral
or written agreements or commitments relating to the Transactions.
(f) Absence of Litigation. There is no claim, action, suit, proceeding
or investigation of any kind, at law or in equity (including actions or
proceedings seeking injunctive relief), by or before any governmental entity
pending or, to the knowledge of Purchaser, threatened against Purchaser or
affecting any of
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Purchaser's businesses, assets or rights that would impair Purchaser's ability
to consummate the transactions contemplated hereby and Purchaser is not a party
or subject to or in default under any judgment, order or decree of any
governmental entity that could impair its ability to consummate the transactions
under this Agreement.
3. Purchase and Sale of Shares.
(a) At the Closing provided for in Section 4 of this Agreement (the
"Closing") and subject to the conditions set forth in Section 5 of this
Agreement, the Seller will sell, transfer and deliver the Seller's Shares to the
Purchaser (duly endorsed for transfer in blank or accompanied by stock transfer
powers duly executed in blank, with all necessary stock transfer tax stamps
affixed and canceled) and the Purchaser will purchase the Seller's Shares for
the following amount: Thirty Million Three Thousand One Hundred Six and no/100
Dollars ($30,003,106), representing an accrued dividend of Two Million Six
Hundred Twenty Four Thousand and no/100 Dollars ($2,624,000) and Twenty Seven
Million Three Hundred Seventy Nine Thousand One Hundred Six and no/100 Dollars
($27,379,106) as the purchase price for the Seller's Shares. The foregoing
assumes that the Closing occurs on or after December 1 and on or before December
15, 1996. In the event the Closing occurs after the date of this Agreement but
prior to December 1, the Purchaser will purchase the Seller's Shares for the
following amount: Twenty Nine Million Nine Hundred Eighty Seven Thousand One
Hundred Six and no/100 Dollars ($29,987,106), representing an accrued dividend
of Two Million Five Hundred Ninety Two Thousand and no/100 Dollars ($2,592,000)
and Twenty Seven Million Three Hundred Ninety Five Thousand One Hundred Six and
no/100 Dollars ($27,395,106) as the purchase price for the Seller's Shares. The
foregoing also assumes the costs to the Company of the Senior Living Transaction
shall not exceed $500,000. In the event the costs are greater or less than said
amount, the amount due to Seller shall be adjusted accordingly.
(b) In addition, Seller shall have an interest in Two Million One
Hundred Sixty Eight Thousand Eight Hundred Forty Four and no/100 Dollars
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($2,168,844) of the amounts deposited by the purchasers under the Investment
Agreement, the BSL Merger Agreement and the MSL Stock Purchase Agreement in the
Escrow Accounts and the Agents/Legal Fees Expense Account created under the
terms thereof, each in accordance with the terms of the Investment Agreement,
the BSL Merger Agreement and the MSL Stock Purchase Agreement and any escrow
agreements executed pursuant thereto and in any distribution which may be made
under Section 1.08 of the Investment Agreement.
(c) Each of Seller and Purchaser will, upon request of the other,
promptly execute and deliver all additional documents reasonably deemed by the
requesting party to be necessary, appropriate or desirable to effect, complete
and evidence the sale and purchase, assignment, and transfer of the Seller's
Shares pursuant to this Agreement. In the event of any change in the number of
Seller's Shares outstanding by recapitalization, declaration of a stock split or
combination or payment of a stock dividend or the like, the number of Seller's
Shares to be transferred to the Purchaser and purchase price to be made to the
Seller shall be adjusted accordingly.
4. Closing. The closing of the purchase and sale hereunder shall take
place immediately after the consummation of the Investment in accordance with
the terms of the Investment Agreement at the offices of Purchaser, or at such
other time and place as the parties may mutually agree. At the Closing, Seller
shall deliver the Seller's Shares and the Purchaser shall pay the purchase price
therefore and the accrued dividends thereon in accordance with the provisions of
Section 3 hereof.
5. Conditions.
(a) The obligations of each of the parties to this Agreement shall be
subject to the satisfaction or waiver, if applicable, at the Closing of each of
the following conditions, each of which may be satisfied concurrently:
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(i) the Transactions contemplated by the terms of the Transaction
Documents shall have been consummated; and
(ii) no order, decree or injunction of a court of competent
jurisdiction which prevents the consummation of the transactions contemplated by
this Agreement or of the Transactions contemplated by the Transaction Documents
shall be in effect.
(b) The obligations of the Purchaser under this Agreement shall also be
subject to the representations and warranties of the Seller being true, correct
and complete in all material respects as of the date hereof and as of the
Closing, and the Seller having complied with its covenants hereunder.
(c) The obligations of the Seller under this Agreement shall be subject
to the representations and warranties of the Purchaser being true, correct and
complete in all material respects as of the date hereof and as of the Closing,
and the Purchaser having complied with its covenants hereunder.
6. Prohibited Transactions. From the date hereof through the Closing
or the earlier termination or expiration of this Agreement, except as provided
for herein, the Seller agrees not to:
(a) sell, transfer, pledge, assign or otherwise dispose of, or enter
into any contract, option or other arrangement or understanding with respect to
the sale, transfer, pledge, assignment or other disposition of any of the
Seller's Shares; or
(b) grant any proxies, deposit any or all of the Seller's Shares into a
voting trust or enter into a voting agreement with respect to any of the
Seller's Shares.
7. Termination of Certain Agreements. Each of Seller and Purchaser
hereby irrevocably consents to the termination of, and hereby terminates
effective upon the purchase of the Seller's Shares at the Closing, the following
agreements
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<PAGE> 10
to which Seller and Purchaser are a party and by which Seller and Purchaser or
Seller's Shares are or may be bound:
(a) That Stock Purchase Agreement dated as of July 16, 1993 between
Purchaser and Seller;
(b) That Shareholders' Agreement dated as of July 16, 1993 between
Purchaser and Seller and the shareholders listed therein (the "GE Shareholders
Agreement");
(c) That Registration Rights Agreement dated as of July 16, 1993
between Purchaser and Seller.
8. Waivers and Consents. In consideration for the purchase of the
Seller's Shares and the representations and warranties of Purchaser set forth
herein, Seller does hereby:
(a) Irrevocably waive any right to participate as (i) a member in
Encore, (ii) a member in Plaza, (iii) a shareholder in Purchaser or (iv) a
general or limited partner in Meridian after the closing of the Transactions;
provided, however, that nothing herein shall be construed as a waiver by Seller
of its right to participate in the receipt of any funds which may be distributed
from the escrow accounts created under the terms of the Investment Agreement,
the BSL Merger Agreement and the MSL Stock Purchase Agreement or which may be
distributed pursuant to Section 1.08 of the Investment Agreement. Seller
acknowledges and agrees that Golder Thoma and/or its designee, Encore, Plaza, CC
and Messrs. McAllister and Williams, respectively, are and shall be intended
third party beneficiaries of this Section 8.
(b) Consent to the transfer, immediately prior to the consummation of
the merger of Purchaser and Carryco, Inc. contemplated by the Investment
Agreement, by those persons identified in the Investment Agreement as Carryover
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<PAGE> 11
Shareholders of certain of their shares of Purchaser to Carryco, Inc. in
accordance with the terms of the Investment Agreement.
(c) Consent to the amendment of the Purchaser's Articles of
Incorporation to increase the number of authorized preferred shares to include
the junior redeemable preferred shares, the junior paid in kind preferred shares
and the senior paid in kind preferred shares contemplated by the terms of the
Investment Agreement.
(d) Waive its right to appoint replacement directors to the Board of
Directors of Purchaser in the event of the resignation of the Investor Directors
(as defined in the GE Shareholders Agreement) prior to the consummation of the
Transactions; provided, however, that this waiver shall expire in the event this
Agreement is terminated in accordance with the provisions of Paragraph 13
hereof.
(e) Agree to vote in favor of the Transactions in its capacity as a
shareholder of Purchaser.
9. Injunctive Relief. Each party hereto acknowledges that money damages
would be both incalculable and an insufficient remedy for any breach of this
Agreement by such party and that any such breach would cause Purchaser, on the
one hand, and Seller, on the other hand, irreparable harm. Accordingly, each
party hereto also agrees that, in the event of any breach of the provisions of
this Agreement by such party, Purchaser, on the one hand, and Seller, on the
other hand, shall be entitled to equitable relief without the requirement of
posting a bond or other security, including in the form of injunctions and
orders for specific performance in addition to all other remedies available to
such other party at law or in equity.
10. Information. Purchaser shall give Seller prompt notice of any
amendment to any of the Transaction Documents and of any proposed waiver of
any of the conditions to the closing of the Transactions provided for therein.
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<PAGE> 12
11. Indemnification. In connection with the transactions contemplated
hereby, each of Seller and Purchaser agrees to indemnify and hold the other
harmless from and against any and all damages, claims, liabilities or
obligations resulting from any breach by Seller or Purchaser, as the case may
be, of any of their respective representations or warranties contained herein.
12. Expenses. Each party hereto shall pay its own expenses incurred in
connection with this Agreement.
13. Termination. This Agreement may be terminated by either party
hereto at any time after December 15, 1996, if the transactions contemplated
hereby have not been consummated prior to such time. Seller may terminate this
Agreement if any of the Transaction Documents are amended in any material
respect or if any of the conditions to closing provided for therein are waived
other than a waiver by the purchasers/investors thereunder or a waiver by
Purchaser which is approved by Seller, which approval shall not be unreasonably
withheld. In addition, this Agreement will terminate automatically and become
null and void without any action by the parties hereto in the event that any of
the Transaction Documents is terminated prior to the consummation of the
transactions contemplated therein. In the event of termination of this Agreement
as provided in this Section, this Agreement shall be null and void (including
without limitation, Sections 7 and 8 hereof) provided that nothing contained
herein shall relieve any party to this Agreement from liability for breach of
this Agreement.
14. Survival. All representations, warranties and agreements made by
Seller and Purchaser in this Agreement shall survive the Closing hereunder and
any investigation at any time made by or on behalf of any party hereto.
15. Amendment: Modification: Assignment. This Agreement may not be
modified, amended, altered or supplemented except upon the execution and
delivery of a written agreement executed by the parties hereto. This Agreement
shall be binding upon and shall inure to the benefit of and be enforceable by
the parties and their respective successors and assigns; provided that, no party
to this
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Agreement may assign any of its rights or obligations under this Agreement
without the prior consent of the other party.
16. Notices. All notices, claims, requests, demands and other
communications hereunder must be in writing and shall be deemed to have been
duly given upon receipt as follows:
(a) If to Purchaser:
Brim, Inc.
305 NE 102nd Avenue
Portland, OR 97220
Attention: A.E. Brim
with a copy to:
Randi S. Nathanson
The Nathanson Group
1411 Fourth Avenue
Suite 905
Seattle, WA 98101
(b) If to Seller:
General Electric Capital Corporation
260 Long Ridge Road
Stamford, CT 06927
Attention: Equity Capital Group, Counsel and Risk Management
with copy to:
Michael Nathan, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017-3954
or to such other address as the person to whom notice is to be given may have
previously furnished to the other party in writing.
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<PAGE> 14
17. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
18. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Oregon, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law.
IN WITNESS WHEREOF, this Preferred Stock Purchase Agreement
has been duly executed and delivered by a duly authorized officer of Purchaser
and by Seller on the day and year first written above.
BRIM, INC.
By: /s/ A. E. Brim
-------------------------------------
Name: A. E. Brim
Title: President
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Patrick J. McNeela
-------------------------------------
Name: Patrick J. McNeela
Title: Department Operations Manager
The undersigned being parties to the GE Shareholder Agreement do hereby consent
to the termination thereof pursuant to Paragraph 8 of the foregoing Preferred
Stock Purchase Agreement:
/s/ A. E. Brim
----------------------------------
A. E. Brim
/s/ James M. Williams
----------------------------------
James M. Williams
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<PAGE> 15
/s/ K. David McAllister
-------------------------------------
K. David McAllister
/s/ John R. Miller
-------------------------------------
John R. Miller
/s/ Steven R. Taylor
-------------------------------------
Steven R. Taylor
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<PAGE> 1
Exhibit 10.5
EMPLOYMENT AGREEMENT
This Employment Agreement, dated as of 12-17-96, 1996 (this
"Agreement"), is made and entered into by and between Steven P. Taylor, an
individual resident of the State of Oregon ("Executive"), and Brim, Inc., an
Oregon corporation (the "Company").
Recitals
1. The Company desires to secure the services of Executive as an
employee of the Company for the period provided in this Agreement.
2. Executive is willing to enter into this Agreement for such period
and on the terms and conditions hereinafter set forth.
3. This Agreement is being entered into in connection with the
transactions contemplated by that certain Investment Agreement (the
"Agreement") dated as 12-17-96, 1996 among the Company, and Golder, Thoma,
Cressey, Rauner Fund IV, L.P. and its designees.
Agreement
In consideration of the promises and covenants herein contained, the
Company and Executive hereby agree as follows:
Section 1. Employment. During the term of employment set forth in
Section 2 of this Agreement, the Company shall employ Executive, and Executive
shall serve, as a Senior Vice President of the Company, or shall serve in such
other similar capacity, with such other similar title, as the Company shall
reasonably determine from time to time consistent with the skills and
experience of Executive. Executive agrees to perform faithfully his duties
under this Agreement to the best of his ability.
SECTION 2. Terms and Place of Employment. Executive's term of
employment under this Agreement shall be for a period of three years commencing
on the date hereof, unless sooner terminated as provided in Section 8 below
(the "Term"). Executive shall perform his duties principally in Portland,
Oregon, and shall not be required to change his place of residence in
connection with his employment hereunder. The Company maintains its executive
offices in Brentwood, Tennessee. Executive may be required from time to travel
to Brentwood, Tennessee in the performance of his duties, but shall not be
obligated to stay for any extended period in Tennessee.
<PAGE> 2
Section 3. Compensation.
(a) Base Salary. For all services to be rendered by Executive to the
Company under this Agreement, the Company shall pay to Executive the base
salary described in Schedule A to this Agreement payable in accordance with the
Company's standard payroll practices (the "Base Salary").
(b) Bonus. In addition to the Base Salary, Executive shall
be eligible for an annual bonus as described in Schedule A to this Agreement,
(the "Bonus").
Section 4. Benefits. During the term of employment hereunder,
Executive shall be entitled, to the extent that he is otherwise eligible, to
participate in the benefits listed on Schedule A attached hereto with such
changes as may be adopted from time to time for all similarly situated officers
of the Company. In addition, the Company shall honor any sick leave and
vacation time of Executive whether earned or accrued or unpaid as of the date
of this Agreement.
Section 5. Reimbursement of Expenses. The parties recognize that in
the course of performing his duties hereunder, Executive will necessarily incur
out-of-pocket expenses for the account of the Company. Executive shall be
entitled to reimbursement for all reasonable out-of-pocket expenses so incurred
by him in the performance of duties hereunder and in keeping with Company
policies, upon submission of an adequate accounting for such expenses.
Section 6. Covenant Not to Compete.
(a) During the Term of this Agreement, Executive shall not,
directly or indirectly, whether as an employee, consultant, partner or in any
other corporate or representative capacity, (i) engage in any activity intended
to (x) divert from the Company, or from any subsidiary or affiliate, any
business of the Company, or any subsidiary or affiliate, relating to any
facility owned, leased or managed under a management contract or managed care
contract at the time of the termination of Executive's employment or (y) to
interfere with any relationship between any facility owned, leased or managed
under a management contract or managed care contract at the time of the
termination of Executive's employment and any or all of the members of the
medical staff thereof (the "Medical Staff"), or (ii) enter into a healthcare
related business relationship with any member of any of the Medical Staff.
(b) During the Term of this Agreement, Executive shall not directly
or indirectly through another entity (i) induce or attempt to induce any
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<PAGE> 3
employees of the Company or any subsidiary to leave the employ of the Company
or such subsidiary or in any way interfere with the relationship between the
Company or any subsidiary and any employees of the Company or any subsidiary or
(ii) hire any more than two persons who were employees of the Company or any
subsidiary within a six month period prior to the termination of Executive's
employment; provided, however, that the Executive shall not be in breach of its
obligations hereunder in the event the event it solicits or hires two or fewer
employees or former employees of the Company who would otherwise be subject to
the terms of this Section 6(b).
(c) It is the intent of the parties that the restrictions contained in
this Section 6 shall be reasonable in both duration and geographic scope. If
any court of competent jurisdiction shall find the provisions of this Section
unreasonable, the restrictions contained in this Section shall be reduced in
duration and/or geographic scope to the extent necessary to be deemed
reasonable by such court, and shall be enforceable as so modified.
Section 7. Confidential Information.
(a) The Executive shall not, during the term of his employment or
thereafter, without the prior written consent of the Company, divulge, disclose
or make accessible to any other person, firm, partnership or corporation,
except while employed by the Company in the business of and for the benefit of
the Company or when required to do so by a lawful order of a court of competent
jurisdiction, Confidential Information (as defined herein). "Confidential
Information" shall mean all nonpublic information respecting to the business of
the Company and its subsidiaries including, but not limited to, their
contracts, leases, management plans, products, research and development,
processes, customer lists, marketing plans and strategies. Confidential
Information does not include information that is or becomes generally known to
and available for use by the public unless such availability occurs through an
unauthorized act or omission on the part of Executive.
(b) Except as may be otherwise consented to in writing by the
Company, at the termination of his employment, all memoranda, diaries, notes,
records, cost information, customer lists, marketing plane and strategies, and
any other documents containing any Confidential Information made or compiled
by, or delivered or made available to, or otherwise obtained by Executive in
his possession or subject to his control at such time except that Executive may
proffer a legible copy, and retain the original, of any personal diary or
personal notes.
(c) Executive agrees that the provisions of this Section shall
survive the termination of this Agreement.
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<PAGE> 4
Section 8. Termination; Termination Benefits. The term of employment
hereunder shall be terminated upon the first to occur of the following:
(a) The expiration of the term of employment pursuant to Section 2 of
this Agreement;
(b) Executive's death or Permanent Disability. "Permanent Disability"
shall mean physical or mental incapacity of a nature which prevents Executive,
in the judgment of an independent qualified physician of good standing, from
performing his duties under this Agreement for a period of three months. If the
term of employment is terminated because of Executive's death or Permanent
Disability, the Company shall pay (in the case of death) to Executive's
beneficiary or beneficiaries designated in writing to the Company, or to
Executive's estate in the absence or lapse of such designation, or (in the case
of Permanent Disability) to Executive or his representative, any insurance
proceeds attributable to Executive's death or disability;
(c) Executive's employment being terminated by the Company for Cause.
Termination "for Cause" shall mean termination because of: (i) the refusal,
neglect or failure without good reason of Executive to perform a major portion
of the services to be performed by him under this Agreement, provided Executive
shall first have been given written notice of such refusal, neglect or failure
and shall fail within thirty (30) days following delivery of such notice to
cure such refusal, neglect or failure; (ii) gross negligence or willful
misconduct in the performance of Executive's duties hereunder; (iii) the
habitual intoxication or inexcusable repeated or prolonged absence from work of
Executive; (iv) the perpetration by Executive of a fraud against the Company;
or (v) the conviction of Executive of a felony. Termination for Cause shall
occur upon delivery to Executive of a written notice of such action by the
Company, which written notice shall specify the grounds for such termination.
If Executive's employment is terminated for Cause, the Company's only
obligation shall be payment of the Base Salary for such period of time as is
consistent with the standard practice of the Company;
(d) Executive's Voluntary Termination of employment with the Company.
"Voluntary Termination" shall mean the termination of Executive's employment
with the Company as a result of his resignation or by mutual agreement between
Executive and the Company. If Executive's employment is terminated as a result
of a Voluntary Termination, the Company's only obligation to Executive shall be
payment of the Base Salary for such period of time as is consistent with the
standard practice of the Company, but not less than 90 days from the date such
termination occurs; or
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<PAGE> 5
SCHEDULE A
EXECUTIVE: STEVEN P. TAYLOR
TITLE WITHIN THE COMPANY: Senior Vice President
COMPENSATION:
Executive's Base Salary shall be paid at the rate of $176,000 per
year. Executive shall also be entitled to such annual incremental increases in
Base Salary as may be given to similarly situated executives of the Company.
Executive shall be paid Bonus compensation in an amount equal to fifty
percent (50%) of Executive's Base Salary, the payment of which Bonus
compensation shall be contingent upon the Company meeting or exceeding its
annual target budget.
Executive shall be entitled to the advance payment of twenty percent
(20%) of Executive's Bonus compensation following the first six months of the
first year of the term hereof, if the Company shall have met its target budget
for such period.
Executive shall be entitled to the standard employee benefits package
provided by the Company to Executive immediately prior to consummation of the
transaction that is the subject of the Investment Agreement, subject to the
Company's right to substitute reasonably comparable alternative benefits;
provided, however, Executive shall be entitled to accrue vacation time without
limit. Executive shall be entitled to any carry forward and continue, on its
existing terms, that certain loan made from U.S. Bank of Oregon to Executive in
the amount of $200,000, including the continued payment by the Company of the
interest thereon; provided, however, that such loan shall be due and payable in
full by no later than the effective date of an initial public offering of the
stock of the Company.
Executive shall be eligible to participate in any stock option/stock
purchase plans or similar equity programs to be developed for key employees.
5
<PAGE> 6
If to the Company:
c/o Principal Hospital Company
5103 Paddock Village Court
Suite A-12
Brentwood, TN 37027
Attn: Martin Rash, President
Phone: 615/370-1377
Fax: 615/370-9539
Section 12. Full and Complete Agreement. This Agreement, including the
exhibits and schedules hereto constitutes the full and complete understanding
and agreement of the parties and supersedes all prior understandings and
agreements regarding Executive's employment by the Company or any of its
subsidiaries or affiliates.
Section 13. Amendment. This Agreement may be modified only by a
written instrument executed by both parties.
Section 14. Nonassignability. This Agreement and the rights and
benefits hereunder are personal to the Company and are not assignable or
transferable, nor may the services to be performed hereunder be assigned by the
Company to any person, firm or corporation; provided, however, that this
Agreement and the rights and benefits hereunder shall be assigned by the
Company to any corporation acquiring all or substantially all of the assets of
the Company or to any corporation into which the Company may be merged or
consolidated, and this Agreement and the rights and benefits hereunder will
automatically be deemed assigned to any such corporation without any future
action by Executive or the Company. Executive's right and interests under this
Agreement may not be assigned, pledged or encumbered by Executive. The
provisions of this Agreement shall inure to the benefit of Executive's heirs,
executors, administrators and successors in interest.
Section 15. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Tennessee.
Section 16. Execution in Counterparts. This Agreement may be executed
simultaneously in one or more counterparts, each of which shall be deemed an
original, but all of which shall constitute one and the same instrument.
Section 17. Titles and Headings. Titles and section headings herein are
for purposes of reference only, and shall in no way limit, define or otherwise
affect the meaning or interpretation of any of the provisions of this
Agreement.
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<PAGE> 7
(e) Executive's employment being terminated by the Company without
Cause. Termination "without cause" shall mean termination by the Company of
Executive's employment on any basis other than those provided in paragraphs
(al, (b) (c) or (d) of this Section 8. If the term of employment is terminated
without Cause, the Company shall give 10 days written notice thereof to
Executive and Executive shall be entitled to receive in full at the time of
termination the Base Salary and all Bonus payments as if earned in full, in
respect of the unexpired portion of the term of employment in the amounts and
at the times provided in Section 3.
Section 9. Injunctive Relief. Executive acknowledges that the Company
has no adequate remedy at law and would be irreparably harmed if the Executive
breaches or threatens to breach the provisions of Section 6 or Section 7 above,
and, therefore, agrees that the Company shall be entitled to injunctive relief
to prevent any breach or threatened breach of any of those sections, and to
specific performance of the terms of each of such sections in addition to any
other legal or equitable remedy it may have. Executive further agrees that he
shall not, in any equity proceeding involving him relating to the enforcement
of Section 6 or Section 7 above, raise the defense that the Company has an
adequate remedy at law. Nothing in this Agreement shall be construed as
prohibiting the Company from pursuing any other remedies at law or in equity
that it may have or any other rights that it may have under any other
instrument.
Section 10. Withholding of Taxes. Any payments to Executive, or to
his designated beneficiary or beneficiaries, pursuant to the terms of this
Agreement shall be reduced by such amounts as may be required to be withheld
with respect thereto under all present and future federal, state and local tax
laws and regulations and other laws and regulations.
Section 11. Notice. Any notice, demand, approval or other
communication which may or is required to be given under this Agreement shall
be in writing and shall be deemed to have been given on the earlier of the day
actually received or on the close of business on the third business day next
following the day when deposited in the United States mail, postage prepaid,
registered or certified, addressed to the party at the address set forth after
its name below or such other address as may be given by such party in writing
to the other:
If to Executive:
Steven P. Taylor
7156 SE Reed College Pl.
Portland, OR 97202
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first set forth above.
COMPANY
BIRM, INC.
By: /s/
---------------------------
Name:
-------------------------
Title:
-------------------------
EXECUTIVE
STEVEN P. TAYLOR
/s/ Steven P. Taylor
-------------------------------
8
<PAGE> 9
Section 18. Severability. If any portion of this Agreement is deemed
invalid or unenforceable for any reason by a court of competent jurisdiction,
then such provision will continue in effect only to the extent that is remains
valid, and all other provisions in this Agreement in all other respects shall
remain valid and enforceable.
Section 19. Attorney Fees. In the event that suit or action is
instituted to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to recover his or its attorney fees and costs,
including those incurred on appeal, as determined by the court.
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<PAGE> 1
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT, dated as of December 17, 1996 (this
"Agreement"), is made and entered into by and between A. E. Brim, an individual
resident of the State of Oregon ("Executive"), and Brim, Inc., an Oregon
corporation (the "Company").
Recitals
1. The Company desires to secure the services of Executive as an
employee of the Company for the period provided in this Agreement.
2. Executive is willing to enter into this Agreement for such period
and on the terms and conditions hereinafter set forth.
3. This Agreement is being entered into in connection with the
transactions contemplated by that certain Investment Agreement (the
"Agreement") dated as of the date hereof among the Company, and Golder, Thoma,
Cressey, Rauner, Inc.
Agreement
In consideration of the promises and covenants herein contained, the
Company and Executive hereby agree as follows:
Section 1. Employment
(a) During the term of employment set forth in Section 2 of this
Agreement, the Company shall employ Executive, and Executive shall serve, in
the capacity and with the title described in Schedule A to this Agreement, or
shall serve in such other similar capacity, with such other similar title, as
the Board of Directors of the Company shall reasonably determine from time to
time consistent with the skills and experience of Executive. Executive agrees
to perform faithfully his duties under this Agreement to the best of his
ability.
(b) Executive shall perform the duties and have such responsibilities
described in Schedule A to this Agreement and/or such additional or other
duties as shall be reasonably designated from time to time by the Board of
Directors of the Company.
Section 2. Term and Place of Employment. Executive's term of employment
under this Agreement shall be for a period of three years commencing on the
date hereof, unless sooner terminated as provided in Section 8 below. Executive
shall perform his duties principally in Portland, Oregon, and shall not be
required to change his place of residence in connection with his employment
hereunder.
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<PAGE> 2
Section 3. Compensation. For all services to be rendered by Executive
to the Company under this Agreement, the Company shall pay to Executive the
base salary described in Schedule A to this Agreement payable in accordance
with the Company's standard payroll practices (the "Base Salary").
Section 4. Benefits. During the term of employment hereunder, Executive
shall be entitled, to the extent that he is otherwise eligible, to participate
in the benefits listed on Schedule A attached hereto with such changes as may
be adopted from time to time for all similarly situated officers of the
Company. In addition, the Company shall honor any sick leave and vacation time
of Executive whether earned or accrued and unpaid as of the date of this
Agreement.
Section 5. Reimbursement of Expenses. The parties recognize that in the
course of performing his duties hereunder, Executive will necessarily incur
out-of-pocket expenses for the account of the Company. Executive shall be
entitled to reimbursement for all reasonable out-of-pocket expenses so
incurred by him in the performance of his duties hereunder, upon submission of
an adequate accounting for such expenses.
Section 6. Covenant Not to Compete.
(a) During the term of Executive's Employment, Executive shall not,
except as to the personal investments disclosed in Schedule B to this
Agreement, directly or indirectly, engage in any business whether as an
employee, consultant, partner, principal, agent, representative or stockholder
or in any other corporate or representative capacity, if it involves:
(i) owning, operating, managing or leasing a business that the
Company, or any of its subsidiaries or affiliates, was actively conducting at
the time of the termination of Executive's employment with the Company, in
competition with the Company or any subsidiary or affiliate, within a 25-mile
radius of any facility owned, leased or managed by the Company or any of its
Subsidiaries which is engaged in such line of business as the Company or any
such subsidiary or affiliate; provided, however, that ownership of less than
five percent of the stock of any private or publicly traded corporation shall
not be deemed to violate this paragraph;
(ii) assisting any other entity to enter into any line of business
that the Company or any subsidiary or affiliate was actively conducting at the
time of the termination of Executive's employment, within a 25-mile radius of
any facility owned, leased or managed by the Company or any of its Subsidiaries
which is engaged in such line of business as the Company or any such subsidiary
or affiliate;
(iii) taking any action within a 25-mile radius of any facility
owned, leased or managed by the Company or any of its Subsidiaries to divert
from the Company, or from any subsidiary or affiliate, any business in which
the Company, or by any subsidiary or affiliate, was already engaged at the time
of the termination of Executive's employment;
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<PAGE> 3
(iv) inducing customers, suppliers, agents, franchisees or other
persons under contract or franchise or otherwise doing business with the
Company and its subsidiaries or affiliates at the time of the termination of
Executive's employment, to terminate, reduce or alter business with or from the
Company or any subsidiary or affiliate; or
(v) substantially causing any executive in the employment of the
Company or any of its subsidiaries or affiliates to terminate such employment,
accept employment with anyone other than the Company or any subsidiary or
affiliate or interfere in any material manner with the business in which the
Company or any subsidiary or affiliate was already engaged at the time of the
termination of Executive's employment.
(b) It is the intent of the parties that the restrictions contained in
this Section 6 be reasonable in both duration and geographic scope. If any
court of competent jurisdiction shall find the provisions of this Section
unreasonable, the restrictions contained in this Section shall be reduced in
duration and/or geographic scope to the extent necessary to be deemed
reasonable by such court, and shall be enforceable as so modified.
Section 7. Confidential Information.
(a) The Executive shall not, during the term of his employment or
thereafter, without the prior written consent of the Company, divulge, disclose
or make accessible to any other person, firm, partnership or corporation,
except while employed by the Company in the business of and for the benefit of
the Company or when required to do so by a lawful order of a court of competent
jurisdiction, Confidential Information (as defined herein). "Confidential
Information" shall mean all nonpublic information respecting the business of
the Company and its subsidiaries including, but not limited to, their products,
research and development, processes, customer lists, marketing plans and
strategies. Confidential Information does not include information that is or
becomes available to the public unless such availability occurs through an
unauthorized act on the part of Executive.
(b) Except as may be otherwise consented to in writing by the Company,
Executive shall proffer to an appropriate officer of the Company, at the
termination of his employment, all memoranda, diaries, notes, records, cost
information, customer lists, marketing plans and strategies, and any other
documents containing any Confidential Information made or compiled by, or
delivered or made available to, or otherwise obtained by Executive in his
possession or subject to his control at such time except that Executive may
proffer a legible copy, and retain the original, of any personal diary or
personal notes.
(c) Executive agrees that the provisions of this Section shall survive
the termination of this Agreement.
Section 8. Termination; Termination Benefits. The term of employment
hereunder shall be terminated upon the first to occur of the following:
3
<PAGE> 4
(a) The expiration of the term of employment pursuant to Section 2 of
this Agreement;
(b) Executive's death or permanent disability. "Permanent disability"
shall mean physical or mental incapacity of a nature which prevents Executive,
in the judgement of an independent qualified physician of good standing, from
performing his duties under this Agreement for a period of three months. If the
term of employment is terminated because of Executive's death or disability,
the Company shall pay (in the case of death) to Executive's beneficiary or
beneficiaries designated in writing to the Company, or to Executive's estate in
the absence or lapse of such designation, or (in the case of permanent
disability) to Executive or his representative, any insurance proceeds
attributable to Executive's death or disability;
(c) Executive's employment being terminated by the Board of Directors
of the Company for Cause. Termination "for Cause" shall mean termination
because of: (1) the refusal, neglect or failure without good reason of
Executive to perform a major portion of the services to be performed by him
under this Agreement, provided Executive shall first have been given notice of
such refusal, neglect or failure for a period of thirty (30) days after the
delivery to Executive of such notice or shall fail to use reasonable best
efforts to cure such refusal, neglect or failure; (2) gross negligence or
willful misconduct in the performance of Executive's duties hereunder, (3) the
habitual intoxication or inexcusable repeated or prolonged absence from work of
Executive; (4) the perpetration by Executive of a fraud against the Company; or
(5) the conviction of Executive of a felony. Termination for Cause shall occur
upon delivery to Executive a written notice of such action by the Board of
Directors of the Company, which written notice shall specify the grounds for
such termination. If Executive's employment is terminated for Cause, the
Company's only obligation to Executive shall be payment of the Base Salary for
such period of time as is consistent with the standard practice of the Company;
(d) Executive's voluntary termination of employment with the Company.
"Voluntary Termination" shall mean the termination of Executive's employment
with the Company as a result of his resignation or by mutual agreement between
Executive and the Company. If Executive's employment is terminated as a result
of a Voluntary Termination, the Company's only obligation to Executive shall be
payment of the Base Salary for such period of time as is consistent with the
standard practice of the Company, but not less that 90 days from the date such
termination occurs; or
(e) Executive's employment being terminated by the Board of Directors
of the Company without Cause. Termination "without cause" shall mean
termination by the Company of Executive's employment on any basis other than
those provided in paragraphs (a), (b), (c) or (d) of this Section 8. If the
term of employment is terminated without cause, the Board of Directors of the
Company shall give 10 days written notice thereof to Executive and Executive
shall be entitled to receive in full at the time of termination the Base Salary
as if earned in full, in respect of the unexpired portion of the term of
employment in the amounts and at the times provided in Section 3.
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<PAGE> 5
Section 9. Injunctive Relief, Executive acknowledges that Company has
no adequate remedy at law and would be irreparably harmed if the Executive
breaches or threatens to breach the provisions of Section 6 or Section 7 above,
and, therefore, agrees that the Company shall be entitled to injunctive relief
to prevent any breach or threatened breach of any of those sections, and to
specific performance of the terms of each of such sections in addition to any
other legal or equitable remedy it may have. Executive further agrees that he
shall not, in any equity proceeding involving him relating to the enforcement
of Section 6 or Section 7 above, raise the defense that the Company has an
adequate remedy at law. Nothing in this Agreement shall be construed as
prohibiting the Company from pursuing any other remedies at law or in equity
that it may have or any other rights that it may have under any other
agreement.
Section 10. Withholding of Taxes. Any payments to Executive, or to his
designated beneficiary or beneficiaries, pursuant to the terms of this
Agreement shall be reduced by such amounts as may be required to be withhold
with respect thereto under all present and future federal, state and local tax
laws and regulations and other laws and regulations.
Section 11. Notice. Any notice, demand, approval or other
communication which may or is required to be given under this Agreement shall
be in writing and shall be deemed to have been given on the earlier of the day
actually received or on the close of business on the third business day next
following the day when deposited in the United States mail, postage prepaid,
registered or certified, addressed to the party at the address set forth after
its name below or such other address as may be given by such party in writing
to the other:
If to Executive:
A. E. Brim
6666 S. E. Yamhill
Portland, OR 97215
If to the Company:
c/o Principal Hospital Company
5103 Paddock Village Court
Suite A-12
Brentwood, TN 37027
Attn: Martin Rash, President
Phone: 615-370-1377
Fax: 615-370-9539
Section 12. Full and Complete Agreement. This Agreement, including the
5
<PAGE> 6
exhibits and schedules hereto constitutes the full and complete understanding
and agreement of the parties and supersedes all prior understandings and
agreements regarding Executive's employment by the Company, Brim or any of
their respective subsidiaries or affiliates.
Section 13. Amendment. This Agreement may be modified only by a
written instrument executed by both parties.
Section 14. Nonassignability. This Agreement and the rights and
benefits hereunder are personal to the Company and are not assignable or
transferable, nor may the services to be performed hereunder be assigned by the
Company to any person, firm or corporation; provided, however, that this
Agreement and the rights and benefits hereunder shall be assigned by the
Company to any corporation acquiring all or substantially all of the assets of
the Company or to any corporation into which the Company may be merged or
consolidated, and this Agreement and the rights and benefits hereunder will
automatically be deemed assigned to any such corporation without any future
action by Executive or the Company. Executive's right and interests under this
Agreement may not be assigned, pledged or encumbered by Executive. The
provisions of this Agreement shall inure to the benefit of Executive's heirs,
executors, administrators and successors in interest.
Section 15. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Tennessee.
Section 16. Execution in Counterparts. This Agreement may be executed
simultaneously in one or more counterparts, each of which shall be deemed an
original, but all of which shall constitute one and the same instrument.
Section 17. Titles and Headings. Titles and section headings herein
are for purposes of reference only, and shall in no way limit, define or
otherwise affect the meaning or interpretation of any of the provisions of this
Agreement.
Section 18. Severability. If any portion of this Agreement is deemed
invalid or unenforceable for any reason by a court of competent jurisdiction,
then such provision will continue in effect only to the extent that it remains
valid, and all other provisions in this Agreement in all other respects shall
remain valid and enforceable.
Section 19. Attorney Fees. In the event that suit or action is
instituted to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to recover his or its attorney fees and costs,
including those incurred on appeal, as determined by the court.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first set forth above.
BRIM, INC.
By /s/
--------------------------
Name:
Title:
/s/ A. E. Brim
---------------------------
A. E. Brim
7
<PAGE> 8
SCHEDULE A
EMPLOYEE: A. E. BRIM
BASIC DUTIES AND RESPONSIBILITIES:
Executive shall assist in the transition contemplated under the
Investment Agreement, and such other duties and responsibilities, commensurate
with his skills and experience, as he may be from time to time be called upon
to perform.
Executive shall be available on a half time basis, the timing of which
availability shall be mutually agreed upon by the parties.
Executive shall also serve as a member of the Board of Directors of
Principal Hospital Company, it being understood that his duties as an employee
are separate therefrom.
TITLE WITHIN THE COMPANY:
Director of Principal Hospital Company and Chairman Emeritus.
COMPENSATION:
1. Employment Date = 10/01/71
2. Executive's base salary shall be paid at the rate of $121,680.00 per
year. Executive shall also be entitled to such annual incremental increases as
may be given to similarly situated executives of the Company.
3. Executive shall be entitled to retain the standard employee benefits
package provided by the Company to Executive immediately prior to the
consummation of the transaction which is the subject of the Investment
Agreement. Such benefits shall not be reduced due to or as a result of
Executive's contemplated half-time status.
Executive shall be entitled to participate in any stock option/stock
purchase plans or similar equity programs to be developed for key employees
pursuant to Section 6.03(a)(ii) of the Investment Agreement or otherwise.
Executive shall retain his current office located in the Brim, Inc.
corporate office in Portland, Oregon, and shall be provided such secretarial
support as may be appropriate and necessary for Executive to carry out his
duties and responsibilities.
Executive shall be entitled to retain his current combined
automobile and expense
8
<PAGE> 9
(SCHEDULE A Cont.)
allowance in the amount of $600.00 per month, and the Company shall pay the
dues associated with Executive's membership in the Portland Arlington Club.
9
<PAGE> 1
EXHIBIT 10.15
Lease and Security Agreement
by and between
Nationwide Health Properties, Inc.,
a Maryland corporation,
as "Landlord"
and
Brim Hospitals, Inc.,
an Oregon corporation
as "Tenant"
Dated April 11, 1994
<PAGE> 2
TABLE OF CONTENTS
Page
1. Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Renewal Terms . . . . . . . . . . . . . . . . . . . . . . . 2
2. Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Initial Term Minimum Rent . . . . . . . . . . . . . . . . 3
2.2 Initial Term Additional Rent . . . . . . . . . . . . . . . 3
2.3 Renewal Term Minimum Rent . . . . . . . . . . . . . . . . . 5
2.4 Renewal Term Additional Rent . . . . . . . . . . . . . . . 6
2.5 Total Rent . . . . . . . . . . . . . . . . . . . . . . . . 6
2.6 Rent Cap and Rent Floor . . . . . . . . . . . . . . . . . . 6
2.7 Proration for Partial Periods . . . . . . . . . . . . . . . 9
2.8 Absolute Net Lease . . . . . . . . . . . . . . . . . . . . 9
3. Taxes, Assessments and Other Charges . . . . . . . . . . . . . . 10
3.1 Tenant's Obligations . . . . . . . . . . . . . . . . . . . 10
3.2 Proration . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.3 Right to Protest . . . . . . . . . . . . . . . . . . . . . 10
3.4 Tax Bills . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.5 Other Charges . . . . . . . . . . . . . . . . . . . . . . . 10
4. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.1 General Insurance Requirements . . . . . . . . . . . . . . 11
4.2 Fire and Extended Coverage . . . . . . . . . . . . . . . . 11
4.3 Public Liability . . . . . . . . . . . . . . . . . . . . . 12
4.4 Professional Liability Insurance . . . . . . . . . . . . . 13
4.5 Workers Compensation . . . . . . . . . . . . . . . . . . . 13
4.6 Boiler Insurance . . . . . . . . . . . . . . . . . . . . . 14
4.7 Business Interruption Insurance . . . . . . . . . . . . . . 14
5. Use, Maintenance and Alteration of the Premises. . . . . . . . . 15
5.1 Tenant's Maintenance Obligations . . . . . . . . . . . . . 15
5.2 Regulatory Compliance . . . . . . . . . . . . . . . . . . . 15
5.3 Permitted Use . . . . . . . . . . . . . . . . . . . . . . . 16
5.4 Tenant Repurchase Obligation . . . . . . . . . . . . . . . 17
5.5 No Liens; Permitted Contests . . . . . . . . . . . . . . . 18
5.6 Alterations by Tenant . . . . . . . . . . . . . . . . . . . 18
5.7 Capital Improvements Funded by Landlord . . . . . . . . . . 20
5.8 Compliance With IRS Guidelines . . . . . . . . . . . . . . 21
5.9 Option to Reqacuire . . . . . . . . . . . . . . . . . . . . 21
6. Condition And Title Of Premises . . . . . . . . . . . . . . . . 24
7. Landlord and Tenant Personal Property . . . . . . . . . . . . . 25
7.1 Tenant Personal Property . . . . . . . . . . . . . . . . . 25
7.2 Landlord's Security Interest . . . . . . . . . . . . . . . 26
7.3 Financing Statements . . . . . . . . . . . . . . . . . . . 27
7.4 Intangible Property . . . . . . . . . . . . . . . . . . . . 28
7.5 Option to Purchase . . . . . . . . . . . . . . . . . . . . 29
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<PAGE> 3
8. Representations And Warranties . . . . . . . . . . . . . . . . . . . 29
8.1 Due Authorization And Execution . . . . . . . . . . . . . . . . 29
8.2 Due Organization . . . . . . . . . . . . . . . . . . . . . . . 29
8.3 No Breach of Other Agreements . . . . . . . . . . . . . . . . . 29
9. Financial, Management and Regulatory Reports . . . . . . . . . . . . 29
9.1 Monthly Facility Reports . . . . . . . . . . . . . . . . . . . 29
9.2 Quarterly Financial Statements . . . . . . . . . . . . . . . . 30
9.3 Annual Financial Statement . . . . . . . . . . . . . . . . . . 30
9.4 Accounting Principles . . . . . . . . . . . . . . . . . . . . . 30
9.5 Regulatory Reports . . . . . . . . . . . . . . . . . . . . . . 30
10. Events of Default and Landlord's Remedies . . . . . . . . . . . . . 31
10.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . 35
10.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.3 Receivership . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.4 Late Charges . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.5 Remedies Cumulative; No Waiver . . . . . . . . . . . . . . . . 38
10.6 Performance of Tenant's Obligations by Landlord . . . . . . . . 39
11. Security Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . 40
12. Damage by Fire or Other Casualty . . . . . . . . . . . . . . . . . . 40
12.1 Reconstruction Using Insurance . . . . . . . . . . . . . . . . 40
12.2 Surplus Proceeds . . . . . . . . . . . . . . . . . . . . . . . 41
12.3 No Rent Abatement . . . . . . . . . . . . . . . . . . . . . . . 41
13. Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
13.1 Complete Taking . . . . . . . . . . . . . . . . . . . . . . . . 41
13.2 Partial Taking . . . . . . . . . . . . . . . . . . . . . . . . 42
13.3 Cap on Awards . . . . . . . . . . . . . . . . . . . . . . . . 43
13.4 Lease Remains in Effect . . . . . . . . . . . . . . . . . . . . 43
14. Provisions on Termination of Term . . . . . . . . . . . . . . . . . 43
14.1 Surrender of Possession . . . . . . . . . . . . . . . . . . . . 43
14.2 Removal of Personal Property . . . . . . . . . . . . . . . . . 43
14.3 Title to Personal Property Not Removed . . . . . . . . . . . . 44
14.4 Management of Premises . . . . . . . . . . . . . . . . . . . . 44
14.5 Correction of Deficiencies . . . . . . . . . . . . . . . . . . 44
15. Notices and Demands . . . . . . . . . . . . . . . . . . . . . . . . 45
16. Right of Entry; Examination of Records . . . . . . . . . . . . . . . 46
17. Landlord May Grant Liens . . . . . . . . . . . . . . . . . . . . . . 46
18. Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . . . . . 47
19. Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
20. Preservation of Gross Revenues . . . . . . . . . . . . . . . . . . . 49
21. Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . 49
21.1 Hazardous Material Covenants . . . . . . . . . . . . . . . . . 49
ii
<PAGE> 4
21.2 Tenant Notices to Landlord . . . . . . . . . . . . . . . . . 50
21.3 Extension of Term . . . . . . . . . . . . . . . . . . . . . 50
21.4 Participation in Hazardous Materials Claims . . . . . . . . 51
21.5 Environmental Activities . . . . . . . . . . . . . . . . . . 51
21.6 Hazardous Materials . . . . . . . . . . . . . . . . . . . . 51
21.7 Hazardous Materials Claims . . . . . . . . . . . . . . . . . 52
21.8 Hazardous Materials Laws . . . . . . . . . . . . . . . . . . 52
21.9 Remediation of Existing Environmental Condition . . . . . . 53
22. Assignment and Subletting . . . . . . . . . . . . . . . . . . . . 53
23. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . 56
24. Holding Over . . . . . . . . . . . . . . . . . . . . . . . . . . 57
25. Estoppel Certificates . . . . . . . . . . . . . . . . . . . . . . 57
26. Conveyance by Landlord . . . . . . . . . . . . . . . . . . . . . 58
27. Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . 58
28. Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . 58
29. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 59
30. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 59
31. Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . 59
32. Waiver and Subrogation . . . . . . . . . . . . . . . . . . . . . 59
33. Memorandum of Lease . . . . . . . . . . . . . . . . . . . . . . . 59
34. Incorporation of Recitals and Attachments . . . . . . . . . . . . 60
35. Titles and Headings . . . . . . . . . . . . . . . . . . . . . . . 60
36. Usury Savings Clause . . . . . . . . . . . . . . . . . . . . . . 60
37. Joint and Several . . . . . . . . . . . . . . . . . . . . . . . . 60
38. Survival of Representations, Warranties and Covenants . . . . . . 60
39. Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . 61
EXHIBIT A Legal Description . . . . . . . . . . . . . . . . . . . . . A-1
EXHIBIT B Landlord Personal Property . . . . . . . . . . . . . . . . . B-1
EXHIBIT C Calculation of Additional Rent . . . . . . . . . . . . . . . C-1
EXHIBIT D Appraisal Process . . . . . . . . . . . . . . . . . . . . . D-1
EXHIBIT E Permitted Exceptions . . . . . . . . . . . . . . . . . . . . E-1
iii
<PAGE> 5
EXHIBIT F Additional Rent Calculations . . . . . . . . . . . . . . . . . F-1
EXHIBIT G ALTA Survey . . . . . . . . . . . . . . . . . . . . . . . . . G-1
iv
<PAGE> 6
LEASE AND SECURITY AGREEMENT
THIS LEASE AND SECURITY AGREEMENT ("Lease") is made and entered into as of
the 11th day of April, 1994 by and between Nationwide Health Properties, Inc.,
a Maryland corporation ("Landlord"), and Brim Hospitals, Inc., an Oregon
corporation ("Tenant").
W I T N E S S E T H:
WHEREAS, Landlord is the owner of that certain real property, all
improvements thereon and all appurtenances thereto, presently licensed as a one
hundred sixteen (116) bed hospital, located at 1306 Maricopa Highway, ojai,
California and more specifically described in Exhibit "A" attached hereto,
together with certain of the furniture, machinery, equipment, appliances,
fixtures, supplies and other personal property used in connection therewith as
more specifically described on Exhibit "B" attached hereto ("LANDLORD PERSONAL
PROPERTY"). The foregoing property owned by Landlord shall be collectively
referred to in this Lease as the "PREMISES"; and
WHEREAS, Brim, Inc., an Oregon corporation ("GUARANTOR") has agreed to
guarantee Tenant's obligations under this Lease; and
WHEREAS, Landlord desires to lease the Premises to Tenant, and Tenant
desires to lease the Premises from Landlord.
NOW THEREFORE, in consideration of the mutual covenants, conditions and
agreements set forth herein, Landlord hereby
1
<PAGE> 7
leases and lets unto Tenant the Premises for the term and upon the conditions
and provisions hereinafter set forth.
1. TERM.
1.1 TERM. The term of this Lease shall commence on April 14, 1994
and shall end on May 30, 2004 (the "INITIAL TERM") unless extended pursuant to
Section 1.2 or earlier terminated in accordance with the provisions hereof.
The Initial Term and all renewal terms are referred to collectively as the
"TERM".
1.2 RENEWAL TERMS. The Term may be extended for two (2) separate
renewal terms of ten (10) years each, upon the satisfaction of all of the
following terms and conditions:
1.2.1 Not more than five (5) days before or after the
date which is twelve (12) months prior to the end of the then current
Term, Tenant shall give Landlord written notice that Tenant desires
to exercise its right to extend the then current Term for one (1)
renewal term.
1.2.2 There shall be no Event of Default under this
Lease, either on the date of Tenant's notice to Landlord pursuant to
Section 1.2.1 above, or on the last day of the then current Term.
1.2.3 All other provisions of this Lease shall remain in
full force and effect and shall continuously apply throughout the
renewal term(s).
2
<PAGE> 8
2. RENT. During the Initial Term and all renewal terms Tenant shall pay
to Landlord minimum rent ("MINIMUM RENT") and additional rent ("ADDITIONAL
RENT") as follows:
2.1 INITIAL TERM MINIMUM RENT. During the first Lease Year of the
Initial Term Tenant shall pay to Landlord Minimum Rent of $407,247 annually.
During the second and all subsequent Lease Years of the Initial Term Tenant
shall pay to Landlord Minimum Rent of $419,464 annually. Such Minimum Rent
shall be paid in advance on the first business day of each calendar month in
equal monthly installments of $33,937.25 each during the first Lease Year of
the Initial Term and $34,955.33 each during the second and all subsequent Lease
Years of the Initial Term. If Landlord funds any additional improvements
pursuant to Section 5.7 below, during the first Lease Year such annual Minimum
Rent shall be increased by an amount equal to nine and 362/1000 percent
(9.362%) of the amount advanced by Landlord with a corresponding increase to
the monthly payment amount, and during all subsequent Lease Years of the
Initial Term such annual Minimum Rent shall be increased by an amount equal to
nine and 643/1000 percent (9.643%) of the amount advanced by Landlord with a
corresponding increase to the monthly payment amount.
2.2 INITIAL TERM ADDITIONAL RENT.
2.2.1 Commencing with the third Lease Year, and
continuing during the Initial Term, Tenant agrees to pay Additional
Rent to Landlord on a quarterly basis in arrears no more than 45 days
after the end of each calendar quarter. Such Additional Rent shall be
equal to two and one-half percent (2.5%) of the amount by
3
<PAGE> 9
which the Gross Revenues for the Lease Year through the applicable
quarter exceed the prorated Gross Revenues for the applicable portion
of the Base Year. Tenant shall accompany each payment of Additional
Rent with a completed calculation in the form of Exhibit "C" attached
hereto.
2.2.2 "GROSS REVENUES" shall be calculated according to
generally accepted accounting principles consistently applied
("GAAP") and shall be defined as all revenues generated by the
operation, sublease and/or use of the Premises in any way, excluding
(i) contractual allowances 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 GAAP relating to health care accounting; and (iii)
federal, state or local sales or 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.
2.2.3 "LEASE YEAR" shall be defined as the twelve (12)
month periods commencing on May 1 of each year of the Term.
2.2.4 The "BASE YEAR" during the Initial Term shall mean
the year ending on April 30, 1996.
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<PAGE> 10
2.3 RENEWAL TERM MINIMUM RENT. The Minimum Rent for each renewal
term shall be expressed as an annual amount but shall be payable in advance in
equal monthly installments on the first business day of each calendar month.
Such annual Minimum Rent shall be equal to the product of:
2.3.1 the greater of (i) the fair market value of the
Premises on the date of Tenant's notice of exercise pursuant to
Section 1.2.1, but not to exceed Landlord's Original Investment
($4,350,000) (as increased under Section 5.7 below, if applicable)
increased by three percent (3%) per annum compounded annually or (ii)
Landlord's Original Investment ($4,350,000) as increased under
Section 5.7 below, if applicable; and
2.3.2 a percentage equal to three hundred fifty (350)
basis points over the 10 year United States Treasury rate in effect
on the date of Tenant's notice of exercise pursuant to Section 1.2.1.
If within ten (10) days of the date of Tenant's notice of exercise pursuant to
Section 1.2.1, Landlord and Tenant are unable to agree on the fair market value
of the Premises for purposes of this calculation, such fair market value shall
be established by the appraisal process described on Exhibit "D" attached
hereto. The Minimum Rent for the applicable renewal term must be finally
determined by such appraisal process on or before a date ninety (90) days after
Tenant's notice of exercise
5
<PAGE> 11
pursuant to section 1.2.1 or Tenant shall lose its right to extend the Term.
Landlord and Tenant acknowledge and agree that this Section is designed to
establish a fair market Minimum Rent for the Premises during the applicable
renewal terms.
2.4 RENEWAL TERM ADDITIONAL RENT. During each renewal term, Tenant
shall pay to Landlord Additional Rent on a quarterly basis in arrears no more
than 45 days after the end of each calendar quarter. The Additional Rent for
each renewal term shall be calculated as provided in Section 2.2 except that
the Base Year for the purpose of determining such Additional Rent shall be the
Lease Year immediately preceding the applicable renewal term.
2.5 TOTAL RENT. For all purposes of calculating and paying Minimum
Rent and Additional Rent under this Lease, the total of the Minimum Rent plus
Additional Rent payable by Tenant in any Lease Year will not be less than the
total Minimum Rent plus Additional Rent paid by Tenant for the previous Lease
Year.
2.6 RENT CAP AND RENT FLOOR.
2.6.1 Notwithstanding any of the other terms of this
Lease but subject to Sections 2.6.2 and 2.6.4, the total of the
Minimum Rent and Additional Rent due during each Lease Year shall
not: during the third Lease Year of the Initial-Term exceed $432,048
plus the product of .09933 times capital improvements funded by
Landlord pursuant to Section 5.7 of this Lease; and in all subsequent
Lease Years increase from one Lease Year to the next by an amount in
excess of (i) the applicable percentage, multiplied by (ii) the sum
of the Minimum Rent and the Additional Rent due during the
immediately preceding Lease
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Year. As used in the foregoing, the "applicable percentage" shall be
three percent (3%) in the fourth Lease Year of the Initial Term and
three and one-half percent (3.5%) in all subsequent Lease Years.
2.6.2 The terms of Section 2.6.1 shall have no
applicability in determining the Minimum Rent to be calculated for
any renewal term pursuant to Section 2.3 above. However, the terms of
Section 2.6.1 shall apply in calculating total rent from one year to
the next within a renewal term.
2.6.3 Notwithstanding any of the other terms of the
Lease but subject to Section 2.6.4, in no event shall the total of
Minimum Rent plus Additional Rent in the first Lease Year of any
renewal term exceed one hundred fifteen percent (115%) of the total
of the Minimum Rent plus Additional Rent paid or payable for the last
Lease Year in the Initial Term or preceding renewal term, as
applicable.
2.6.4 Notwithstanding any of the other terms of this
Section 2.6, the terms of Section 2.5 shall continue to apply such
that the sum of the Minimum Rent and the Additional Rent due during
any Lease Year shall in no event be less than the sum of the Minimum
Rent and the Additional Rent due during the immediately preceding
Lease Year.
2.6.5 To the extent that Section 2.6.1 operates to limit
the rent for any Lease Year, the amount of rent which would have
otherwise been paid or payable by Tenant will be carried forward on a
cumulative basis and
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will be paid by Tenant to Landlord in any subsequent Lease Year
(other than the first Lease Year of a renewal term) in which the
total of the Minimum Rent and Additional Rent is less than the
applicable percentage of the total of the Minimum Rent and Additional
Rent for the then immediately preceding Lease Year.
2.6.6 To the extent that Section 2.6.3 operates to limit
the Minimum Rent for the first renewal term, the amount of rent which
would have otherwise been paid or payable by Tenant in such first
renewal term will be carried forward and will be paid in the second
renewal term (evenly divided over all of the months in such second
renewal term) to the extent that the Minimum Rent for such second
renewal term is less than one hundred fifteen percent (115%) of the
total of the Minimum Rent and Additional Rent for the last Lease Year
in the first renewal term.
2.6.7 Within sixty (60) days of the end of each Lease
Year, Tenant shall deliver to Landlord a report in the form attached
hereto as Exhibit F. certified by an officer or general partner of
Tenant, as applicable, setting forth the calculations set forth
therein. If said report provides that Tenant owes Landlord any sum of
money, Tenant shall accompany such report delivered to Landlord with
such funds. If said report provides that Landlord owes Tenant any sum
of money, such sum shall be applied as a credit against future
installments of Minimum Rent and Additional Rent due from Tenant to
Landlord: provided, however. if such sum is
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owed by Landlord to Tenant with respect to the last year of the Lease
Term, Landlord shall pay such sum to Tenant within thirty (30) days
of Landlord's receipt of the report in question.
2.7 PRORATION FOR PARTIAL PERIODS. The rent for any month during
the Term which begins or ends on other than the first or last calendar day of a
calendar month shall be prorated based on actual days elapsed.
2.8 ABSOLUTE NET LEASE. All rent payments shall be absolutely net
to the Landlord free of taxes (as described in Section 3.1 hereof),
assessments, utility charges, operating expenses, refurnishings insurance
premiums or any other charge or expense in connection with the Premises. All
expenses and charges, whether for upkeep, maintenance, repair, refurnishing,
refurbishing, restoration, replacement, insurance premiums, taxes, utilities,
and other operating or other charges of a like nature or otherwise, shall be
paid by Tenant. This provision is not in derogation of the specific provisions
of this Lease, but in expansion thereof and as an indication of the general
intentions of the parties hereto. Tenant shall continue to perform its
obligations under this Lease even if Tenant claims that Tenant has been damaged
by any act or omission of Landlord. Therefore, Tenant shall at all times remain
obligated under this Lease without any right of set-off, counterclaim,
abatement, deduction, reduction or defense of any kind, except in the event
that Landlord breaches its obligations under Section 18 or as otherwise
expressly provided therein. Tenant's sole right to
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recover damages against Landlord by reason of a breach or alleged breach of
Landlord's obligations under this Lease shall be to prove such damages in a
separate action against Landlord.
3. TAXES. ASSESSMENTS AND OTHER CHARGES:
3.1 TENANT'S OBLIGATIONS. Tenant agrees to pay and discharge
(including the filing of all required returns) any and all taxes (including but
not limited to real estate and personal property taxes, business and
occupational license taxes, ad valorem sales, use, single business, gross
receipts, transaction privilege, rent or other excise taxes) and other
assessments levied or assessed against the Premises or any interest therein
during the Term, prior to delinquency or imposition of any fine, penalty,
interest or other cost.
3.2 PRORATION. At the commencement and at the end of the Term, all
such taxes and assessments shall be prorated.
3.3 RIGHT TO PROTEST. Landlord and/or Tenant shall have the right,
but not the obligation, to protest the amount or payment of any real or
personal property taxes or assessments levied against the Premises; provided
that in the event of any protest by Tenant, Landlord shall not incur any
expense because of any such protest, Tenant shall diligently and continuously
prosecute any such protest and notwithstanding such protest Tenant shall pay
any tax, assessment or other charge before the imposition of any penalty or
interest.
3.4 TAX BILLS. Landlord shall promptly forward to Tenant copies of
all tax bills and payment receipts relating to the Premises received by
Landlord.
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3.5 OTHER CHARGES. Tenant agrees to pay and discharge, punctually
as and when the same shall become due and payable without penalty, all
electricity, gas, garbage collection, cable television, telephone, water,
sewer, and other utilities costs and all other charges, obligations or deposits
assessed against the Premises during the Term.
4. INSURANCE.
4.1 GENERAL INSURANCE REQUIREMENTS. Except as set forth herein,
all insurance provided for in this Lease shall be maintained under valid and
enforceable policies issued by insurers or reinsurers of recognized
responsibility, licensed (either admitted or not admitted) to do business in
the State of California, having a general policyholders rating of not less than
"A minus", a financial rating of not less than "Class V" in the then most
current Best's Insurance Report, and an overall performance rating of
"excellent." Any and all policies of insurance required under this Lease shall
name the Landlord as an additional insured and shall be on an "occurrence"
basis, or if on a "claims made" basis the Tenant shall provide for the purchase
of a one year tail at the expiration of the "claims made" policy in question.
In addition, Landlord shall be shown as the loss payable beneficiary under the
property insurance policy maintained by Tenant pursuant to Section 4.2. All
policies of insurance required herein may be in the form of "blanket" or
"umbrella" type policies which shall name the Landlord and Tenant as their
interests may appear and allocate to the Premises the full amount of insurance
required hereunder.
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Original policies or satisfactory certificates from the insurers evidencing the
existence of all policies of insurance required by this Lease and showing the
interest of the Landlord shall be filed with the Landlord prior to the
commencement of the Term and shall provide that the subject policy may not be
canceled except upon not less than ten (10) days prior written notice to
Landlord. Originals of the renewal policies or certificates therefor from the
insurers evidencing the existence thereof shall be deposited with Landlord not
less than ten (10) days prior to the expiration dates of the policies. Any
claims under any policies of insurance described in this Lease shall be
adjudicated by and at the expense of the Tenant or of its insurance carrier,
but shall be subject to joint control of Tenant and Landlord.
4.2 FIRE AND EXTENDED COVERAGE. Tenant shall keep the Premises
insured against loss or damage by fire, with extended coverage endorsement
covering loss or damage, by lightning, windstorm, explosion, smoke damage,
vehicle damage, sprinkler leakage, flood, vandalism, earthquake (if within an
earthquake zone Tenant will provide earthquake insurance as soon as practicable
after the commencement of the Initial Term), malicious mischief and such other
risks as are normally covered under such endorsement in the amounts that are
not less than the full insurable value of the Premises including all equipment
and personal property (whether or not Landlord Personal Property) used in the
operation of the Premises, but in no event less than Seven Million Six Hundred
Thousand Dollars ($7,600,000). The term "FULL INSURABLE VALUE" as used in this
Lease shall mean the greater of (i) Seven Million Six Hundred Thousand Dollars
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($7,600,000) or (ii) Landlord's Original Investment ($4,350,000) (as increased
under Section 5.7 below, if applicable) increased by three percent (3%) per
annum compounded annually from the date of this Lease.
4.3 PUBLIC LIABILITY. Tenant shall maintain general public
liability insurance (including products liability coverage) against claims for
bodily injury, death or property damage occurring on, in or about the Premises
and the adjoining sidewalks and passageways, such insurance to afford
protection to Landlord and Tenant of not less than Five Million Dollars
($5,000,000) with respect to bodily injury or death to any one person, not less
than Five Million Dollars ($5,000,000) with respect to any one accident, and
not less than One Million Dollars ($1,000,000) with respect to property damage;
provided, that Landlord shall have the right at any time hereafter to require
such higher limits as may be reasonable and customary for transactions and
properties similar to the Premises.
4.4 PROFESSIONAL LIABILITY INSURANCE. Tenant shall maintain
insurance against liability imposed by law upon Tenant and its Affiliates for
damages on account of professional services rendered or which should have been
rendered by Tenant or its Affiliates or any person for which acts Tenant or its
Affiliates is legally liable on account of injury, sickness or disease,
including death at any time resulting therefrom, and including damages allowed
for loss of service, in a minimum amount of Five Million Dollars ($5,000,000)
for each claim and One Hundred Million Dollars ($100,000,000) in the aggregate.
In
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the alternative, Tenant shall participate in the professional liability
insurance program provided by the California Hospital Insurance Company, which
provides professional liability insurance in an amount of not less than Five
Million Dollars ($5,000,000) for each claim.
4.5 WORKERS COMPENSATION. Tenant shall comply with all legal
requirements regarding worker's compensation, including any requirement to
maintain worker's compensation insurance against claims for injuries sustained
by Tenant's employees in the course of their employment.
4.6 BOILER INSURANCE. If required by Landlord in its reasonable
discretion, Tenant shall maintain boiler and pressure vessel insurance on any
fixtures or equipment which are capable of bursting or exploding, in an amount
not less than Five Million Dollars ($5,000,000) for damage to property, bodily
injury or death resulting from such perils.
4.7 BUSINESS INTERRUPTION INSURANCE. Tenant shall maintain, at its
expense, business interruption insurance insuring against loss of rental value
for a period not less than one (1) year.
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5. Use, Maintenance and Alteration of the Premises.
5.1 Tenant's Maintenance Obligations.
5.1.1 Tenant will keep and maintain the Premises in good
appearance, repair and condition and maintain proper housekeeping.
Tenant shall promptly make or cause to be made all repairs, interior
and exterior, structural and nonstructural, ordinary and
extraordinary, foreseen and unforeseen necessary to keep the Premises
in good and lawful order and condition and in substantial compliance
with all requirements for the licensing of hospitals (and nursing
homes if the Premises are subject to a nursing home license) in the
State of California and certification for participation in Medicare
and MediCal (or any successor programs) or as otherwise required
under all applicable local, state and federal laws.
5.1.2 As part of Tenant's obligations under this Section
5.1, Tenant shall be responsible to maintain, repair and replace all
Landlord Personal Property and all Tenant Personal Property in good
condition, ordinary wear and tear excepted, consistent with prudent
industry practice.
5.2 REGULATORY COMPLIANCE.
5.2.1 Tenant and the Premises shall comply with all
federal, state and local licensing and other laws and regulations
applicable to hospitals (and nursing homes if the Premises are
subject to a nursing
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home license) as well as with the certification requirements of
Medicare and MediCal (or any successor program). Further, Tenant
shall ensure that the Premises continue to be licensed as a hospital
with a licensed capacity of 116 beds fully certified for
participation in Medicare and MediCal (or any successor program)
throughout the Term and at the time the Premises are returned to
Landlord at the termination thereof, all without any suspension,
revocation, decertification or limitation. Further, Tenant shall not
commit any act or omission that would in any way violate any
certificate of occupancy affecting the Premises.
5.2.2 All inspection fees, costs and charges associated
with a change of such licensure or certification shall be borne
solely by Tenant. Tenant shall at its sole cost make any additions or
alterations to the Premises necessitated by, or imposed in connection
with, a change of ownership inspection survey for the transfer of
operation of the Premises from Tenant or Tenant's assignee or
subtenant to Landlord or Landlord's designee at the expiration or
termination of the Term.
5.3 PERMITTED USE. Tenant shall continuously use and occupy the
Premises during the Term, solely as a 116 bed licensed hospital.
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5.4 TENANT REPURCHASE OBLIGATION. If Tenant fails to comply with
Section 5.3, if the certification of the Premises under Medicare or MediCal (or
any successor program) is revoked, suspended or materially limited, or if the
hospital (or nursing home license, if any) of the Premises is revoked,
suspended or materially limited, then in addition to Landlord's other rights
and remedies under this Lease, Landlord shall have the right to put the
Premises to Tenant. If Landlord exercises such right, Tenant shall purchase
the Premises from Landlord for a cash price equal to the greater of Landlord's
Original Investment ($4,350,000) as increased under Section 5.7 below, if
applicable or the fair market value of the Premises on the date of Landlord's
notice of exercise; provided, however, in no event shall the cash price exceed
Landlord's Original Investment ($4,350,000) (as increased under Section 5.7
below, if applicable) increased by three percent (3%) per annum compounded
annually. Such fair market value shall be as agreed between Landlord and
Tenant. However, failing such agreement within ten (10) days of Landlord's
notice of exercise under this Section, such fair market value shall be
determined by the appraisal process set forth in Exhibit "D" attached hereto.
Within ninety (90) days of Landlord's exercise of its put under this Section
5.4, such purchase shall be consummated utilizing an escrow at a national title
company selected by Landlord. Such escrow shall be documented on such title
company's standard sale escrow instructions without representations or
warranties and without any due diligence or other contingencies in favor of the
buyer.
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Tenant shall pay all costs of such sale transaction. At the close of such sale,
Landlord shall deliver to Tenant title to the Premises subject only to those
title exceptions shown on Exhibit "E" attached hereto.
5.5 No Liens: Permitted Contests. Tenant shall not cause or permit
any liens, levies or attachments to be placed or assessed against the Premises
or the operation thereof for any reason. However, Tenant shall be permitted in
good faith and at its expense to contest the existence, amount or validity of
any lien upon the Premises by appropriate proceedings sufficient to prevent the
collection or other realization of the lien or claim so contested, as well as
the sale, forfeiture or loss of any of the Premises or any rent to satisfy the
same. Tenant shall provide Landlord with security satisfactory to Landlord in
Landlord's reasonable judgment to assure the foregoing. Each contest permitted
by this Section 5.5 shall be promptly and diligently prosecuted to a final
conclusion by Tenant.
5.6 ALTERATIONS BY TENANT. Tenant shall have the right of
altering, improving, replacing, modifying or expanding the facilities,
equipment or appliances in the Premises from time to time as it may determine
is desirable for the continuing and proper use and maintenance of the Premises
under this Lease; provided, however, that any alterations, improvements,
replacements, expansions or modifications in excess of Two Hundred Fifty
Thousand Dollars ($250,000) (exclusive of improvements funded by Landlord under
Section 5.7 below) in any rolling twelve (12) month period shall require the
prior written
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consent of the Landlord, which consent may not be unreasonably withheld. The
cost of all such alterations, improvements, replacements, modifications,
expansions or other purchases, whether undertaken as an on-going licensing,
Medicare or MediCal (or any successor program) or other regulatory requirement
or otherwise shall be borne solely and exclusively by Tenant (unless funded by
Landlord under Section 5.7) and shall immediately become a part of the Premises
and the property of the Landlord subject to the terms and conditions of this
Lease. All work done in connection therewith shall be done in a good and
workmanlike manner and in compliance with all existing codes and regulations
pertaining to the Premises and shall comply with the requirements of insurance
policies required under this Lease. In the event any items of the Premises have
become inadequate, obsolete or worn out or require replacement (by direction of
any regulatory body or otherwise), Tenant shall remove such items and exchange
or replace the same at Tenant's sole cost and the same shall become part of the
Premises and property of the Landlord except as the same is subject to
Landlord's option to purchase pursuant to Section 7.5 below. Notwithstanding
any of the other terms of this Section 5.6, all Landlord Personal Property
which is replaced by Tenant during the Term shall, at the end of the Term,
become the property of Landlord if either of the following conditions are
satisfied (i) if Tenant owns such property at the end of the Term, the property
shall automatically become the property of Landlord or (ii) if such property is
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leased by Tenant at the end of the Term, the property shall become the property
of Landlord and Landlord shall assume Tenant's obligations under such leases,
but only if (a) the lessor under such leases is directly and indirectly an
unrelated third party to Tenant and (b) the lease terms are customary to the
business practices of health care equipment leases as such practices exist at
the time of the execution of such leases and (c) within ninety days (90) prior
to the end of the Term, Tenant shall deliver to Landlord a report which in
reasonable detail describes the terms of such leases and identifies Landlord's
Personal Property.
5.7 CAPITAL IMPROVEMENTS FUNDED BY LANDLORD. In the event Tenant
desires to make a capital improvement or a related series of capital
improvements to the Premises which are completed in the first Lease Year,
Tenant may request that Landlord fund such improvements under this Section 5.7.
Tenant shall accompany such request with a description of such improvements in
reasonable detail, and Landlord shall have the right to inspect the
improvements completed by Tenant. Landlord shall not unreasonably withhold its
approval of the funding of such improvements. Landlord shall approve or
disapprove such funding within thirty (30) days of Tenant's written request
hereunder. Upon Landlord's approval of such request, Landlord shall promptly
reimburse Tenant for its customary and reasonable costs of completing such
capital improvements, provided that Landlord's reimbursement payments under
this Section 5.7 shall
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not exceed a total aggregate amount of One Million Dollars ($1,000,000). Each
and every capital improvement funded by Landlord under this Section 5.7 shall
immediately become a part of the Premises and shall belong to Landlord subject
to the terms and conditions of this Lease. Landlord and Tenant contemplate
there will be capital improvements exceeding a total aggregate amount of One
Million Dollars ($1,000,000) during the Term, and at Landlord's sole discretion
and subject to Landlord's Board of Directors approval, Landlord will consider
funding such improvements on terms then prevailing for like investments of
Landlord. If Landlord funds any capital improvements, Landlord's Original
Investment shall be increased for all purposes under this Lease by the amount
of the funds provided by Landlord for capital improvements.
5.8 COMPLIANCE WITH IRS GUIDELINES. Any improvement or
modification to the Premises shall satisfy the requirements set forth in
Sections 4(4).02 and .03 of Revenue Procedure 75-21, 1975-1 C.B. 715, as
modified by Revenue Procedure 79-48, 1979-2 C.B. 529. Landlord reserves the
right to refuse to consent to any improvement or modification to the Premises
if, in its judgment, such improvement or modification does not meet the
foregoing requirements.
5.9 OPTION TO REACQUIRE. In consideration of the execution by
Tenant of this Lease and for other good and valuable
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consideration, the receipt and sufficiency of which is hereby acknowledged,
Landlord hereby grants to Tenant an option to acquire that certain portion of
the Premises which is described on that certain ALTA Survey dated April 4,
1994, prepared by William L. Meagher, a copy of which is attached hereto as
Exhibit "G" as "Vacant Land" and as "Oak Trees", but not including a ten foot
(10') strip of land along the North edge of the asphalt located on the "Oak
Trees" portion of the Premises of such Survey, upon the satisfaction of all of
the following terms and conditions:
5.9.1 There shall be no Event of Default hereunder on
the date on which Tenant exercises such option and on the date on
which such conveyance is to close;
5.9.2 Landlord shall have received satisfactory evidence
that the portion of the Premises not to be released will have the
benefit of such easements and rights of way in, over and through the
portion of the Premises to be released as are, in Landlord's
judgment, necessary or desirable to provide or assure access to and
from, utility service to, parking for and common wall maintenance and
support to the remaining portion of the Premises;
5.9.3 Landlord shall have received satisfactory evidence
that the remaining portion after such conveyance comprises a legal
lot in compliance with all subdivision and zoning laws and for tax
assessment purposes;
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5.9.4 Landlord shall deliver title to the portion of the
Premises to be released subject to those title exceptions shown in
Exhibit "E";
5.9.5 Tenant shall pay all costs associated with the
transfer of Landlord's interest in the portion of the Premises to be
released, including, without limitation, Landlord's attorneys' fees.
5.9.6 The transfer documents for the portion of the
Premises to be released shall contain a use restriction satisfactory
to Landlord that so long as Landlord is the fee owner of any portion
of the Premises remaining subject to this Lease, the released portion
of the Premises shall be used solely for health care purposes, but
excluding acute care and nursing home purposes; provided, however,
that if Tenant desires to swap the released portion of the Premises
with that certain property adjacent to the Premises and which is
described on the above mentioned ALTA survey as "Existing Church (the
"CHURCH PROPERTY"), then the released portion of the Premises may be
used as a church;
5.9.7 The released portion shall be encumbered with a
covenant running with the land in favor of such portion of the
Premises remaining subject to this Lease that so long as Landlord is
the fee owner of any portion of the Premises remaining subject to
this Lease, the released portion of the Premises shall be used only
for health care
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purposes, but excluding acute care and nursing home purposes;
provided, however, that if the Church Property is swapped as
described in Section 5.9.6, then the released portion of the Premises
shall be burdened with a covenant running with the land in favor of
the portion of the Premises remaining subject to this Lease that such
released portion shall be used only for church purposes so long as
Landlord is the fee owner of any portion of the Premises remaining
subject to this Lease, and the Church Property shall be burdened with
a covenant running with the land in favor of the portion of the
Premises remaining subject to this Lease that the Church Property
shall be used only for health care purposes, but excluding acute care
and nursing home purposes, so long as Landlord is the fee owner of
any portion of the Premises remaining subject to this Lease.
5.9.8 If a portion of the Premises is released pursuant
to this Section 5.9, the Premises thereafter will consist of the
portion of the Premises remaining subject to this Lease, but there
will be no pro-rata reductions under this Lease for any purpose,
including, without limitation, Landlord's Original Investment or
determining rent for renewal terms.
6. CONDITION AND TITLE OF PREMISES. Tenant acknowledges that it is
presently engaged in the operation of hospital facilities in the State of
California and has expertise in the hospital industry for facilities similar to
the Premises. Tenant
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has thoroughly investigated the Premises, has selected the Premises to its own
specifications, and has concluded that no improvements or modifications to the
Premises are required in order to complete the Premises for its intended use.
Tenant accepts said Premises for use as a hospital under this Lease on an "AS
IS" basis and will assume all responsibility and cost for the correction of any
observed or unobserved deficiencies or violations. In making its decision to
enter into this Lease, Tenant has not relied on any representations or
warranties, express or implied, of any kind from Landlord. Tenant has examined
the condition of title to the Premises prior to the execution and delivery of
this Lease and has found the same to be satisfactory.
7. LANDLORD AND TENANT PERSONAL PROPERTY.
7.1 TENANT PERSONAL PROPERTY. Tenant shall install, affix or
assemble or place on the Premises all items of furniture, fixtures, equipment
and supplies not included as Landlord Personal Property as Tenant reasonably
considers to be appropriate for Tenant's use of the Premises as contemplated by
this Lease (the "TENANT PERSONAL PROPERTY"). Tenant shall provide and maintain
during the entire Term all Tenant Personal Property as shall be necessary in
order to operate the Premises in compliance with all requirements set forth in
this Lease. All Tenant Personal Property shall be and shall remain the property
of Tenant and may be removed by Tenant upon the expiration of the Term. However
if there is any Event of Default, Tenant will not
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remove the Tenant Personal Property from the Premises and will on demand from
Landlord, convey the Tenant Personal Property to Landlord by executing a bill
of sale in a form reasonably required by Landlord. In any event, Tenant will
repair all damage to the Premises caused by any removal of the Tenant Personal
Property.
7.2 LANDLORD'S SECURITY INTEREST.
7.2.1 The parties intend that if Tenant defaults under
this Lease, Landlord will control the Tenant Personal Property and
the Intangible Property so that Landlord or its designee can operate
or re-let the Premises intact for use as a hospital.
7.2.2 Therefore, to implement the intention of the
parties, and for the purpose of securing the payment and performance
of Tenant's obligations under this Lease, Tenant, as debtor, hereby
grants to Landlord, as secured party, a security interest in and an
express contractual lien upon, all of Tenant's right, title and
interest in and to the Tenant Personal Property and in and to the
Intangible Property and any and all products and proceeds thereof, in
which Tenant now owns or hereafter acquires an interest or right,
including any leased Tenant Personal Property. This Lease constitutes
a security agreement covering all such Tenant Personal Property and
the Intangible Property. The security interest granted to Landlord in
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this Section 7.2.2. is intended by Landlord and Tenant to be
subordinate to any security interest granted in connection with the
financing or leasing of all or any portion of the Tenant Personal
Property so long as the lessor or financier of such Tenant Personal
Property agrees to give Landlord written notice of any default by
Tenant under the terms of such lease or financing arrangement, to
give Landlord a reasonable time following such notice to cure any
such default and to consent to Landlord's written assumption of such
lease or financing arrangement upon Landlord's curing of any defaults
thereunder. This security agreement and the security interest created
herein shall survive the termination of this Lease if such
termination results from the occurrence of an Event of Default.
7.3 FINANCING STATEMENTS. If required by Landlord at any time
during the Term, Tenant will execute and deliver to Landlord, in form
reasonably satisfactory to Landlord, additional security agreements, financing
statements, fixture filings and such other documents as Landlord may reasonably
require to perfect or continue the perfection of Landlord's security interest
in the Tenant Personal Property and the Intangible Property and any and all
products and proceeds thereof now owned or hereafter acquired by Tenant. Tenant
shall pay all fees and costs that Landlord may incur in filing such documents
in public offices and in obtaining such record searches as Landlord may
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reasonably require. In the event Tenant fails to execute any financing
statements or other documents for the perfection or continuation of Landlord's
security interest, Tenant hereby appoints Landlord as its true and lawful
attorney-in-fact to execute any such documents on its behalf, which power of
attorney shall be irrevocable and is deemed to be coupled with an interest.
7.4 INTANGIBLE PROPERTY. The term "INTANGIBLE PROPERTY" means all
rents, profits, income or revenue derived from the use of rooms or other space
within the Premises or the providing of services in or from the Premises;
documents, chattel paper, instruments, contract rights, deposit accounts,
general intangibles, choses in action, now owned or hereafter acquired by
Tenant (including any right to any refund of any taxes or other charges
heretofore or hereafter paid to any governmental authority) arising from or in
connection with Tenant's operation or use of the Premises; all licenses and
permits now owned or hereinafter acquired by Tenant, necessary or desirable for
Tenant's use of the Premises under this Lease, including without limitation, if
applicable, any certificate of need or other similar certificate; the right to
use any trade or other name associated with the operation of the Premises by
Tenant, including without limitation the name "Ojai Valley Community Hospital";
but shall not include any accounts receivable now owned or hereafter acquired
by Tenant.
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7.5 OPTION TO PURCHASE. At the end of the Term Landlord has the
option to purchase all Tenant Personal Property and to assume all leases for
Tenant Personal Property.
8. REPRESENTATIONS AND WARRANTIES. Landlord and Tenant do hereby each
for itself represent and warrant to each other as follows:
8.1 DUE AUTHORIZATION AND EXECUTION. This Lease and all
agreements, instruments and documents executed or to be executed in connection
herewith by either Landlord or Tenant were duly authorized and shall be binding
upon the party that executed and delivered the same.
8.2 DUE ORGANIZATION. Landlord and Tenant are duly organized,
validly existing and in good standing under the laws of the State of their
respective formations and are duly authorized and qualified to do all things
required of them under this Lease within the State of California.
8.3 NO BREACH OF OTHER AGREEMENTS. Neither this Lease nor any
agreement, document or instrument executed or to be executed in connection
herewith, violates the terms of any other agreement to which either Landlord or
Tenant is a party.
9. FINANCIAL, MANAGEMENT AND REGULATORY REPORTS.
9.1 Monthly Facility Reports. Within thirty (30) days after the
end of each calendar month during the Term, Tenant shall prepare and deliver
monthly financial reports, in the form Tenant generates internally, to Landlord
consisting of a balance
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sheet, income statement, total patient days, occupancy and payor mix concerning
the business conducted at the Premises.
9.2 QUARTERLY FINANCIAL STATEMENTS. Within forty-five (45) days of
the end of each of the first three quarters of the fiscal years of Guarantor,
Tenant shall deliver the unaudited quarterly consolidated financial statements
of Guarantor to Landlord.
9.3 ANNUAL FINANCIAL STATEMENT. Within ninety (90) days of the
fiscal year end of both Tenant and Guarantor, Tenant shall deliver to Landlord
any internally prepared annual financial statements of Tenant and an unaudited
draft of the annual consolidated financial statements of Guarantor. Within one
hundred twenty (120) days of the fiscal year end of Guarantor, Tenant shall
deliver to Landlord the annual consolidated financial statements of Guarantor
audited by a reputable certified public accounting firm. Notwithstanding any of
the other terms of this Section 9.3, if Tenant or Guarantor become subject to
any reporting requirements of the Securities and Exchange Commission (the
"SEC") during the Term, Tenant shall concurrently deliver to Landlord such
reports as are delivered to the SEC pursuant to applicable security laws.
9.4 ACCOUNTING PRINCIPLES. All of the reports and statements
required hereby shall be prepared in accordance with GAAP and Tenant's
accounting principles consistently applied.
9.5 REGULATORY REPORTS. In addition, Tenant shall promptly, but in
any event no later than ten (10) calendar days
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of receipt thereof deliver to Landlord all federal, state and local licensing
and reimbursement certification surveys, inspection and other reports received
by Tenant as to the Premises and the operation of business thereon, including,
without limitation, state department of health licensing surveys, Medicare and
MediCal (and successor programs) certification surveys and life safety code
reports. Within five (5) calendar days of receipt thereof, Tenant shall give
Landlord written notice of any violation of any federal, state or local
licensing or reimbursement certification statute or regulation including
without limitation Medicare or MediCal (or successor programs), any suspension,
termination or restriction placed upon Tenant or the Premises, the operation of
business thereon or the ability to admit patients, or any violation of any
other permit, approval or certification in connection with the Premises or its
business, by any federal, state or local authority including without limitation
Medicare or MediCal (or successor programs).
10. EVENTS OF DEFAULT AND LANDLORD'S REMEDIES.
10.1 EVENTS OF DEFAULT. The occurrence of any of the following
shall constitute an event of default on the part of Tenant hereunder ("EVENT OF
DEFAULT"):
10.1.1 The failure to pay within the applicable grace
period any Minimum Rent, Additional Rent, taxes or assessments,
utilities, premiums for insurance or other charges or payments
required of Tenant under this Lease. As used herein, the "applicable
grace period" shall be ten (10)
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calendar days from the date on which the applicable payment is due,
provided, however, following two (2) consecutive failures to pay as
described in this Section 10.1.1, or following any three (3) such
failures to pay in any rolling twelve (12) month period, the
applicable grace period shall be five (5) calendar days from the date
on which the applicable payment is due;
10.1.2 A material breach by Tenant of any of the
representations, warranties or covenants in favor of Landlord as set
forth in the Purchase and Sale Agreement of even date herewith;
10.1.3 A material default by Tenant or any Guarantor (or
any Affiliate of either) ("AFFILIATE" being defined to mean, with
respect to any person or entity, any other person or entity which
controls, is controlled by or is under common control with the first
person or entity) under any obligation other than this Lease owed by
Tenant or any Guarantor (or any Affiliate of either) to Landlord or
any Affiliate of Landlord (including without limitation any financing
agreement or any other lease), which default is not cured within any
applicable cure period provided in the documentation for such
obligation;
10.1.4 A default by Tenant or any Guarantor with respect
to any obligation with a principal amount of at least One Million
Dollars ($1,000,000) under any other lease or financing agreement
with any other party, which default
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is not cured within any applicable cure period provided in the
documentation for such obligation;
10.1.5 Any material misstatement or omission of fact in
any written report, notice or communication from Tenant or any
Guarantor to Landlord with respect to Tenant, any Guarantor or the
Premises;
10.1.6 An assignment by Tenant or any Guarantor of all or
substantially all of its property for the benefit of creditors;
10.1.7 The appointment of a receiver, trustee, or
liquidator for Tenant or any Guarantor, or any of the property of
Tenant or any Guarantor, if within three (3) business days of such
appointment Tenant does not inform Landlord in writing that Tenant or
Guarantor intends to cause such appointment to be discharged or
Tenant or Guarantor does not thereafter diligently prosecute such
discharge to completion within thirty (30) days after the date of
such appointment;
10.1.8 The filing by Tenant or any Guarantor of a
voluntary petition under any federal bankruptcy law or under the law
of any state to be adjudicated as bankrupt or for any arrangement or
other debtor's relief, or in the alternative, if any such petition is
involuntarily filed against Tenant or any Guarantor by any other
party and Tenant does not within three (3) business days of any such
filing inform Landlord in writing of the intent by Tenant or
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Guarantor to cause such petition to be dismissed, if Tenant or
Guarantor does not thereafter diligently prosecute such dismissal, or
if such filing is not dismissed within ninety (90) days after filing
thereof; and
10.1.9 The failure to perform or comply with any other
material Lease term or provision not requiring the payment of money,
including, without limitation, the failure to comply with the
provisions hereof pertaining to the use, operation and maintenance of
the Premises; provided, however, the default described in this
Section 10.1.9 is curable and shall be deemed cured, if: (i) within
three (3) business days of Tenant's receipt of a notice of default
from Landlord, Tenant gives Landlord notice of its intent to cure
such default; and (ii) Tenant cures such default within thirty (30)
days after such notice from Landlord, unless such default cannot with
due diligence be cured within a period of thirty (30) days because of
the nature of the default or delays beyond the control of Tenant, and
cure after such thirty (30) day period will not have a material and
adverse effect upon the Premises, in which case such default shall
not constitute an Event of Default if Tenant uses its best efforts to
cure such default by promptly commencing and diligently pursuing such
cure to the completion thereof, provided, however, no such default
shall continue for more than one hundred twenty (120) days from
Tenant's receipt of a notice of default from Landlord.
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10.2 REMEDIES. Upon the occurrence of an Event of Default, Landlord
may exercise all rights and remedies under this Lease and the laws of the State
of California available to a lessor of real and personal property in the event
of a default by its lessee (including Section 1951.2 of the California Civil
Code), and as to the Tenant Personal Property all remedies granted under the
laws of such State to a secured party under its Uniform Commercial Code.
Without limiting the foregoing, Landlord shall have the right to do any of the
following:
10.2.1 Sue for the specific performance of any covenant
of Tenant under this Lease as to which Tenant is in breach;
10.2.2 Upon compliance with the requirements of
applicable law, Landlord may do any of the following: enter upon the
Premises, terminate this Lease, dispossess Tenant from the Premises
and/or collect money damages by reason of Tenant's breach, including
without limitation all rent which would have accrued after such
termination and all obligations and liabilities of Tenant under this
Lease which survive the termination of the Term;
10.2.3 Elect to leave this Lease in place and sue for
rent and/or other money damages as the same come due;
10.2.4 Before or after repossession of the Premises
pursuant to Section 10.2.2, and whether or not this Lease has been
terminated, Landlord shall have the right (but shall be under no
obligation) to relet any portion of
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the Premises to such tenant or tenants, for such term or terms (which
may be greater or less than the remaining balance of the Term), for
such rent, or such conditions (which may include concessions or free
rent) and for such uses, as Landlord, in its absolute discretion, may
determine, and Landlord may collect and receive any rents payable by
reason of such reletting. Landlord shall have no duty to mitigate
damages unless required by applicable law and shall not be
responsible or liable for any failure to relet any of the Premises or
for any failure to collect any rent due upon any such reletting.
Tenant agrees to pay Landlord, immediately upon demand, all expenses
incurred by Landlord in obtaining possession and in reletting any of
the Premises, including fees, commissions and costs of attorneys,
architects, agents and brokers;
10.2.5 Without limiting the generality of the foregoing,
it is specifically intended that Landlord shall be entitled as part
of its award to the measure of damages set forth in Section 1951.2(a)
(3) of the California Civil Code, and in that regard the damages
which Landlord may recover shall include the worth at the time of the
award of the amount of unpaid rent for the balance of the then
current Term after the time of award exceeds the amount of such
rental loss for the same period that Tenant proves could be
reasonably avoided;
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10.2.6 Sell the Tenant Personal Property in a
non-judicial foreclosure sale.
10.2.7 For the purpose of calculating Landlord's damages
in the event of Tenant's breach, Additional Rent shall be utilized at
the higher of the amount actually due or projected on the basis of
historical performance, but in no event shall such amount exceed the
limitations on rent increases set forth in Section 2.6 above.
10.3 RECEIVERSHIP. Tenant acknowledges that one of the rights and
remedies which may be available to Landlord under applicable law is to apply to
a court of competent jurisdiction for the appointment of a receiver to collect
the rents, issues, profits and income of the Premises and to manage the
operation of the Premises. Tenant further acknowledges that the revocation,
suspension or material limitation of the certification of the Premises for
provider status under Medicare or MediCal (or successor programs) and/or the
revocation, suspension or material limitation of the license of the Premises as
a 116 bed hospital under the laws of the State of California will materially
and irreparably impair the value of Landlord's investment in the Premises.
Therefore, in any of such events, and in addition to any other right or remedy
of Landlord under this Lease, Landlord may petition any appropriate court for
the appointment of a receiver to manage the operation of the Premises, to
collect and disburse all rents, issues, profits and income generated thereby
and to preserve or replace to the extent possible the nursing
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home license and provider certification of the Premises or to otherwise
substitute the licensee or provider thereof. Tenant hereby irrevocably
stipulates to the appointment of a receiver under such circumstances and for
such purposes and agrees not to contest such appointment.
10.4 LATE CHARGES. Tenant acknowledges that the late payment of any
Minimum Rent or Additional Rent will cause Landlord to lose the use of such
money and incur costs and expenses not contemplated under this Lease,
including, without limitation, administrative and collection costs and
processing and accounting expenses, the exact amount of which is extremely
difficult to ascertain. Therefore, if any installment of Minimum Rent or
Additional Rent is not paid within five (5) calendar days after the due date
for such rent payment, then Tenant shall thereafter pay to Landlord on demand a
late charge equal to ten percent (10%) of the amount of any installment of
Minimum Rent or Additional Rent not paid on the due date. Landlord and Tenant
agree that this late charge represents a reasonable estimate of such costs and
expenses and is fair compensation to Landlord for the loss suffered from such
nonpayment by Tenant.
10.5 REMEDIES CUMULATIVE; NO WAIVER. No right or remedy herein
conferred upon or reserved to Landlord is intended to be exclusive of any other
right or remedy, and each and every right and remedy shall be cumulative and in
addition to any other right or remedy given hereunder or now or hereafter
existing at law or in equity. No failure of Landlord to insist at any time
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upon the strict performance of any provision of this Lease or to exercise any
option, right, power or remedy contained in this Lease shall be construed as a
waiver, modification or relinquishment thereof as to any similar or different
breach (future or otherwise) by Tenant. A receipt by Landlord of any rent or
other sum due hereunder (including any late charge) with knowledge of the
breach of any provision contained in this Lease shall not be deemed a waiver of
such breach, and no waiver by Landlord of any provision of this Lease shall be
deemed to have been made unless expressed in a writing signed by Landlord.
10.6 PERFORMANCE OF TENANT'S OBLIGATIONS BY LANDLORD. If Tenant at
any time shall fail to make any payment or perform any act on its part required
to be made or performed under this Lease, then Landlord may, without waiving or
releasing Tenant from any obligations or default of Tenant hereunder, make any
such payment or perform any such act for the account and at the expense of
Tenant, and may enter upon the Premises for the purpose of taking all such
action thereon as may be reasonably necessary therefor. No such entry shall be
deemed an eviction of Tenant. All sums so paid by Landlord and all necessary
and incidental costs and expenses (including, without limitation, reasonable
attorneys' fees and expenses) incurred in connection with the performance of
any such act by Landlord, together with interest at the rate of the Prime Rate
as reported daily by the Wall Street Journal plus 5% (or if said interest rate
is violative of any applicable statute or law, then the maximum
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interest rate allowable) from the date of the making of such payment or the
incurring of such costs and expenses by Landlord, shall be payable by Tenant to
Landlord on demand.
11. SECURITY DEPOSIT. Tenant has deposited with the Landlord the sum of
Two Hundred Three Thousand Six Hundred Twenty-four Dollars ($203,624)
representing a security deposit against the faithful performance of the terms
and conditions contained in this Lease. Landlord shall not be deemed a trustee
as to such deposit and shall have the right to commingle said security deposit
with its own or other funds. Interest thereon at the then current rate of
interest of a three month U.S. Treasury Bill shall be paid by Landlord to the
Tenant on a quarterly basis in arrears. Tenant shall have the right to
substitute a letter of credit for such deposit on terms and issued by a
financial institution acceptable to Landlord.
12. DAMAGE BY FIRE OR OTHER CASUALTY.
12.1 RECONSTRUCTION USING INSURANCE. In the event of the damage or
destruction of the Premises, Tenant shall forthwith notify Landlord and
diligently repair or reconstruct the same as nearly as possible to its value,
condition and character immediately prior to such damage or destruction. Any
net insurance proceeds payable with respect to the casualty shall be used for
the repair or reconstruction of the Premises pursuant to reasonable
disbursement controls in favor of Landlord. If such proceeds are insufficient
for such purposes, Tenant shall provide the required additional funds. In the
event any such damage or
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destruction occurs during the last six (6) months of the Term, to the extent of
fifty percent (50%) or more of the replacement value of the Premises, Tenant
may, at Tenant's option, to be evidenced by notice in writing given to Landlord
within thirty (30) days after the occurrence of such damage or destruction,
elect to pay to Landlord any available insurance proceeds, including, without
limitation, business interruption insurance proceeds described in Section 4.7,
in which event this Lease shall terminate.
12.2 SURPLUS PROCEEDS. If there remains any surplus of insurance
proceeds after the completion of the repair or reconstruction of the Premises,
such surplus shall belong to and be paid to Tenant.
12.3 No Rent Abatement. Except as provided in Section 12.1 with
respect to the last six (6) months of the Term if Tenant exercises the option
provided therein, the rent payable under this Lease shall not abate by reason
of any damage or destruction of the Premises by reason of an insured or
uninsured casualty. Tenant hereby waives all rights under applicable law to
abate, reduce or offset rent by reason of such damage or destruction.
13. CONDEMNATION.
13.1 COMPLETE TAKING. If during the Term all or substantially all
of the Premises is taken or condemned by any competent public or quasi-public
authority, then Tenant may, at Tenant's election, made within thirty (30) days
of such taking by
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condemnation, terminate this Lease, and current Minimum Rent and Additional
Rent shall be prorated as of the date of such termination. The award payable
upon such taking shall be allocated between Landlord and Tenant as so allocated
by the taking authority. In the absence of such allocation by the taking
authority, the award shall be allocated as agreed by Landlord and Tenant.
Failing such agreement within thirty (30) days after the effective date of such
taking, the award shall be allocated between Landlord and Tenant pursuant to
the appraisal procedure described on Exhibit "D" attached hereto.
13.2 PARTIAL TAKING. In the event such condemnation proceeding or
right of eminent domain results in a taking of less than all or substantially
all of the Premises, the Minimum Rent and Additional Rental thereto shall be
abated to the same extent as the diminution in the fair market value of the
Premises by reason of the condemnation. Such fair market value shall be as
agreed between Landlord and Tenant, but failing such agreement within thirty
(30) days of the effective date of the condemnation such fair market value will
be determined by appraisal pursuant to Exhibit "D" attached hereto. Landlord
shall be entitled to receive and retain any and all awards for the partial
taking and damage and Tenant shall not be entitled to receive or retain any
such award for any reason. Landlord's Original Investment will be reduced for
all purposes under this Lease by reason of any award paid to Landlord under
this Section 13.2.
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13.3 CAP ON AWARDS. Notwithstanding any of the other terms of
Sections 13.1 and 13.2, in no event shall any awards allocated to Landlord for
the complete taking or partial taking of the Premises, as described in Sections
13.1 and 13.2, exceed Landlord's Original Investment ($4,350,000) (as increased
pursuant to Section 5.7, if applicable) increased by three percent (3%) per
annum compounded annually.
13.4 LEASE REMAINS IN EFFECT. Except as provided above, this Lease
shall not terminate and shall remain in full force and effect in the event of a
taking or condemnation of the Premises, or any portion thereof and Tenant
hereby waives all rights under applicable law to abate, reduce or offset rent
by reason of such taking.
14. PROVISIONS ON TERMINATION OF TERM.
14.1 SURRENDER OF POSSESSION. Tenant shall, on or before the last
day of the Term, or upon earlier termination of this Lease, surrender to
Landlord the Premises (including all patient charts and records along with
appropriate patient consents,) in good condition and repair, ordinary wear and
tear excepted.
14.2 REMOVAL OF PERSONAL PROPERTY. If Tenant is not then in default
hereunder Tenant shall have the right in connection with the surrender of the
Premises to remove from the Premises all Tenant Personal Property (unless
Landlord exercises the option pursuant to Section 7.5) but not the Landlord
Personal Property (including the Landlord Personal Property replaced by
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Tenant or required by the State of California or any other governmental entity
to operate the Premises for the purpose set forth in Section 5.3 above). Any
such removal shall be done in a workmanlike manner leaving the Premises in good
and presentable condition and appearance, including repair of any damage caused
by such removal. At the end of the Term, Tenant shall return the Premises to
Landlord with the Landlord Personal Property (or replacements thereof) in the
same condition and utility as was delivered to Tenant at the commencement of
the Term, normal wear and tear excepted.
14.3 TITLE TO PERSONAL PROPERTY NOT REMOVED. Title to any of Tenant
Personal Property which is not removed by Tenant upon the expiration of the
Term shall, at Landlord's election, vest in Landlord; provided, however, that
Landlord may remove and dispose at Tenant's expense of any or all of such
Tenant Personal Property which is not so removed by Tenant without obligation
or accounting to the Tenant.
14.4 MANAGEMENT OF PREMISES. Upon the expiration or earlier
termination of the Term, Landlord or its designee, upon written notice to
Tenant, may elect to assume the responsibilities and obligations for the
management and operation of the Premises and Tenant agrees to cooperate fully
with Landlord or its designee to accomplish the transfer of such management and
operation without interrupting the operation of the Premises. Tenant shall not
commit an act or be remiss in the undertaking of any act that would jeopardize
the licensure or
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certification of the facility, and Tenant shall comply with all requests for an
orderly transfer of the hospital license, Medicare and Medical (or any
successor program) certifications and possession at the time of any such
surrender. Upon the expiration or earlier termination of the Term, Tenant
shall promptly deliver copies of all of Tenant's books and records relating to
the Premises and its operations to Landlord.
14.5 CORRECTION OF DEFICIENCIES. Upon termination or cancellation
of this Lease, Tenant shall indemnify Landlord for any loss, damage, cost or
expense incurred by Landlord to correct all deficiencies of a physical nature
identified by the California Department of Health Services in the course of the
change of ownership inspection and audit.
15. NOTICES AND DEMANDS. All notices and demands, certificates, requests,
consents, approvals, and other similar instruments under this Lease shall be in
writing and shall be deemed to have been properly given upon actual receipt
thereof or within two (2) business days of being placed in the United States
certified or registered mail, return receipt requested, postage prepaid (a) if
to Tenant, addressed to Brim, Inc., 305 N.E. 102nd Avenue, Portland, Oregon
97220-4199 Attn: John Miller or at such other address as Tenant from time to
time may have designated by written notice to Landlord, (b) if to Landlord,
addressed to Nationwide Health Properties, Inc., 4675 MacArthur Court, Suite
1170, Newport Beach, California 92660 with a copy to O'Melveny & Myers, 610
Newport Center Drive, Suite 1700,
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Newport Beach, California 92660 Attn: Real Estate Department Chairman, or at
such address as Landlord may from time to time have designated by written
notice to Tenant. Refusal to accept delivery shall be deemed delivery. If
Tenant is not an individual, notice may be made to any officer, general partner
or principal thereof. Notice to any one co-Tenant shall be deemed notice to all
co-Tenants.
16. RIGHT OF ENTRY; EXAMINATION OF RECORDS. Landlord and its
representative may enter the Premises at any reasonable time after notice to
Tenant for the purpose of inspecting the Premises for any reason including,
without limitation, Tenant's default under this Lease, or to exhibit the
Premises for sale, lease or mortgage financing, or posting notices of default,
or non-responsibility under any mechanic's or materialman's lien law or to
otherwise inspect the Premises for compliance with the terms of this Lease. Any
such entry shall not unreasonably interfere with patients, patient care, or any
other of Tenant's operations. During normal business hours, Tenant will permit
Landlord and Landlord's representatives, inspectors and consultants to examine
all contracts, books and records relating to Tenant's operations at the
Premises, whether kept at the Premises or at some other location, including,
without limitation, Tenant's financial records.
17. LANDLORD MAY GRANT LIENS. Without the consent of Tenant, Landlord
may, subject to the terms and conditions set forth below in this Section 17,
from time to time, directly or
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indirectly, create or otherwise cause to exist any lien, encumbrance or title
retention agreement ("ENCUMBRANCE") upon the Premises, or any portion thereof
or interest therein (including this Lease), whether to secure any borrowing or
other means of financing or refinancing or otherwise. Any such Encumbrance
shall provide that it is subject to the rights of Tenant under this Lease, and
shall further provide that so long as no Event of Default shall have occurred
this Lease and Tenant's occupancy hereunder, including without limitation
Tenant's right of quiet enjoyment provided in Section 18 and Tenant's right to
purchase the Premises pursuant to the Addendum attached hereto, shall not be
disturbed in the event any such lienholder or any other person takes possession
of the Premises through foreclosure proceeding or otherwise. Upon the request
of Landlord, Tenant shall subordinate this Lease to the lien of a new
Encumbrance on the Premises, on the condition that the proposed lender agrees
not to disturb Tenant's rights under this Lease so long as Tenant is not in
default hereunder.
18. QUIET ENJOYMENT. So long as there is no Event of Default by Tenant,
Landlord covenants and agrees that Tenant shall peaceably and quietly have,
hold and enjoy the Premises for the Term, free of any claim or other action not
caused or created by Tenant (excepting, however, intrusion of Tenant's quiet
enjoyment occasioned by condemnation or destruction of the property as referred
to in Section 12 and 13 hereof).
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19. APPLICABLE LAW. This Lease shall be governed by and construed in
accordance with the internal laws of the State of California without regard to
the conflict of laws rules of such State.
20. PRESERVATION OF GROSS REVENUES.
20.1 Tenant acknowledges that a fair return to Landlord on its
investment in the Premises is dependent, in part, on the concentration on the
Premises during the Term of the hospital business of Tenant and its Affiliates
in the geographical area of the Premises. Tenant further acknowledges that the
diversion of patient care activities from the Premises to other facilities
owned or operated by Tenant or its Affiliates at or near the end of the Term
will have a material adverse impact on the value and utility of the Premises.
20.1.1 Therefore, Tenant agrees that during the Term, and
for a period of one (1) year thereafter, neither Tenant nor any of
its Affiliates shall, without the prior written consent of Landlord,
operate, own, participate in or otherwise receive revenues from any
other licensed acute care hospital or skilled or intermediate nursing
home providing services or similar goods to those provided on or in
connection with the Premises and the permitted use thereof as
contemplated under this Lease, within a ten (10) mile radius of the
Premises.
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20.1.2 In addition, Tenant hereby covenants and agrees
that for a period of one year following the expiration or earlier
termination of this Lease, neither Tenant or its Affiliates shall,
without prior written consent of Landlord, hire, engage or otherwise
employ any management or supervisory personnel working on or in
connection with the Premises, unless such personnel approach Tenant
directly and request continued employment by Tenant.
20.2 Except as required by law or for medically appropriate
reasons, prior to and after Lease termination, Tenant will not recommend or
solicit the removal or transfer of any patient from the Premises to any other
nursing or health care facility.
20.3 The provisions of this Section 20 shall not apply to the
Acacias Care Center located at 601 North Montgomery, Ojai, California or to any
of the following facilities which Tenants builds: assisted living facility,
independent living facility or dedicated Alzheimer's facility.
21. HAZARDOUS MATERIALS.
21.1 HAZARDOUS MATERIAL COVENANTS. Tenant's use of the Premises
shall comply with all Hazardous Materials Laws. In the event any Environmental
Activities occur or are suspected to have occurred in violation of any
Hazardous Materials Laws or if Tenant has received any Hazardous Materials
Claim against the Premises, Tenant shall promptly obtain all permits and
approvals
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necessary to remedy any such actual or suspected problem through the removal of
Hazardous Materials or otherwise, and upon Landlord's approval of the
remediation plan, remedy any such problem to the satisfaction of Landlord, in
accordance with all Hazardous Materials Laws and good business practices.
21.2 TENANT NOTICES TO LANDLORD. Tenant shall immediately advise
Landlord in writing of:
21.2.1 any Environmental Activities in violation of any
Hazardous Materials Laws,
21.2.2 any Hazardous Materials Claims against Tenant or
the Premises,
21.2.3 any remedial action taken by Tenant in response to
any Hazardous Materials Claims or any Hazardous Materials on, under
or about the Premises in violation of any Hazardous Materials Laws,
21.2.4 Tenant's discovery of any occurrence or condition
on or in the vicinity of the Premises that materially increase the
risk that the Premises will be exposed to Hazardous Materials,
21.2.5 all communications after the date hereof to or
from Tenant, any governmental authority or any other person relating
to Hazardous Materials Laws or Hazardous Materials Claims with
respect to the Premises, including copies thereof.
21.3 EXTENSION OF TERM. Notwithstanding any other provision of this
Lease, in the event any Hazardous Materials are
50
<PAGE> 56
discovered on, under or about the Premises in violation of any Hazardous
Materials Law, the Term shall be automatically extended and this Lease shall
remain in full force and effect until the earlier to occur of the completion of
all remedial action or monitoring, as approved by Landlord, in accordance with
all Hazardous Materials Laws, or the date specified in a written notice from
Landlord to Tenant terminating this Lease (which date may be subsequent to the
date upon which the Term was to have expired).
21.4 PARTICIPATION IN HAZARDOUS MATERIALS CLAIMS. Landlord shall
have the right, at Tenant's sole cost and expense and with counsel chosen by
Landlord, 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.
21.5 ENVIRONMENTAL ACTIVITIES shall mean the use, generation,
transportation, handling, discharge, production, treatment, storage, release or
disposal of any Hazardous Materials at any time to or from the Premises or
located on or present on or under the Premises.
21.6 HAZARDOUS MATERIALS shall mean (i) any petroleum products
and/or by-products (including any fraction thereof), flammable substances,
explosives, radioactive materials, hazardous or toxic wastes, substances or
materials known carcinogens or any other materials, contaminants or pollutants
which pose a hazard to the Premises or to persons on or about the Premises or
cause the Premises to be in violation of any
51
<PAGE> 57
Hazardous Materials Laws; (ii) asbestos in any form which is friable; (iii)
urea formaldehyde in foam insulation or any other form; (iv) transformers or
other equipment which contain dielectric fluid containing levels of
polychlorinated biphenyls in excess of fifty (50) parts per million or any
other more restrictive standard then prevailing; (v) medical wastes and
biohazards; (vi) radon gas; and (vii) any other chemical, material or
substance, exposure to which is prohibited, limited or regulated by any
governmental authority or may or could pose a hazard to the health and safety
of the occupants of the Premises or the owners and/or occupants of property
adjacent to or surrounding the Premises.
21.7 HAZARDOUS MATERIALS CLAIMS shall mean any and all enforcement,
clean-up, removal or other governmental or regulatory actions or orders
threatened, instituted or completed pursuant to any Hazardous Material Laws,
together with all claims made or threatened by any third party against the
Premises, Landlord or Tenant relating to damage, contribution, cost recovery
compensation, loss or injury resulting from any Hazardous Materials.
21.8 HAZARDOUS MATERIALS LAWS shall mean any laws, ordinances,
regulations, rules, orders, guidelines or policies relating to the environment,
health and safety, Environmental Activities, Hazardous Materials, air and water
quality, waste disposal and other environmental matters.
52
<PAGE> 58
21.9 REMEDIATION OF EXISTING ENVIRONMENTAL CONDITION. Tenant
covenants and agrees to take all action required to complete or cause to be
completed the remediation of the environmental condition of the Premises and
property adjacent to the Premises as described in that certain Report of Site
Assessment dated June 16, 1993 prepared by Construction Testing & Engineering,
Inc., as such assessment has been supplemented by further investigation and
remediation activities. All remedial work shall be performed as required by the
Environmental Health Division of the County of Ventura Resource Management
Agency and such other local, State or Federal agencies that have or may obtain
jurisdiction with respect to the Premises, and Tenant shall diligently perform
such remediation until it obtains a written notice from the County, or other
agencies, if applicable, indicating that the remediation is closed and that no
further action need be taken with respect to the environmental condition.
Tenant shall deliver to Landlord copies of all test results, reports and
communications obtained or prepared with respect to such activities.
22. ASSIGNMENT AND SUBLETTING. Tenant shall not, without the prior
written consent of Landlord, which may be withheld at Landlord's sole
discretion, voluntarily or involuntarily assign or hypothecate this Lease or
any interest herein or sublet greater than ten percent (10%) of the gross
building area of the Premises or any part thereof. For the purposes of this
Lease, a management or similar agreement shall be considered to be an
53
<PAGE> 59
assignment of this Lease by Tenant (except if such agreement is with an
Affiliate of Tenant). Any of the foregoing acts without such consent shall be
void but shall, at the option of Landlord in its sole discretion, constitute an
Event of Default giving rise to Landlord's right, among other things, to
terminate this Lease. Without limiting the foregoing, this Lease shall not, nor
shall any interest of Tenant herein, be assigned or encumbered by operation of
law without the prior written consent of Landlord which may be withheld at
Landlord's sole discretion. Notwithstanding the foregoing, Tenant may without
Landlord's consent assign this Lease or sublet the Premises or any portion
thereof to a wholly-owned subsidiary of Tenant or Guarantor, provided that such
subsidiary fully assumes the obligations of Tenant under this Lease, Tenant
remains fully liable under this Lease, any Guarantor remains fully liable with
respect to its guaranty of this Lease, the use of the Premises remains
unchanged, and no such assignment or sublease shall be valid and no such
subsidiary shall take possession of the Premises until an executed counterpart
of such assignment or sublease has been delivered to Landlord. Anything
contained in this Lease to the contrary notwithstanding, Tenant shall not
sublet the Premises on any basis such that the rental to be paid by the
sublessee thereunder would be based, in whole or in part, on either the income
or profits derived by the business activities of the sublessee, or any other
formula, such that any portion of the sublease rental received by Landlord
would fail to qualify as "rents from real
54
<PAGE> 60
property" within the meaning of Section 856(d) of the U.S. Internal Revenue
Code, or any similar or successor provision thereto.
22.1 For the purposes of this Lease, the sale, assignment, transfer
or other disposition of the stock of Tenant and/or any Guarantor, which results
in a change in the person, persons, entity or entities which ultimately exert
effective control over the management of the affairs of Tenant and/or Guarantor
as of the date hereof, shall be deemed to be an assignment of the Lease.
22.2 Notwithstanding anything to the contrary contained in Section
22.1, in no event shall an initial public offering of Guarantor be deemed to be
an assignment of the Lease; provided, however, that after such initial public
offering of Guarantor and without limiting Section 22.1, any sale, assignment,
transfer or other disposition of the voting stock of Guarantor which results in
twenty-five percent (25%) or more of the voting stock of Guarantor being held
by any person or entity or related group of persons or entities who did not
have such ownership after the initial public offering shall be deemed to be an
assignment of the Lease.
22.3 In the event that this Lease is deemed to be assigned pursuant
to Section 22.1 or Section 22.2, Landlord shall, at Landlord's sole discretion
(i) consent to the assignment or (ii) put the Premises to Tenant. If Landlord
puts the Premises to Tenant, Tenant shall purchase the Premises from
55
<PAGE> 61
Landlord for a cash price equal to the greater of Landlord's Original
Investment ($4,350,000) (as increased under Section 5.7, if applicable), or the
fair market value of the Premises on the date of Landlord's notice of exercise
of its option hereunder. Such fair market value and purchase shall be
determined and conducted as set forth in Section 5.4
23. INDEMNIFICATION. To the fullest extent permitted by law, Tenant
agrees to protect, indemnify, defend and save harmless Landlord, its directors,
officers, shareholders, agents and employees from and against any and all
foreseeable or unforeseeable liability, expense loss, costs, deficiency, fine,
penalty, or damage (including without limitation punitive or consequential
damages) of any kind or nature, including reasonable attorneys' fees, from any
suits, claims or demands, on account of any matter or thing, action or failure
to act arising out of or in connection with (a) this Lease (including, without
limitation, the breach by Tenant of any of its obligations hereunder), (b) the
Premises, or (c) the operations of Tenant on the Premises, including without
limitation all Environmental Activities on the Premises, all Hazardous
Materials Claims or any violation by Tenant of a Hazardous Materials Law with
respect to the Premises; provided, however, such indemnity shall not extend to
any such suit, claim or damage which is caused solely by the willful misconduct
or gross negligence of Landlord, its directors, officers, agents and employees.
Upon receiving knowledge of any suit, claim or demand asserted by a third party
56
<PAGE> 62
that Landlord believes is covered by this indemnity, Landlord shall give Tenant
notice of the matter. Tenant shall defend Landlord against such matter at
Tenant's sole cost and expense with legal counsel satisfactory to Landlord.
Landlord may elect to defend the matter with its own counsel at Tenant's
expense.
24. HOLDING OVER. If Tenant shall for any reason remain in possession of
the Premises after the expiration or earlier termination of this Lease, such
possession shall be a month-to-month tenancy during which time Tenant shall pay
as rental each month, 1 1/2 times the aggregate of the monthly Minimum Rent
payable with respect to the last Lease Year plus Additional Rent allocable to
the month, all additional charges accruing during the month and all other sums,
if any, payable by Tenant pursuant to the provisions of this Lease with respect
to the Premises. Nothing contained herein shall constitute the consent, express
or implied, of Landlord to the holding over of Tenant after the expiration or
earlier termination of this Lease, nor shall anything contained herein be
deemed to limit Landlord's remedies pursuant to this Lease or otherwise
available to Landlord at law or in equity.
25. ESTOPPEL CERTIFICATES. Tenant shall, at any time upon not less than
five (5) days prior written request by Landlord, execute, acknowledge and
deliver to Landlord or its designee a statement in writing, executed by an
officer or general partner of Tenant, certifying that this Lease is unmodified
and in full force and effect (or, if there have been any modifications, that
57
<PAGE> 63
this Lease is in full force and effect as modified, and setting forth such
modifications), the dates to which Minimum Rent, Additional Rent and additional
charges hereunder have been paid certifying that no default by either Landlord
or Tenant exists hereunder or specifying each such default and as to other
matters as Landlord may reasonably request.
26. CONVEYANCE BY LANDLORD. If Landlord or any successor owner of the
Premises shall convey the Premises in accordance with the terms hereof,
Landlord or such successor owner shall thereupon be released from all future
liabilities and obligations of Landlord under this Lease arising or accruing
from and after the date of such conveyance or other transfer as to the Premise
and all such future liabilities and obligations shall thereupon be binding upon
the new owner.
27. WAIVER OF JURY TRIAL. Landlord and Tenant hereby waive any rights to
trial by jury in any action, proceedings or counterclaim brought by either of
the parties against the other in connection with any matter whatsoever arising
out of or in any way connected with this Lease, including, without limitation,
the relationship of Landlord and Tenant, Tenant's use and occupancy of the
Premises, or any claim of injury or damage relating to the foregoing or
the enforcement of any remedy hereunder.
28. ATTORNEYS' FEES. If Landlord or Tenant brings any action to interpret
or enforce this Lease, or for damages for a alleged breach hereof, the
prevailing party in any such action shall be entitled to reasonable attorneys'
fees and costs as
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<PAGE> 64
awarded by the court in addition to all other recovery, damages and costs.
29. SEVERABILITY. In the event any part or provision of the Lease shall
be determined to be invalid or enforceable, the remaining portion of this Lease
shall nevertheless continue in full force and effect.
30. COUNTERPARTS. This Lease may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same agreement.
31. BINDING EFFECT. Subject to the provisions of Section 22 above, this
Lease shall be binding upon and inure to the benefit of Landlord and Tenant and
their respective heirs, personal representatives, successors in interest and
assigns.
32. WAIVER AND SUBROGATION. Landlord and Tenant hereby waive to each
other all rights of subrogation which any insurance carrier, or either of them,
may have as to the Landlord or Tenant by reason of any provision in any policy
of insurance issued to Landlord or Tenant, provided such waiver does not
thereby invalidate the policy of insurance.
33. MEMORANDUM OF LEASE. Landlord and Tenant shall, promptly upon the
request of either, enter into a short form memorandum of the Lease, in form
suitable for recording under laws of the State of California in which reference
to this Lease shall be made. The party requesting such recordation shall pay
all costs and expenses of preparing and recording such memorandum of this
Lease.
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<PAGE> 65
34. INCORPORATION OF RECITALS AND ATTACHMENTS. The recitals and exhibits,
schedules, addenda and other attachments to this Lease are hereby incorporated
into this Lease and made a part hereof.
35. TITLES AND HEADINGS. The titles and headings of sections of this
Lease are intended for convenience only and shall not in any way affect the
meaning or construction of any provision of this Lease.
36. USURY SAVINGS CLAUSE. Nothing contained in this Lease shall be deemed
or construed to constitute an extension of credit by Landlord to Tenant.
Notwithstanding the foregoing, in the event any payment made to Landlord
hereunder is deemed to violate any applicable laws regarding usury, the portion
of any payment deemed to be usurious shall be held by Landlord to pay the
future obligations of Tenant as such obligations arise and, in the event Tenant
discharges and performs all obligations hereunder, such funds will be
reimbursed to Tenant upon the expiration of the Term. No interest shall be paid
on any such funds held by Landlord.
37. JOINT AND SEVERAL. If more than one person is the Tenant hereunder,
the liability of such persons under this Lease shall be joint and several.
38. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. All of the
obligations, representations, warranties and covenant of Tenant under this
Lease shall survive the expiration or earlier termination of the Term.
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<PAGE> 66
39. INTERPRETATION. Both Landlord and Tenant have been represented by
counsel and this Lease has been freely and fairly negotiated. Consequently, all
provisions of this Lease shall be interpreted according to their fair meaning
and shall not be strictly construed against any party.
Executed as of the date indicated above.
TENANT:
BRIM HOSPITALS, INC.,
an Oregon corporation
By: /s/ John R. Miller
---------------------------------
Its: President
LANDLORD:
NATIONWIDE HEALTH PROPERTIES, INC.,
a Maryland corporation
By: /s/
---------------------------------
Its: Vice President
61
<PAGE> 67
EXHIBIT "A"
Legal Description
PARCEL 1:
A part of Tract No. 8 of the Bard Subdivision of the Rancho Ojai, in the City of
Ojai, County of Ventura, State of California, as per map thereof recorded in
Book 5, Page 25 1/2 of Maps, in the office of the County Recorder of said
County, described as follows:
Beginning at a 1-inch iron pipe set in the Southerly line of Meiners Road
(formerly Matilija Road) at the Northeast corner of that certain parcel of land
as conveyed to Hattie McDonnell Russell by deed recorded in Book 29, Page 262
of Official Records; thence from said point of beginning,
1st: South 73(degrees) 24' East 139.24 feet along the Southerly line of said
Meiners Road to a ford axle set at the Northwest corner of that certain parcel
of land as conveyed to Clara R. Barlow by deed recorded in Book 67, Page 181 of
Official Records; thence,
2nd: South 18(degrees) 36' West 749.59 feet along the Westerly line of said
lands of Clara R. Barlow and the Southwesterly prolongation of same; at 175.00
feet a ford axle set at the Southwest corner of said lands of Clara R. Barlow;
at 749.59 feet a 1-inch iron pipe; thence,
3rd: North 73(degrees) 24' West 146.88 feet to a 1-inch iron pipe set the
Southeast corner of said lands of Hattie McDonnell Russell, thence,
4th: North 19(degrees) 11' East 749.90 feet along the Easterly line of said
lands of Hattie McDonnell Russell to the point of beginning.
PARCEL 2:
A portion of Tract No. 8 of the Bard Subdivision of Rancho Ojai, in the City of
Ojai, County of Ventura, State of California, according to the map recorded in
Book 5, Page 25 1/2 of Maps, the office of the County Recorder of said County,
described as follows:
Beginning at the Northeast corner of the land described in deed to Edward R.
Lambert and wife, recorded July 1, 1953 in Book 1142, Page 222, Official
Records; thence along the East line of said land,
1st: South 19(degrees) 11' West 751.50 feet to an angle point therein; thence,
A-1
<PAGE> 68
2nd: South 73(degrees) 24' East 219 feet, more or less to the most Westerly
corner of the land conveyed to Adam Rodriguez and wife by deed recorded in Book
680, Page 483 of Official Records; thence along the West line of said land of
Rodriguez,
3rd: North 19(degrees) 11' East 749.90 feet to a point on the South line of
Cuyama Road (formerly Matilija Road) 40 feet wide; thence along the Southerly
line of said land,
4th: North 73(degrees) 24' West 218.96 feet to the point of beginning.
EXCEPT from the Northerly 1.885 acres of said land an undivided 60% of all oil,
gas and other hydrocarbon substances, without the right of entry above a depth
of 500 feet from the surface of said land for the development of said oils and
minerals, as reserved by George S. Biggers, et ux., in deed recorded February
19, 1959 in Book 1704, Page 278, Official Records.
PARCEL 3:
A portion of Tract No. 8 of the Bard Subdivision of Rancho Ojai, in the City of
Ojai, County of Ventura, State of California, according to the map recorded in
Book 5, Page 25-1/2 of Maps, in the office of the County Recorder of said
County, described as follows:
Commencing at the Northeast corner of the land described in deed to Edward R.
Lambert and wife, recorded July 1, 1953 in Book 1142, Page 222 of Official
Records; thence along the East line of said land, South 19(degrees) 11' West
751.50 feet to an angle point therein, said point being to the true point of
beginning; thence continuing along said East line,
1st: South 16(degrees) 11' West 362.25 feet to a point in the Northerly line of
that certain strip of land conveyed to Ventura County by deed recorded in Book
384, Page 436 of Official Records; thence
2nd: South 74(degrees) 55' East 205.80 feet to the Southwest corner of the land
described in Parcel 1 deeded to William E. Weidemann, et al., recorded
September 17, 1958 in Book 1654, Page 451 of Official Records; thence along the
West line of the land last referred to,
3rd: Northerly in a direct line to the Northwest corner of said land, at the
most Westerly corner of the land conveyed to Adam Rodriguez and wife by deed
recorded in Book 680, Page 483, Official Records; thence,
4th: North 73(degrees) 24' West 219 feet, more or less to the point of
beginning.
A-2
<PAGE> 69
EXHIBIT "B"
Landlord Personal Property
B-1
<PAGE> 70
Page 1
LANDLORD PERSONAL PROPERTY
C FAS ASSET DATE
L NUMBR DESCRIPTION LOCATN Co ACQRD
A 00001 LAMINAR AIR FL 7021 06/87
A 00004 FACSIMILE MACH 8510 06/87
A 00005 REFURB AIR CON 06/87
A 00013 POWER GENERATO 8480 08/87
A 00015 MEDICATION CAR 7050 09/87
A 00016 WATER SOFTENER 8480 09/87
A 00017 OPERATING ROOM 7021 09/87
A 00018 DIETARY EQUIPM 8340 10/87
A 00019 PEDIATRIC SCAL 6170 10/87
A 00020 LAB DICTATION 7060 10/87
A 00021 CHILD BEARING 6160 11/87
A 00022 2 ROTARY VANE 8480 11/87
A 00023 MINOR SURGERY 7021 11/87
A 00024 ICEMAKER 8340 10/88
A 00029 COULTER COUNTE 7010 06/88
A 00030 WATER HEATER 6202 07/88
A 00031 HEAT EXCHANGE/ 7021 07/88
A 00032 INTERCOM SYSTE 7030 07/88
A 00033 BEAR VENTILATO 7180 08/88
A 00034 INTERCOM CONV 7030 10/88
A 00035 EMPLOYEE NAME 8650 10/88
A 00036 PHYSICAL THERA 7200 10/88
A 00037 PC & PRINTER 8610 11/88
A 00038 ULTRASOUND PRO 7165 01/89
A 00039 COAG ANALYZER 7060 01/89
A 00041 FETAL HEART MO 6160 04/89
A 00042 BOILER 8480 02/89
A 00043 TRACTION TABLE 7200 04/89
A 00044 STRETCHER BEDS 7030 05/89
A 00045 PHONE RELOCATE 8550 02/90
A 00046 HYPO/HYPERTHER 6010 12/89
A 00047 INFANT WARMER 6170 09/89
A 00048 MONITOR CABLE 6160 04/90
A 00049 BP MONITOR 7230 04/90
A 00050 WORD PROCESSIN 8610 04/90
A 00051 SNU A/C ARCHIT 6202 01/90
A 00055 SNU A/C ARCHIT 6202 09/89
A 00056 SNU A/C ARCHIT 6202 12/89
A 00062 LASER JET PRIN 8510 05/90
A 00063 ARTHROSCOPE 7021 07/90
A 00064 BRONCHOSCOPE 7021 07/90
A 00068 PORTABLE WHIRL 7200 10/90
<PAGE> 71
Page 2
C FAS ASSET DATE
L NUMBR DESCRIPTION LOCATN Co ACQRD
A 00069 FOOD MAINTENAN 8340 10/90
A 00071 CABLE/TERMINAL 8540 10/90
A 00072 PT EXAM TABLE 7200 10/90
A 00073 WATER SYSTEM 8480 10/90
A 00074 WATER SYSTEM 8480 11/90
A 00075 FACSIMILE MACH 8530 11/90
A 00078 CHOLECYSTO MAC 7021 12/90
A 00083 CONV OUTLETS 6202 03/91
A 00084 SPIROMETER 7080 03/91
A 00085 U.S. STIM UNIT 7165 03/91
A 00086 REFRIGERATOR 8340 04/91
A 00087 REFRIGERATOR 8340 04/91
A 00088 VENTILATOR 7180 04/91
A 00089 AUTOCLAVE 7420 04/91
A 00091 AUTOCLAVE INST 7120 05/91
A 00092 COMPUTERS - 2 8510 05/91
A 00093 COMPUTERS - LAB 7060 05/91
A 00094 MODEMS - MED R 8700 05/91
A 00095 GI COAGULATOR 7420 06/91
A 00096 GI COAGULATOR 7420 06/91
A 00098 SNU WATER HEAT 6202 07/91
A 00104 GENERATOR FUEL 8480 09/91
A 00105 NIT OXIDE TANK 7010 09/91
A 00109 DRAPES-ACUTE R 6080 09/91
A 00115 CABINETS - PHA 7170 12/91
A 00119 CURTAINS - ER 7021 01/92
A 00123 REFRIGERATOR-B 7060 01/92
A 00124 MICRO 100 WIRE 7021 01/92
A 00125 FLOOR CARE MAC 8460 01/92
A 00126 DEFIB MONITOR 6010 01/92
A 00128 BLOOD PRESSURE 6160 01/92
A 00129 WIRE SHELVING 8420 01/92
A 00153 HEALTH PROMO C 8480 11/87
A 00154 M/S RENOV-DRS 7021 11/87
A 00155 SNF/CDU RENOV- 6202 10/87
A 00156 SNF/CDU FURNIT 6202 10/87
A 00157 DIET. FOOD STA 8340 10/87
A 00159 C-ARM SURGERY 7021 01/88
A 00160 PORTABLE X-RAY 7170 01/88
A 00161 FURNITURE-MED/ 6080 03/88
A 00163 FURNITURE-MED/ 6080 04/88
A 00164 PHONE SYSTEM 8480 04/88
<PAGE> 72
Page 3
C FAS ASSET DATE
L NUMBR DESCRIPTION LOCATN Co ACQRD
A 00171 ZIMMER O/R SAW 7021 09/89
A 00173 A/C UNIT - DP 8540 02/90
A 00175 SNU A/C UNITS 6202 09/89
A 00178 O.R. CABINETS 7021 02/89
A 00276 HEAT,VENTILATI 6015 06/87
A 00279 A/C 5 TONE LEN 6080 06/87
A 00281 A/C NPHCA-024 7010 06/87
A 00283 A/C UNIT INSTA 7021 06/87
A 00285 LIGHTING-NEW L 7060 06/87
A 00286 AIR CONDITIONI 7060 06/87
A 00288 FUME HOOD, VAC 7060 06/87
A 00291 GENERATOR SET 7140 06/87
A 00292 ELEC WIRING/CT 7145 06/87
A 00293 ELEC FEED/WIRI 7145 06/87
A 00294 INSTALL CABS/C 7230 06/87
A 00296 EXHAUST FAN #7 8470 06/87
A 00297 A/C ECOMIZER, V 8470 06/87
A 00299 LIGHTS & FLORE 8470 06/87
A 00301 GAS TANK OVERF 8470 06/87
A 00302 PIPE INSULATIO 8470 06/87
A 00304 INSTALL GENERA 8480 06/87
A 00306 INSTALL HAND R 8480 06/87
A 00307 WATER HEATER 1 8480 06/87
A 00308 A/C CONDENSOR 8480 06/87
A 00309 A/C CONDENSOR 8480 06/87
A 00310 A/C CONDENSOR 8480 06/87
A 00311 BOILER STEAM F 8480 06/87
A 00312 INSTALL BOILER 8480 06/87
A 00314 FIXED EQUIP AD 8610 06/87
A 00315 BAL FWD FIXED 8610 06/87
A 00316 FIXED EQUIP AD 8610 06/87
A OO317 FIXED EQUIP AD 8610 06/87
A 00318 FIXED EQUIP AD 8610 06/87
A 00323 FIRE SUPPRESSI 8610 06/87
A 00324 AIR DUCTS THER 8610 06/87
A 00325 INSTL HANDRAIL 8610 06/87
A 00333 BED HOSP ELEC 6015 06/87
A 00335 BED HOSP ELEC 6015 06/87
A 00336 BED HOSP ELEC 6015 06/87
A 00337 BED HOSP ELEC 6015 06/87
A 00338 BED HOSP ELEC 6015 06/87
A 00339 LIFT/SCALE - 2 6015 06/87
<PAGE> 73
Page 4
C FAS ASSET DATE
L NUMBR DESCRIPTION LOCATN Co ACQRD
A 00341 MEDI PREP 6015 06/87
A 00392 MISC. CABS,TAB 6081 06/87
A 00393 BED HOSP ELEC 6081 06/87
A 00403 ICE MACHINE 6081 06/87
A 00428 BED HOSP ELEC 6081 06/87
A 00429 BED HOSP ELEC 6081 06/87
A 00430 BED HOSP ELEC 6081 06/87
A 00431 BED HOSP ELEC 6081 06/87
A 00432 BED HOSP ELEC 6081 06/87
A 00433 BED HOSP ELEC 6081 06/87
A 00434 BED HOSP ELEC 6081 06/87
A 00435 BED HOSP ELEC 6081 06/87
A 00439 MEDICATION CAR 6081 06/87
A 00450 BED HOSP ELEC 6160 06/87
A 00451 BED HOSP ELEC 6160 06/87
A 00452 BED HOSP ELEC 6160 06/87
A 00453 BED HOSP ELEC 6160 06/87
A 00455 BED HOSP ELEC 6160 06/87
A 00458 VACUUM EXTRACT 6160 06/87
A 00478 INCUBATOR OHIO 6170 06/87
A 00479 INCUBATOR INFA 6170 06/87
A 00483 LIGHT, WARMING 6170 06/87
A 00534 MISC CABS, TAB 6181 06/87
A 00535 IMPRINTER-FARR 6181 06/87
A 00576 COUCH - FABRIC 6181 06/87
A OO582 MISC TABLES & 6202 06/87
A 00675 FIBERGLASS BAT 6202 06/87
A 00684 12 DINING ROOM 6202 06/87
A 00687 OB TABLE 7010 06/87
A 00691 INFANT INCUBAT 7010 06/87
A 00697 BIRTHING BED 7010 06/87
A 00707 SURG INSTR - C 7021 06/87
A 00708 TABLE OR AFFIL 7021 06/87
A 00709 LIGHT OR ORBIT 7021 06/87
A 00720 MICROSCOPE O/R 7021 06/87
A 00734 ENT BINOC VIEW 7021 06/87
A 00736 LARYNGOSCOPE 7021 06/87
A 00740 COLONFIBERSCOP 7021 06/87
A 00741 ORTHOPEDIC TAB 7021 06/87
A 00742 SURGICAL LIGHT 7021 06/87
A 00746 SAW, SAGITTAL 7021 06/87
A 00747 OPERATING TABL 7021 06/87
<PAGE> 74
Page 5
<TABLE>
<CAPTION>
C FAS ASSET DATE
L NUMBR DESCRIPTION LOCATN Co ACQRD
<S> <C> <C> <C>
A 00763 STERILIZER CAS 7050 06/87
A 00764 STERILIZER 7050 06/87
A 00765 AERATOR 7050 06/87
A 00766 PRINTER 7050 06/87
A 00796 CENTRIFUGE - S 7060 06/87
A 00800 CENTRIFUGE REF 7060 06/87
A 00801 CHEMISTRY ANAL 7060 06/87
A 00803 CELL WASHER 7060 06/87
A 00829 CRYOSTAT 7070 06/87
A 00830 TISSUE PROCESS 7070 06/87
A 00831 MICROSCOPE A/O 7070 06/87
A 00836 PULMONARY FUNC 7080 06/87
A 00837 HOSP BED 3 CR 7080 06/87
A 00840 MOBILE X-RAY U 7140 06/87
A 00841 MOBILE C-ARM 7140 06/87
A 00844 X-RAY SYSTEM 7140 06/87
A 00845 X-RAY SYSTEM 7140 06/87
A 00863 MOBILE X-RAY U 7140 06/87
A 00892 VENTILATOR 7180 06/87
A 00899 BED-POSTURAL D 7180 06/87
A 00931 STRETCHER - 62 7230 06/87
A 00932 STRETCHER - M 7230 06/87
A 00933 STRETCHER - TR 7230 06/87
A 00944 POTS, PANS, DI 8340 06/87
A 00945 DINING RM TABL 8340 06/87
A 00949 FREEZER - TRAU 8340 06/87
A 00955 MEAT SLICER 8340 06/87
A 00972 UTILITY REFRIG 8340 06/87
A 00974 FOOD SERVICE T 8340 06/87
A 00975 FOOD SERVICE T 8340 06/87
A 00976 FOOD SERVICE T 8340 06/87
A 00981 15' SERVING CO 8340 06/87
A 00983 HOOD EXHAUST 8340 06/87
A 00995 DISHWASHER, ST 8340 06/87
A 00998 OVEN/RANGE - D 8340 06/87
A 01015 MISC EQUIP-CHA 8460 06/87
A 01016 MISC EQUIP-CHA 8460 06/87
A 01023 FLOOR MACH NSS 8460 06/87
A 01065 CABINET 8510 06/87
A 01120 PERFORATOR 8540 06/87
A 01191 TABLE, RITTER 8610 06/87
</TABLE>
<PAGE> 75
Page 6
<TABLE>
<CAPTION>
C FAS ASSET DATE
L NUMBER DESCRIPTION LOCATN Co ACQRD
<S> <C> <C> <C> <C>
A 01205 WOOD CABINETS 8610 06/87
A 01273 MONITOR PAT H/ 6015 06/87
A 01274 MONITOR PAT H/ 6015 06/87
A 01275 MONITOR PAT H/ 6015 06/87
A 01276 MONITOR PAT H/ 6015 06/87
A 01277 NONITOR PAT H/ 6015 06/87
A 01278 RECEIVER TELEM 6015 06/87
A 01279 RECEIVER TELEM 6015 06/87
A 01283 MONITOR PAT H/ 6015 06/87
A 01284 DEFRIBILLATOR 6015 06/87
A 01288 MONITOR, DINAM 6015 06/87
A 01289 PACEMAKER, TEM 6015 06/87
A 01298 CURTAINS 6080 06/87
A 01299 MATTRESS MAXIF 6080 06/87
A 01317 DEFIBRILLATOR 6081 06/87
A 01324 CARPETING 6081 06/87
A 01326 MATTRESSES 6081 06/87
A 01334 MONITOR, INFANT 6160 06/87
A 01336 MONITOR EGG/RE 6170 06/87
A 01344 CARPET COU HAL 6181 06/87
A 01346 CHAIR SCALE 6202 06/87
A 01350 MONITOR FETAL 7010 06/87
A 01352 LECTURESCOPE L 7021 06/87
A 01353 OSTEO COMPRESS 7021 06/87
A 01369 VIDEO SYS MICR 7021 06/87
A 01370 PROJECTOR CINE 7021 06/87
A 01373 PROJECTOR 7021 06/87
A 01375 CAMERA - ARTHR 7021 06/87
A 01377 LAMINECTOMY 7021 06/87
A 01378 OSTEO COMPRESS 7021 06/87
A 01379 FIBEROPTIC EQU 7021 06/87
A 01381 MONTIOR FOR PA 7021 06/87
A 01382 DRILL MICRO 50 7021 06/87
A 01383 ARTHROSCOPIC S 7021 06/87
A 01384 OXIMETER, OXYGE 7021 06/87
A 01385 ARTHROSCOPIC R 7021 06/87
A 01387 DRILL MAXI AIR 7021 06/87
A 01388 LAPAROSCOPE 7021 06/87
A 01391 ANES UNIT-OHIO 7040 06/87
A 01393 MONITOR-BLOOD 7040 06/87
A 01394 MONITOR VITAL 7040 06/87
A 01395 NON VITAL SIGN 7040 06/87
</TABLE>
<PAGE> 76
Page 7
C FAS ASSET DATE
L NUMBR DESCRIPTION LOCATN Co ACQRD
A 01398 ANES MACHINE M 7040 06/87
A 01410 COUNTER-NUC ME 7060 06/87
A 01412 CHEMISTRY ANAL 7060 06/87
A 01414 URINOMETER 7060 06/87
A 01415 CONSOLE TISSUE 7060 06/87
A 01418 CULTURE & SENS 7060 06/87
A 01421 ANALYZER-PH/BL 7080 06/87
A 01422 BLOOD GAS ANAL 7080 06/87
A 01423 ABG INTERPRETA 7080 06/87
A 01424 EKG MACHINE 7110 06/87
A 01429 IMAGE INTENSIF 7140 06/87
A 01430 CHEST GRID PIC 7140 06/87
A 01433 PROCESSOR X-RA 7140 06/87
A 01435 ILLUMINATOR X- 7140 06/87
A 01438 CONSOLE-ULTRAS 7140 06/87
A 01440 LINEAR RAY MOO 7146 06/87
A 01441 ULTRASOUND UNI 7146 06/87
A 01442 CAMERA - DUNN 7146 06/87
A 01443 COMPAQ COMPUTE 7170 06/87
A 01445 WHEELWRITER 5' 7170 06/87
A 01451 SENSOR CABLE T 7180 06/87
A 01457 DEFIBRILLATOR 7230 06/87
A 01460 BLOOD PRESSURE 7230 06/87
A 01461 RADIO ANTENNA 7230 06/87
A 01470 CARPETING 8460 06/87
A 01471 DRAPE/CUBE/CUR 8460 06/87
A 01479 CARPET 75 SQ Y 8470 06/87
A 01481 PLUMBERS SNAKE 8470 06/87
A 01491 CARPETING-2ND 8480 06/87
A 01494 PAPER SHREDDER 8510 06/87
A 01495 PHOTOCOPIER 8560 06/87
A 01497 PERSONAL COMPU 8510 06/87
A 01508 MICROFICHE REA 8540 06/87
A 01511 PHOTOCOPIER 8560 06/87
A 01512 EQUIP ADDTION 8610 06/87
A 01518 TYPEWRITER-QUI 8610 06/87
A 01519 WHEELWRITER - 8610 06/87
A 01522 COPIER MSC 8610 06/87
A 01524 STIMULATION EQ 8610 06/87
A 01536 WHEELWRITER 40 8700 06/87
A 01540 RHTTHM SIMULAT 8740 06/87
<PAGE> 77
Page 8
C FAS ASSET DATE
L NUMBR DESCRIPTION LOCATN Co ACORD
A 01552 Dr. Lounge Fur 8610 05/88
A 01553 Health Promo F 8740 05/88
A 01559 PATIENT TVS 03/92
A 01560 M/R LASER PRIN 04/92
A 01561 FRAMED TVS 03/92
A 01562 ICEMAKER 03/92
A 01577 MICROTOME 03/92
A 01578 PT RM CURTAINS 6160 01/92
A 01579 FLOOR CARE EQ. 8460 01/92
A 01580 OB PULSE OXIME 01/92
A 01581 STERILIZER BAS 7420 01/92
A 01585 LAP CHOLI 7021 07/92
A 01586 IBM SYSTEM/36 8540 07/92
A 01587 VIP-RX COMPUTE 7170 07/92
A 01589 FUNITURE-MULT 9310 07/92
A 01590 LOBBY FURN-MUL 9310 07/92
A 01591 MISC FRAMED PR 8610 07/92
A 01592 MISC FRAMED PR 8610 07/92
A 01594 COMPUTER TERMI 9310 07/92
A 01595 DRAPES-PATIENT 6080 07/92
A 01596 MEDICAL CLINIC 9312 07/92
A 01597 BIOHAZARD HAMP 8460 07/92
A 01600 DRAPES-MULT S 9310 07/92
A 01607 FIBROSCOPE REP 7021 07/92
A 01609 RX CABINETS 7170 07/92
A 01611 ADMITTING EMBO 09/92
A 01612 AG PROCESSOR R 12/92
A 01614 OR JV EQUIP 10/92
A 01615 FIBERSCOPE REP 07/93
A 01616 OR VIDEO EQUIP 02/93
A 01618 PURCH. COMPUTE 10/92
A 01619 P.T. EXER EQPT 03/93
A 01636 M/SPEC TERMINA 07/92
A 01638 ACCUTEMP/08 AI 05/93
A 01640 ACCUTEMP AIR C 06/93
<PAGE> 78
EXHIBIT "C"
Calculation of Additional Rent
CALCULATION OF ADDITIONAL RENT
FOR THE ___ MONTHS ENDED ______
LEASE YEAR TO DATE GROSS REVENUES I
_____________
BASE YEAR GROSS REVENUES ______________ II
NUMBER OF MONTHS INTO LEASE YEAR ______________ III
PRORATED BASE YEAR GROSS REVENUES (II/12*III) _____________ IV
CURRENT LEASE YEAR TO DATE GROSS REVENUES
IN EXCESS OF PRORATED BASE YEAR GROSS
REVENUES (I-IV, BUT NOT LESS THAN 0) _____________ V
CURRENT LEASE YEAR TO DATE ADDITIONAL
RENT (V*__%) _____________ VI
PRIOR PAYMENTS OF CURRENT YEAR ADDITIONAL
RENT WITH RESPECT TO THE:
PREVIOUS LEASE YEAR MINIMUM RENT
AND ADDITIONAL RENT _____________ VII
MAXIMUM ANNUAL RENT INCREASE
(VII*__% FROM SECTION 6.2.1
OF THE LEASE) _____________ VIII
PRORATED MAXIMUM ANNUAL RENT
(VIII / 12) * 111 _____________ IX
TOTAL PRIOR PAYMENTS OF CURRENT
LEASE YEAR ADDITIONAL RENT _____________ X
BALANCE DUE (LESSOR OF
VI-X OR IX-X) _____________ XI
C-1
<PAGE> 79
EXHIBIT "D"
Appraisal Process
If Landlord and Tenant are unable to agree upon the Fair Market Value of the
Premises within any relevant period provided in this Lease, each shall within
ten (10) days after written demand by the other select one MAI Appraiser to
participate in the determination of fair market value. Within ten (10) days of
such selection, the MAI Appraisers so selected by Landlord and Tenant shall
select a third MAI Appraiser. The three (3) selected MAI Appraisers shall each
determine the fair market value of the Premises within thirty (30) days of the
selection of the third appraiser. To the extent consistent with sound appraisal
practices as then existing at the time of any such appraisal, and if requested
by Landlord, such appraisal, shall be made on a basis consistent with the basis
on which the Premises was appraised at the time of its acquisition by Landlord.
Tenant shall pay the fees and expenses of any MAI Appraiser retained pursuant
to this Exhibit.
In the event either Landlord or Tenant fails to select a MAI Appraiser within
the time period set forth in the foregoing paragraph, the MAI Appraiser
selected by the other party shall alone determine the fair market value of the
Premises in accordance with the provisions of this Exhibit and the fair market
value so determined shall be binding upon Landlord and Tenant.
In the event the MAI Appraisers selected by Landlord and Tenant are unable to
agree upon a third MAI Appraiser within the time period set forth in the first
paragraph of this Exhibit, either Landlord or Tenant shall have the right to
apply at Tenant's expense to the presiding judge of the court of original trial
jurisdiction in the county in which the Premises is located to name the third
MAI Appraiser.
Within five (5) days after completion of the third MAI Appraiser's appraisal,
all three MAI Appraisers shall meet and a majority of the MAI Appraisers shall
attempt to determine the fair market value of the Premises. If a majority are
unable to determine the fair market value at such meeting, the three appraisals
shall be added together and their total divided by three. The resulting
quotient shall be the fair market value of the Premises. If, however, either or
both of the low appraisal or the high appraisal are more than ten percent (10%)
lower or higher than the middle appraisal, any such lower or higher appraisal
shall be disregarded. If only one appraisal is disregarded, the remaining two
appraisals shall be added together and their total divided by two, and the
resulting quotient shall be such fair market value. If both the lower appraisal
and higher appraisal are disregarded as provided herein, the middle appraisal
shall be such fair market value. In any event, the
D-1
<PAGE> 80
result of the foregoing appraisal process shall be final and binding.
"MAI APPRAISER" shall mean an appraiser licensed or otherwise qualified
to do business in the State and who has substantial experience in performing
appraisals of facilities similar to the Premises and is certified as a member
of the American Institute of Real Estate Appraisers or certified as a SRPA by
the Society of Real Estate Appraisers, or, if such organizations no longer
exist or certify appraisers, such successor organization or such other
organization as is approved by Landlord.
D-2
<PAGE> 81
EXHIBIT "E"
Permitted Exceptions
1. The standard printed exceptions, conditions and exclusions
from coverage contained in the standard coverage owner's title policy then
prevailing in use at the title company which consummates the sale transaction.
2. Any matters which an accurate survey of the Premises may
show.
3. Any matters shown as title exceptions in that certain ALTA
owner's policy of title insurance issued by Chicago Title Insurance Company in
favor of Landlord in connection with Landlord's acquisition of the Premises
from Tenant.
4. Such other matters burdening the Premises which were created
with the consent or knowledge of Tenant or arising out of Tenant's acts or
omissions.
E-1
<PAGE> 82
EXHIBIT "F"
Annual Additional Rent Calculations
Premises: ________________
Lease Year Ending ________________
Preliminary Additional Rent
Current Year Gross Revenue $ __________(A)
Base Year Gross Revenue $ __________(B)
Current Year Incremental Revenue (A - B) $ __________(C)
Preliminary Current Year Additional Rent (__% of C) $ __________(D)
Add amount of unpaid rent accumulated from
prior Lease Years pursuant to Section
2.6.5 of the Lease $ __________(E)
Preliminary Additional Rent (D + E) $ __________(F)
Maximum Additional Rent
Prior Year Minimum Rent (Adjusted for increases
pursuant to Section 5.7 of the Lease, if any) $ __________(G)
Prior Year Additional Rent $ __________(H)
Prior Year Total Rent (G + H) $ __________(I)
Times (1 + Applicable Percentage) from Section
2.6.1 of Lease (I times [1 + Applicable
Percentage] $ __________(J)
Less Current Year Minimum Rent $ __________(K)
Equals: Maximum Additional Rent Due (J - K) $ __________(L)
Additional Rent Due
Additional Rent Due (lesser of F or L) $ __________(M)
Additional Rent paid by Tenant (refund paid by Landlord) for
current year
First Quarter (paid on) $ ______________
Second Quarter (paid on) $ ______________
Third Quarter (paid on) $ ______________
Fourth Quarter (paid on) $ ______________
Total Additional Rent Paid this Lease Year $ ______(N)
Additional Rent due from Tenant (to be refunded
by Landlord if less than zero) (M - N) $ ______
Accumulation pursuant to Section 2.6.5
of the Lease (D - M, but not less
than zero) $_______
F-1
<PAGE> 83
The undersigned represents, warrants and certifies to Nationwide Health
Properties, Inc., a Maryland corporation, after due investigation, that the
foregoing information is true, correct and complete.
Tenant
Brim Hospitals, Inc.
By:
-------------------------
Its:
---------------------
F-2
<PAGE> 84
EXHIBIT "G"
ALTA Survey
(Attached)
G-1
<PAGE> 85
DESCRIPTION
PARCEL 1:
A part of Tract No. 8 of the Bard Subdivision of the Rancho Ojai, in the City of
Ojai, County of Ventura, State of California, as per map thereof recorded in
Book 5, Page 25 1/2 of Maps, in the office of the County Recorder of said
County, described as follows:
Beginning at a 1-inch iron pipe set in the Southerly line of Meiners Road
(formerly Matilija Road) at the Northeast corner of that certain parcel of land
as conveyed to Hattie McDonnell Russell by deed recorded in Book 29, Page 262
of Official Records; thence from said point of beginning,
1st: South 73(degrees) 24' East 139.24 feet along the Southerly line of
said Meiners Road to a ford axle set at the Northwest corner of that
certain parcel of land as conveyed to Clara R. Barlow by deed recorded
in Book 67, Page 181 of Official Records; thence,
2nd: South 18(degrees) 36' West 749.59 feet along the Westerly line of said
lands of Clara R. Barlow and the Southwesterly prolongation of same;
at 175.00 feet a ford axle set at the Southwest corner of said lands
of Clara R. Barlow; at 749.59 feet a 1-inch iron pipe; thence,
3rd: North 73(degrees) 24' West 146.88 feet to a 1-inch iron pipe set at
the Southeast corner of said lands of Hattie McDonnell Russell;
thence,
4th: North 19(degrees) 11' East 749.90 feet along the Easterly line of said
lands of Hattie McDonnell Russell to the point of beginning.
PARCEL 2:
A portion of Tract No. 8 of the Bard Subdivision of Rancho Ojai, in the City of
Ojai, County of Ventura, State of California, according to the map recorded in
Book 5, Page 25 1/2 of Maps, in the office of the County Recorder of said
County, described as follows:
Beginning at the Northeast corner of the land described in deed to Edward R.
Lambert and wife, recorded July 1, 1953 in Book 1142, Page 222, Official
Records; thence along the East line of said land,
1st: South 19(degrees) 11' West 751.50 feet to an angle point therein;
thence,
2nd: South 73(degrees) 24' East 219 feet, more or less to the most Westerly
corner of the land conveyed to Adam Rodriguez and wife by deed
recorded in Book 680, Page 483 of Official Records; thence along the
West line of said land of Rodriguez,
3rd: North 19(degrees) 11' East 749.90 feet to a point on the South line of
Cuyama Road (formerly Matilija Road) 40 feet wide; thence along the
Southerly line of said land,
4th: North 73(degrees) 24' West 218.96 feet to the point of beginning.
EXCEPT from the Northerly 1.885 acres of said land an undivided 60% of all oil,
gas and other hydrocarbon substances, without the right of entry above a depth
of 500 feet from the surface of said land for the development of said oils and
minerals, as reserved by George S. Biggers, et ux., in deed recorded February
19, 1959 in Book 1704, Page 278, Official Records.
PARCEL 3:
A portion of Tract No. 8 of the Bard Subdivision of Rancho Ojai, in the City of
Ojai, County of Ventura, State of California, according to the map recorded in
Book 5, Page 25-1/2 of Maps, in the office of the County Recorder of said
County, described as follows:
Commencing at the Northeast corner of the land described in deed to Edward R.
Lambert and wife, recorded July 1, 1953 in Book 1142, Page 222 of Official
Records; thence along the East line of said land, South 19(degrees) 11' West
751.50 feet to an angle point therein, said point being to the true point of
beginning; thence continuing along said East line,
1st: South 16(degrees) 11' West 362.25 feet to a point in the Northerly
line of that certain strip of land conveyed to Ventura County by deed
recorded in Book 384, Page 436 of Official Records; thence
2nd: South 74(degrees) 55' East 205.80 feet to the Southwest corner of the
land described in Parcel 1 deeded to William E. Weidemann, et al.,
recorded September 17, 1958 in Book 1654, Page 451 of Official
Records; thence along the West line of the land last referred to,
3rd: Northerly in a direct line to the Northwest corner of said land, at
the most Westerly corner of the land conveyed to Adam Rodriguez and
wife by deed recorded in Book 680, Page 483, Official Records; thence,
4th: North 73(degrees) 24' West 219 feet, more or less to the point of
beginning.
[DIAGRAM]
<PAGE> 86
EASEMENTS PER CHICAGO TITLE INSURANCE CO. NO. 575226-6
(6) 20' WIDE ROAD EASEMENT RESERVED B KENNETH P. GRANT PER BOOK 41.
PAGE 297 OFFICIAL RECORDS
(7) 6' WIDE UTILITY EASEMENT TO SOUTHERN CALIFORNIA EDISON CO. PER BOOK
1809. PAGE 525 OFFICIAL RECORDS
(8) PUBLIC STREET EASEMENT TO THE CITY OF OJAI PER BOOK
3260. PAGE 255 OFFICIAL RECORDS
(9) 6' WIDE UTILITY EASEMENT TO SOUTHERN CALIFORNIA EDISON CO. PER BOOK
3550. PAGE 211 OFFICIAL RECORDS
(11) 6' WIDE UTILITY EASEMENT TO SOUTHERN CALIFORNIA EDISON CO. PER BOOK
3606. PAGE 279 OFFICIAL RECORDS
(11A) CENTERLINE 10' WIDE UTILITY EASEMENT TO SOUTHERN CALIFORNIA EDISON CO.
PER BOOK 3606. PAGE 279 OFFICIAL RECORDS
[Diagram of [Diagram of
OJAI VALLEY ONE STORY BUILDING
COMMUNITY HOSPITAL
OJAI MANOR
(1&2 STORY BUILDING)] CONVALESCENT HOSPITAL
NEW BEGINNINGS
REHABILITATION
CENTER]
<PAGE> 87
[SURVEY]
SURVEY CERTIFICATION
To NATIONWIDE HEALTH PROPERTIES, INC., a Maryland corporation, or its designee
and CHICAGO TITLE INSURANCE COMPANY:
This is to certify that this map or plat of survey is based on a field
survey made on April 1, 1994, by me or directly under my supervision in
accordance with "Minimum Standards Detail Requirements for ALTA/ACSM Land Title
Surveys" jointly established and adopted by ALTA and ACSM in 1988, and to the
best of my professional knowledge, information and belief,
a) correctly represents the facts found at the time of survey;
b) except as shown on survey map, there are no discrepancies between
the boundary lines of the subject property as shown on the survey map
and as described in the legal description of record;
c) the boundary line dimensions as shown on the survey map form a
mathematically closed figure within +/- 0.01 foot;
d) except as shown on survey map, the boundary lines of the subject
property are contiguous with the boundary lines of all adjoining
parcels, roads, highways, streets or alleys as described in their
most recent respective legal descriptions of record;
e) the field survey meets the accuracy requirements of a Class A
survey defined therein;
f) the subject property does not lie within a flood zone as determined
by the United States Department of Housing and Urban development; and
g) The Premises do not lie within an "Earthquake Special Studies Zone"
as designated under Alquist-Priolo Special Studies Zone Act (Sections
2621-2630), inclusive, of the California Public Resources Code.
/s/ W.L. Meagher
------------------------------
WILLIAM L. MEAGHER LS #5948 CA
[SEAL]
LICENSED LAND SURVEYOR
WM. L. MEAGHER
EXP. 12/96
NO. 5948
STATE OF CALIFORNIA
ALTA SURVEY
OJAI MEDICAL CENTER
VENTURA COUNTY ASSESSOR'S PARCEL
19-0-110-04, 19-0-110-33 and 110-0-1
CITY OF OJAI
COUNTY OF VENTURA STATE OF CALIFORNIA
DATE: APRIL 4, 1994 SHEET: 1 OF 1
<PAGE> 88
[ASBUILT SURVEY]
----------------------
Scale 1 degree - 40 degrees
BOOK 4000, PAGE 604
OFFICIAL RECORDS
1.75 ACRES
BOOK 29, PAGE 262
OFFICIAL RECORDS
3.76 ACRES
BOOK 680, PAGE 483
OFFICIAL RECORDS
2.47 ACRES
BOUNDARY SURVEY
----------------------
Scale 1 degree - 100 degrees
<PAGE> 89
ADDENDUM TO LEASE
(OPTION TO PURCHASE)
THIS ADDENDUM is dated as of April 11, 1994 and is attached to and made a
part of that certain Lease and Security Agreement of even date herewith (the
"LEASE") by and between Nationwide Health Properties, Inc., a Maryland
corporation ("LANDLORD"), and Brim Hospitals, Inc., an Oregon corporation
("TENANT").
Provided no Event of Default has occurred under the Lease as of Tenant's
exercise of its option to purchase the Premises pursuant to this Addendum or at
the closing date established to consummate the purchase of the Premises
pursuant to Tenant's exercise of such option, Tenant shall have the option to
purchase the Premises upon the following terms and conditions:
(a) Not more than five (5) days before or after the date
which is twelve (12) months prior to the end of the then current Term,
Tenant shall exercise its option to purchase all but not less than all of
the Premises by giving Landlord written notice thereof;
(b) The purchase price for the Premises shall be payable in
cash by Tenant and shall be equal to the fair market value of the Premises
on the date of Tenant's exercise of its option pursuant to this Addendum
adjusted to take out any increase in value attributed to any improvements
to the Premises made by Tenant and not funded or reimbursed by Landlord,
provided that such purchase price shall not (i) be less than Landlord's
Original Investment ($4,350,000) as increased pursuant to Section 5.7 of
the Lease or decreased under Section 13.2 of the Lease, if either is
applicable, nor (ii) exceed Landlord's Original Investment ($4,350,000)
(as increased pursuant to Section 5.7 of the Lease or decreased under
Section 13.2 of the Lease, if either is applicable) increased by three
percent (3%) per annum compounded annually from the date of this Lease to
the date of Tenant's notice of exercise of option hereunder. If within ten
(10) days of the date of Tenant's exercise of its option under this
Addendum Landlord and Tenant are unable to agree on the fair market value
of the Premises, such fair market value shall be established by the
appraisal process described on Exhibit "D" to the Lease. Such fair market
value must be finally determined by a date ninety (90) days after Tenant's
exercise of its option under this Addendum or Tenant shall lose its right
to purchase the Premises;
(c) Once the purchase price is established pursuant to the
above, Landlord as seller and Tenant as buyer shall immediately open an
escrow to consummate such purchase at a national title company selected by
Landlord on the following
1
<PAGE> 90
terms: (i) the form of such instructions to be then signed by Landlord and
Tenant shall be such title company's standard sale escrow instructions
without any representations or warranties and without due diligence or
other contingencies in favor of the buyer, (ii) the purchase price shall
be payable in cash by Tenant upon the expiration of the then current Term,
(iii) all transaction costs shall be divided between Landlord and Tenant
according to the customary practices in Southern California, (iv) at
close, Landlord shall deliver title to the Premises subject only to those
title exceptions shown on Exhibit "E" to the Lease, (v) the sale escrow
instructions shall provide for a deposit equal to five percent (5%) of the
purchase price and shall provide that the deposit may be retained by
Landlord as liquidated damages in the event of any breach by Tenant of the
terms of the escrow instructions (provided, however, such liquidated
damages shall relate only to Landlord's damages by reason of a breach of
the escrow instructions and shall in no way liquidate or limit Landlord's
damages by reason of a breach of the Lease), and (vi) the escrow
instructions shall otherwise be in form and substance reasonably
satisfactory to Landlord and Tenant.
(d) If Tenant fails to close the escrow for any reason other
than a breach by Landlord, then Landlord shall have the right to extend
the Term for an additional year. The Additional Rent and Minimum Rent
during such year extension period shall be calculated as if on the date of
Tenant's exercise of its option pursuant to this Exhibit Tenant had
instead exercised its right under Section 1.2 of the Lease to extend the
Term for a renewal term.
IN WITNESS WHEREOF, Landlord and Tenant have executed this
Addendum as of the day and year first above written.
"LANDLORD" "TENANT"
Nationwide Health Properties, Inc., Brim Hospitals Inc.,
a Maryland corporation an Oregon corporation
By: By: /s/John R. Miller
--------------------------------- ----------------------------
Its: Its: President
------------------------------ ---------------------------
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AMENDMENT OF LEASE DOCUMENTS,
CONSENT AND REAFFIRMATION
(OJAI VALLEY COMMUNITY HOSPITAL)
THIS AMENDMENT OF LEASE DOCUMENTS, CONSENT AND REAFFIRMATION
("AGREEMENT") is made as of December 16, 1996 by and among NATIONWIDE HEALTH
PROPERTIES, INC., a Maryland corporation ("LANDLORD"), BRIM HOSPITALS, INC., an
Oregon corporation ("TENANT"), and BRIM, INC., an Oregon corporation
("GUARANTOR").
R E C I T A L S:
A. Landlord and Tenant have entered into that certain Lease and
Security Agreement dated as of April 11, 1994 with respect to the Ojai Valley
Community Hospital (the "LEASE"). All capitalized terms used herein and not
otherwise defined herein shall have the meaning ascribed to such terms in the
Lease.
B. Pursuant to that certain Guaranty of Lease dated as of April 11,
1994 (the "LEASE GUARANTY") executed by Guarantor, as guarantor, in favor of
Landlord, Guarantor agreed to guarantee the obligations of Tenant under the
Lease. Pursuant to that certain Guaranty of Obligations dated as of April 11,
1994 (the "ACQUISITION GUARANTY") executed by Guarantor, as guarantor, in favor
of Landlord, Guarantor agreed to guarantee the obligations of Tenant under that
certain Purchase and Sale Agreement dated as of April 11, 1994, by and between
Tenant, as seller, and Landlord, as buyer. The Lease Guaranty and the
Acquisition Guaranty are collectively referred to herein as the "GUARANTIES."
C. In accordance with the terms of that certain Letter of Credit
Agreement dated as of April 11, 1994, by and between Guarantor and Landlord,
and accepted and agreed to by Tenant (the "L/C AGREEMENT"), Guarantor has caused
a letter of credit in the amount of Two Hundred Three Thousand Six Hundred
Twenty-Four Dollars ($203,624.00) to be issued to Landlord as additional
security for the performance of Tenant's obligations under the Lease and
Guarantor's obligations under the Lease Guaranty.
D. The Lease, the Lease Guaranty, the L/C Agreement, together with
all other documents, agreements or instruments evidencing and/or securing the
transactions contemplated by the Lease shall be collectively referred to herein
as the "LEASE DOCUMENTS".
E. Concurrently herewith and pursuant to the terms and conditions
of that certain Investment Agreement dated as of November 21, 1996, by and
between Guarantor, Golder, Thoma, Cressey, Rauner Fund IV, L.P., a Illinois
limited partnership, Martin Rash and Richard Gore (the "RECAPITALIZATION
AGREEMENT"), guarantor will be recapitalized, and concurrently therewith
Principal Hospital Corporation, a Delaware corporation, will merge with and
into a wholly-owned subsidiary of Guarantor (collectively, the
RECAPITALIZATION/MERGER
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<PAGE> 92
TRANSACTIONS"), which Recapitalization/Merger Transactions will result in a
change in control over the management of the affairs of Guarantor.
F. Tenant and Guarantor have requested that Landlord (i)
consent to the Recapitalization/Merger Transactions, which consent is required
under the terms of the Lease, and (ii) waive its rights to put the
Premises to Tenant as a result of such Recapitalization/Merger Transactions.
Landlord has agreed to consent to such requests of Tenant and Guarantor, in all
cases upon and in consideration of the terms and conditions contained herein.
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:
1. CONSENT BY LANDLORD.
(a) Upon the terms and conditions contained
herein and subject to the satisfaction of the conditions precedent
set forth in Section 7 of this Agreement, Landlord hereby consents
to the Recapitalization/Merger Transactions, and Landlord hereby
waives any right it may have under the Lease Documents, including,
without limitation, Section 22.3 of the Lease, to put the Premises
to Tenant or to declare a default under the Lease Documents as a
result of such Recapitalization/Merger Transactions.
(b Tenant and Guarantor each acknowledge and
agree that this consent is made solely for the benefit of Tenant
and Guarantor and shall not be deemed, nor shall the same
constitute, a waiver by Landlord of any rights under the Lease
Documents, as amended and modified pursuant to the terms hereof,
in the event of any subsequent event, including, without
limitation, any subsequent event which may result in a deemed
assignment of the Lease.
2. NO RELEASE. Nothing contained herein shall be deemed or
construed to constitute a release of Tenant or Guarantor from any of their
respective obligations under the Lease Documents.
3. AMENDMENTS TO LEASE. Subject to the satisfaction of the
conditions precedent set forth in Section 7 of this Agreement, the Lease is
hereby amended as follows:
(a) The security deposit required under Section
11 of the Lease shall be increased to the sum of Five Hundred
thousand Dollars ($500,000).
(b) Section 10.1.4 of the Lease is hereby
deleted in its entirety and the following is substituted therefor:
"A default by Tenant or any Guarantor with
respect to any obligation with a principal
amount of at least One Million Dollars
($1,000,000) under any other lease or
financing agreement with any other party,
including, without
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<PAGE> 93
limitation, that certain Credit Agreement dated as of
December 17, 1996 among First Union National Bank of
North Carolina, a national banking association, as agent
thereunder, the Lenders (as such term is defined
therein) and Guarantor, which default is not cured
within any applicable cure period provided in the
documentation for such obligation;"
(c) In addition to the option to purchase the Premises
granted to Tenant by Landlord in the Addendum to Lease (Option to Purchase),
the Lease is amended to provide that Tenant shall have an additional option to
purchase the Premises upon the following terms and conditions:
(i) No later than December 3, 1997, Tenant shall
exercise its option to purchase all but not less than all of the
Premises by giving Landlord written notice thereof;
(ii) The purchase price for the Premises shall be
payable in cash by Tenant and shall be equal to the product of (A)
Landlord's Original Investment ($4,350,000) as increased pursuant to
Section 5.7 of the Lease or decreased under Section 13.2 of the
Lease, if either is applicable, and (B) one hundred eleven percent
(111 %); and
(iii) Landlord, as seller, and Tenant, as buyer, shall
immediately open an escrow to consummate such purchase at a national
title company selected by Landlord on the following terms: (A) the
form of such instructions to be then signed by Landlord and Tenant
shall be such title company's standard sale escrow instructions
without any representations or warranties and without due diligence
or other contingencies in favor of the buyer, (B) the purchase price
shall be payable in cash by Tenant no later than ninety (90) days
after Tenant's notice of exercise of its option to purchase, (C)
Tenant shall pay all transaction costs, including, without
limitation, all attorneys' fees and costs incurred by Landlord in
connection with such transaction, (D) at close, Landlord shall
deliver title to the Premises subject only to those title exceptions
shown on Exhibit "E" to the Lease, (D) the sale escrow instructions
shall provide for a deposit equal to five percent (5%) of the
purchase price and shall provide that the deposit may be retained by
Landlord as liquidated damages in the event of any breach by Tenant
of the terms of the escrow instructions (provided, however, such
liquidated damages shall relate only to Landlord's damages by reason
of a breach of the escrow instructions and shall in no way liquidate
or limit Landlord's damages by reason of a breach of the Lease), and
(E) the escrow instructions shall otherwise be in form and substance
reasonably satisfactory to Landlord and Tenant.
4. AMENDMENTS TO L/C AGREEMENT. Subject to the
satisfaction of the conditions precedent set forth in Section 7 of this
Agreement, the L/C Agreement is hereby amended as follows:
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<PAGE> 94
(a) The first sentence of Section l(b) of the
L/C Agreement is hereby deleted in its entirety and the following is
substituted therefor:
"The aggregate amount of all issued and
outstanding Letters of Credit shall, at all
times during the term hereof as provided in
Section 5 be Five Hundred Thousand Dollars
($500,000) (the "LETTER OF CREDIT
AMOUNT")."
5. REPRESENTATIONS AND WARRANTIES. Tenant and Guarantor
each hereby represent and warrant that:
(a) all of the representations and warranties
set forth in the Lease and the Guaranties, as applicable, are true
and correct as of the date hereof as through originally make herein;
(b) Tenant is in full compliance with Section
21.9 of the Lease;
(c) this Agreement has been duly and validly
authorized, executed and delivered by Tenant and Guarantor and
constitutes the legally valid, binding and enforceable obligation of
Tenant and Guarantor which has not and will not constitute a breach
or default under any agreement, court order, judgment or law by or
under which Tenant or Guarantor are bound or may be affected,
subject to bankruptcy, insolvency and similar laws affecting the
rights of creditors generally;
(d) the Lease Documents are in full force and
effect and are binding upon Tenant and Guarantor in accordance with
their respective terms, subject to bankruptcy, insolvency and
similar laws affecting the rights of creditors generally; and
(e) no Event of Default exists under the Lease
or Guaranties as modified by this Agreement and no event exists
which, with the giving of notice or the passage of time, or both,
would give rise to an event of Default under the Lease or Guaranties
as modified by this Agreement.
6. REAFFIRMATION OF OBLIGATIONS.
(a) Notwithstanding the modifications to the
Lease contained herein, Tenant hereby acknowledges and reaffirms it
obligations under the Lease (including, without limitations, it
obligations concerning the environmental condition of the Premises
set forth in Section 21.9 of the Lease and its indemnification
obligations set forth in Section 23 of the Lease) and the other
Lease Documents.
(b) Notwithstanding the modifications to the
Lease contained herein, Guarantor hereby acknowledges and reaffirms
it obligations under the Guaranties, the L/C Agreement and all
documents executed by Guarantor in connection therewith, and further
agrees that any reference made in the Lease Guaranty or the L/C
Agreement to the Lease
4
<PAGE> 95
or any terms or conditions contained therein, shall mean such Lease,
terms or conditions as modified by this Amendment.
7. CLOSING CONDITIONS, Landlord shall have no obligation to
execute this Agreement, and the consent of Landlord set forth in Section 1
above shall not be effective prior to the closing of the
Recapitalization/Merger Transactions and prior to the date (the "EFFECTIVE
DATE") that Tenant and/or Guarantor, as applicable, has delivered or caused to
be delivered to Landlord the following items, all of which shall be
satisfactory in form and content to Landlord and, if applicable, duly executed
(and acknowledged where necessary) by the appropriate parties thereto:
(a) This Agreement;
(b) A replacement Letter of Credit, additional
Letter of Credit or an amendment to the Letter of Credit (as defined
in the L/C Agreement) increasing the Letter of Credit Amount (as
defined in the L/C Agreement) to Five Hundred Thousand Dollars
($500,000); and
(c) A copy of the fully-executed
Recapitalization Agreement.
8. ADDITIONAL REQUIREMENTS. Within thirty (30) days after
the Effective Date, Tenant and/or Guarantor, as applicable, shall deliver or
cause to be delivered to Landlord the following items, all of which shall be
satisfactory in form and content to Landlord and, if applicable, duly executed
(and acknowledged where necessary) by the appropriate parties thereto:
(a) Any other material agreements entered into
by Guarantor with respect to the Recapitalization/Merger
Transactions which relate in any manner to the sale of Guarantor's
stock;
(b) Certified copies of all of the
organizational documents with respect to Tenant and Guarantor which
have not previously been delivered to Landlord (e.g., amendments to
Articles of Incorporation and Bylaws and related filings with the
State of Oregon), together with evidence satisfactory to Landlord
that each of Tenant and Guarantor have taken all necessary action to
authorize such party to execute, deliver and be bound by this
Agreement and the other documents to be executed and delivered
pursuant to the terms hereof;
(c) Funds from Tenant and/or Guarantor in an
amount sufficient to pay all attorneys' fees and costs incurred by
Landlord in connection with this transaction; and
(d) Such other documents, materials or
information as Landlord may reasonably require.
9. SURVIVAL. The covenants, representations and warranties
of Tenant and Guarantor set forth herein shall survive the consummation of the
transactions contemplated hereunder.
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<PAGE> 96
10. EVENTS OF DEFAULT. The breach or default by Tenant
and/or Guarantor of any term, covenant, agreement, condition, provision,
representation or warranty contained herein, and the expiration of any
applicable cure period set forth in any applicable Lease Document, shall
constitute an "Event of Default" under the applicable Lease Document(s) and
shall give Landlord the right, exercisable at Landlord's sole discretion, to
pursue any or all of its applicable rights and remedies under such Lease
Document(s).
11. EFFECT OF AGREEMENT. Except as expressly provided in
this Agreement, the terms and conditions of the Lease Documents shall remain
unmodified and in full force and effect.
12. MISCELLANEOUS.
(a) Notices. The parties hereto notify each other that
its address for receipt of notice hereunder or under the Lease
Documents is as follows:
TO TENANT AND/OR GUARANTOR:
Brim, Inc.
305 N.E. 102nd Avenue
Portland, Oregon 97220
Attention: Bruce A. Schoen
Fax No: (503) 254-7619
With a copy to:
The Nathanson Group
1411 Fourth Avenue, Suite 905
Seattle, Washington 98101
Attention: Randi S. Nathanson, Esq.
Fax No: (206) 623-1738
TO LANDLORD:
Nationwide Health Properties, Inc.
4675 MacArthur Court, Suite 1170
Newport Beach, California 92660
Attention: President and General Counsel
Fax No: (714) 251-9644
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<PAGE> 97
With a copy to:
Sherry & Holthouse LLP
610 Newport Center Drive, Suite 1200
Newport Beach, California 92660
Attention: Kevin L. Sherry, Esq.
Fax No: (714) 719-1212
(b) NO WAIVER. No waiver of any breach of any
representation or agreement contained herein shall be construed to be
a subsequent waiver of that representation or agreement or of any
subsequent breach thereof or of this Agreement.
(c) GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of California.
(d) BURDEN AND BENEFIT. This Agreement shall be binding
upon and inure to the benefit of the parties hereto, their successors
in interest and assigns.
(e) ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the parties relating to the subject matters
contained herein. Any oral representations or statements concerning
the subject matters herein shall be of no force or effect. No
variations or modification of this Agreement shall be valid and
enforceable, except by an agreement in writing, executed and approved
in the same manner as this Agreement.
(f) HEADINGS. The headings used in this Agreement are for
convenience only, and are not to be considered in connection with the
interpretation or construction of this Agreement.
(g) FURTHER INSTRUMENTS. Each party will, whenever and as
often as it shall be reasonably requested so to do by another party,
cause to be executed, acknowledged or delivered, any and all such
further instruments and documents as may be necessary or proper, in
the reasonable opinion of the requesting party, in order to carry out
the intent and purpose of this Agreement.
(h) COUNTERPARTS. This Agreement may be executed and
acknowledged in counterparts, all of which executed and acknowledged
counterparts shall together constitute a single document. Signature
and acknowledgment pages may be detached from the counterparts and
attached to a single copy of this document to physically form one
document.
(i) ATTORNEYS' FEES. In the event of any dispute or
litigation concerning the enforcement, validity or interpretation of
this Agreement, or any part thereof, the losing party shall pay all
costs, charges, fees and expenses (including reasonable attorneys'
fees) paid or incurred by the prevailing party, regardless of whether
any action or proceeding is initiated relative to such dispute and
regardless of whether any such litigation is
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<PAGE> 98
prosecuted to judgment. For the purpose of this Agreement, the term
"attorneys' fees" or "attorneys' fees and costs" shall mean the fees
and expenses of counsel to the parties hereto, which may include
printing, photostating, duplicating and other expenses, air freight
charges, and fees billed for law clerks, paralegals and others not
admitted to the bar but performing services under the supervision of
an attorney. The terms "attorneys' fees" or "attorneys' fees and
costs" shall also include, without limitation, all such fees and
expenses incurred with respect to appeals, arbitrations and bankruptcy
proceedings, and whether or not any action or proceeding is brought
with respect to the matter for which such fees and expenses were
incurred.
(j) Submission of Agreement. The submission of this
Agreement to Tenant or Guarantor or any of their respective agents or
attorneys, for review or signature, does not constitute a commitment
by Landlord to enter into this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
LANDLORD: NATIONWIDE HEALTH PROPERTIES, INC.
a Maryland corporation
By: /s/ Gary E. Stark
------------------------------
Gary E. Stark, Vice President
TENANT: BRIM HOSPITALS, INC.,
an Oregon corporation
By: /s/
------------------------------
Its: President and C.E.O.
---------------------------
GUARANTOR: BRIM, INC.,
an Oregon corporation
By: /s/
------------------------------
Its: Chief Executive Officer
-------------------------
8
<PAGE> 1
EXHIBIT 10.16
LEASE AGREEMENT
THIS LEASE AGREEMENT is made and entered into this 16 day of December
1985, by and between UNION LABOR HOSPITAL ASSOCIATION, A California public
benefit corporation (hereinafter referred to as "LESSOR") and BRIM HOSPITALS,
INC., an Oregon corporation (hereinafter referred to as "Lessee").
ARTICLE 1
DEMISE OF LEASED PREMISES
Lessor for and in consideration of the rents, covenants and promises herein
contained to be kept, performed and observed by Lessee does hereby lease and
demise to Lessee, and Lessee does hereby rent and accept from Lessor, (i) all
real property and improvements, constituting The General Hospital, an 84-bed,
acute-care general hospital, located at 2200 Harrison Avenue, Eureka,
California, (referred to as "the leased premises" or "the hospital"), and more
particularly described in Exhibits A and B attached hereto and made a part
hereof, (ii) all Group I, II and III Equipment, (iii) all the Hospitals patient
and employee records and all medical records, X-ray films and records,
laboratory records and medical and administrative libraries which are the
property of Lessor.
TO HAVE AND TO HOLD the said leased premises, together with all rights,
privileges, easements, appurtenances and immunities belonging to or in any way
appertaining to said leased premises, including, but not limited to, any and all
easements, rights, title and privileges of Lessor now or hereafter existing in,
to or under adjacent streets, sidewalks, alleys, party walls and property
contiguous to the leased premises and reversions which may hereafter accrue to
Lessor as owner of the leased premises by reason of the closing of any street,
sidewalk or alley.
ARTICLE 2
LEASE TERM
2.01 This Lease shall commence on January 1, 1986, (the "Commencement
Date") and shall be for a term of ten (10) years, renewable at the option of
Lessee for one additional five-year term at the end of the tenth year, upon
delivery by Lessee of its written notice to Lessor of its intent to renew within
180 days prior to the termination of the current term.
2.02 In the event Lessee does not extend this Lease after the expiration
of the initial lease term as provided in Paragraph 2.01, Lessor shall reimburse
Lessee, at the expiration of said term, the book value (as determined by the
<PAGE> 2
straight line method of depreciation) of any equipment installed by Lessee
during said term. Payment under this provision shall be made to Lessee within
ninety (90) days of such termination. Leasehold improvements are subject to the
provisions of Article 18, and are not intended to be covered in this Section.
2.03 If Lessee shall hold over after the expiration of the initial lease
term or any extension thereof, such tenancy shall be from month to month and on
the same terms as herein set forth.
ARTICLE 3
RENT
3.01 Lessee agrees to pay the Lessor as rental for the use and occupancy of
the leased premises pursuant to this lease as shown in the schedule in Exhibit C
attached hereto and made a part hereof. Said rental shall be due to Lessor
thirty (30) days before the due dates reflected in Exhibit C attached hereto.
3.02 All installments of rent shall be payable in lawful money of the
United States to the Lessor at the address set out herein for notice purposes,
or Lessee shall provide the rent to Lessor's agent at the Hospital, or as
otherwise agreed between the parties.
3.03 In the event that any rent installment is not paid on the date due,
that sum shall bear interest at the rate of ten (10) percent per annum from the
date due until payment is made.
ARTICLE 4
TAXES
4.01 In addition to the rental, Lessee covenants that it will pay and
discharge all taxes, assessments, water rates, meter charges and other charges
which may be assessed or which may be or may become liens upon the leased
premises or the interest therein of any beneficiary under any deed of trust, and
will make such payments or cause such payments to be made in due time to prevent
any delinquency thereon or any forfeiture or sale of the leased premises or any
part thereof, and will produce to the Lessor receipts for all such payments or
other evidences satisfactory to the Lessor. Lessee shall have the right in good
faith at its sole cost and expense (in its own name or in the name of Lessor, or
both, as Lessee may determine appropriate) to contest any such taxes, charges,
and assessments, and shall be obligated to pay the contested amount only if and
when it is finally determined to be due. It is agreed, however, that in no
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<PAGE> 3
event will Lessor's interests or that of any beneficiary under any deed of trust
be threatened because of this provision.
4.02 Subject to the right of the Lessee to contest taxes, assessments and
governmental charges as hereinabove provided, Lessor may at any time that the
payment of any item of taxes, special assessments or governmental charges which
Lessee is obligated to pay under the provisions of Section 4.01 remain unpaid,
give written notice to Lessee of its default, specifying the same, and if Lessee
continues to fail to pay such item of taxes, special assessments or governmental
charges or to contest the same in good faith, then, at any time after ten (10)
days from such written notice, Lessor may pay the items specified in the notice
and Lessee covenants thereupon on demand to reimburse and pay Lessor any amount
so paid or expended in the payment of the items specified in the notice and any
penalties associated with such payment by Lessor.
ARTICLE 5
UTILITIES
Lessee shall pay or cause to be paid all charges for water, heat, gas,
electricity, sewers and any and all other utilities used on the leased premises
throughout the term of this lease including any connection fees.
ARTICLE 6
USE OF PREMISES
It is agreed that the use of the leased premises is and shall be limited to
the operation and maintenance of an acute-care or specialty hospital and related
facilities incidental thereto, including, but not limited to, parking facilities
or medical office buildings. Lessee agrees that it shall maintain and operate
the leased premises, and all engines, boilers, pumps, machinery, apparatus,
fixtures, fittings and equipment of any kind in or that shall be placed in any
building or building now or hereafter at any time in the leased premises, in
good repair, working order and condition, normal wear and tear excepted, and
that it will subject to all the other conditions of this Lease, from time to
time make or cause to be made all needful and proper replacements, repairs,
renewals and improvements so that the efficiency and value of the leased
premises shall not be impaired, normal wear and tear excepted.
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<PAGE> 4
ARTICLE 7
IMPROVEMENTS AND BUILDINGS
7.01 Lessee shall maintain all improvements and buildings constructed on
the leased premises owned by Lessor in a good state of repair, normal wear and
tear excepted. Lessor shall have no obligation whatsoever with respect to
maintenance or repair of any improvements or buildings located on the leased
premises and owned by Lessor.
7.02 Should the leased premises or any portion of said premises, or any
building or improvement on said premises, be damaged or destroyed by any cause
whatsoever, Lessee shall within one (1) year from the date of such damage or
destruction, commence the work of repair, reconstruction or replacement of the
damaged or destroyed building and prosecute the same with reasonable diligence
so that the building shall be restored to substantially the condition it was in
prior to the casualty. During such repair and restoration, at Lessee's option,
this lease shall abate and Lessee shall exercise its option according to Article
19 herein, or the lease shall not abate and rent will continue to be due and
payable. Such option concerning replacement shall be exercised in writing within
forty-five (45) days after such destruction.
7.03 Notwithstanding any other provision of this Lease, Lessee may
terminate this Lease should the leased premises or the improvements on said
premises, be damaged or destroyed during the term of this Lease or any extension
thereof to such an extent it will cost more than 25 percent of the replacement
value of all improvements on said premises immediately prior to the damage or
destruction to restore said premises to the condition they were in immediately
prior to the damage or destruction. In such event, Lessee may exercise its
option to terminate this Lease by giving written notice of termination to Lessor
and this Lease shall be terminated as of 12:01 a.m. on, whichever last occurs,
the date the notice is given to Lessor or the date Lessee completes vacating
said premises; provided, however, that should Lessee terminate this Lease
pursuant to this section, all insurance proceeds payable because of the damage
or destruction shall be, first payable to the bank according to the then present
amount of the obligation to the bank as described in the Agreement, and the
remainder shall be apportioned as the respective interests of the Lessee and
Lessor in the remaining leasehold.
7.04 Lessee shall not suffer or permit any mechanics' liens or other liens
to be filed against the fee of the leased premises nor against Lessee's
leasehold interest in the land nor any buildings or improvements on the leased
premises by reason of any work, labor, services or materials
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<PAGE> 5
supplied or claimed to have been supplied to Lessee or to anyone holding the
leased premises or any part thereof through or under Lessee unless Lessee is in
good faith contesting the claim or amount of any claim of any such mechanic or
materialman or other lien claimant, in which case, Lessee shall indemnify and
save Lessor harmless from any liability for damages occasioned thereby and shall
in the event of a final judgment of foreclosure on any such lien, cause the same
to be discharged and removed prior to the execution of such judgment.
7.05. The term "replacement value" as used herein shall mean the actual
replacement cost thereof from time to time, less exclusions provided in the
normal fire insurance policy. In the event either party believes that full
replacement value (with the then replacement cost less exclusions) has increased
or decreased, it shall have the right, but only, except as provided below, at
intervals of not less than five (5) years, to have such full "replacement value"
re-determined by the fire insurance company which is then carrying the largest
amount of fire insurance carried on the premises, hereinafter referred to as
"impartial appraiser". The party desiring to have full replacement value so
re-determined 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 insurance carried pursuant to this section, as the case may be, to the amount
so determined by the impartial appraiser. The requesting party shall pay the
fee, if any, of the impartial appraiser. If, during any such five-year period,
Lessee shall have made improvements to the premises, Lessor may at his own cost
have such full replacement value re-determined at any time after such
improvements are made, regardless of when the full replacement value was last
determined.
ARTICLE 8
EMINENT DOMAIN
8.01 A. "Eminent Domain" as used herein is the right of the government to
take private property for public use. As used in this Article, the words
"condemned" and "condemnation" are coextensive with such right, and a voluntary
conveyance by Lessor to the condemnor under threat of a taking under the power
of eminent domain in lieu of or after commencement of formal proceedings shall
be deemed a taking within the meaning of this article.
B. As used in this Article, the terms "total condemnation" and "total
taking" mean the taking of the entire leased premises under the power of eminent
domain or a
-5-
<PAGE> 6
taking of so much of the leased premises under such power as, in the judgment of
the parties, to prevent or substantially impair the conduct of Lessee's business
thereon.
C. As used in this Article, the terms "partial condemnation" and
"partial taking" mean any condemnation of the leased premises other than a total
taking as defined in subparagraph B of this section.
8.02 A. In the event that there shall be a total taking of the leased
premises during the lease term or any extension thereof under the power of
eminent domain as in this Article defined, the leasehold estate hereby created
shall cease and terminate as of the date title to the property is taken by the
person who will put it to public use or at the time the condemnor is authorized
to take possession of the property as stated in an order for possession,
whichever is earlier.
B. All compensation and damages awarded for such total taking shall
first be paid to the Bank of America to satisfy the obligations under the Note
Purchase Agreement, and Lessee shall have a claim thereto to the extent of the
remainder of the then current lease term, and hereby irrevocably assigns and
transfers to the Bank of America any prior rights it may have to compensation or
damages to which it may become entitled; provided, however, that Lessee shall be
entitled to receive any award made for the taking of or damage to Lessee's
fixtures and any improvements made by Lessee to the leased premises which Lessee
would have had the right to remove but for the condemnation, on expiration or
sooner termination of this lease.
C. On termination of this Lease by a total taking of the leased
premises under the power of eminent domain, all rentals and other charges
payable by Lessee to or on behalf of Lessor under the provisions of this Lease
shall be paid up to the date on which actual physical possession of the leased
premises shall be taken by the condemnor, and the parties hereto shall
thereafter be released from all further liability in relation thereto.
8.03 A. In the event that there shall be a partial taking of the leased
premises during the Lease term or any extension thereof under the power of
eminent domain as in the Article defined, this Lease shall terminate as to the
portion of the leased premises so taken on the date title to the property is
taken by the person who will put it to public use or at the time the condemnor
is authorized to take possession of the property as stated in an order for
possession, whichever is earlier, but this Lease shall at Lessee's option,
continue in force and effect as to the remainder of the leased premises,
provided, however, that the rent payable by Lessee for the balance of the term
where Lessee elects to continue the Lease shall be abated to the
-6-
<PAGE> 7
extent that it is fair, just, and equitable to both Lessee and Lessor, taking
into consideration, among other relevant factors, the number of licensed beds
and/or the square footage affected by such taking or condemnation. Such option
shall be exercised by Lessee in writing within forty-five (45) days after such
taking.
B. On such partial condemnation as in this section provided, all
compensation and damages awarded for such partial taking shall belong to and be
the sole property of Lessor, and Lessee shall have no claim thereto and hereby
irrevocably assigns and transfers any rights to share in the award, except to
receive any award made for the taking of, or damage to any fixtures or
improvements or to the leased premises which Lessee would have had the right to
remove but for the condemnation on expiration or sooner termination of this
Lease. In the event that this Lease is continued as to the portion of the
premises not condemned, any award made for alterations, modifications, or
repairs which may be reasonably required in order to replace the remaining
portion of the leased premises not taken to substantially the same condition it
was prior to the taking, shall be for Lessee's benefit so that it may place said
premises in a suitable condition for the continuance of Lessee's tenancy.
C. On termination of this Lease in whole or in part as herein
provided, all rentals and other charges payable by Lessee to or on behalf of
Lessor hereunder shall be paid up to the date on which actual physical
possession shall be taken by the condemnor, and, in the event that the Lease is
totally terminated, the parties hereto shall thereafter be released from all
further liability in relation thereto, and, in the event that the Lease is only
partially terminated, Lessee shall thereafter be liable only for rent in an
amount in proportion to the amount of the leasehold remaining.
ARTICLE 9
INSURANCE
9.01 Lessee covenants that it will promptly procure, or cause to be
procured, and will maintain insurance against loss or damage to the leased
premises by fire and perils covered by extended coverage insurance in an amount
at least equal to the amount of the Lessor's obligations to the Bank of America
and to other lenders from time to time outstanding hereunder, subject to
deductible conditions in an amount not to exceed $5,000. Lessee shall also
maintain boiler insurance in an amount customary for similar facilities and will
maintain public liability insurance in the minimum amount of $5,000,000
liability to any one person for personal injury, $500,000 liability to any one
person for property damage and $5,000,000 liability for any one accident, with a
-7-
<PAGE> 8
deductible amount of not more than $5,000 per person or $25,000 per occurrence.
Lessee will carry malpractice insurance in the minimum amount generally deemed
adequate for its business and consistent with insurance coverage or reserves as
maintained by hospitals of similar nature and size in the State of California.
Lessee will also carry business interruption insurance covering interruption of
the Hospital's operations at the leased premises in whole or in part by reason
of the total or partial suspension of or interruption in hospital operation
caused by the damage to or destruction of any part of the leased premises, with
such exceptions as are customarily imposed by insurers, covering a period of
suspension or interruption of at least two fifteen (15) calendar months, with a
minimum limit in an amount not less than the maximum payments to be made
pursuant to the rent for twelve (12) consecutive months thereafter. Lessee shall
maintain fidelity bonds on all its officers and employees who collect or have
access to or have custody of the revenues or any other funds of the Lessee in
such amount as is customarily carried by like organizations. Lessee further
covenants and agrees that it will at all times carry and maintain such other
insurance of the types and in amounts which are customarily carried by other
hospitals of a similar nature in the State of California. All policies
evidencing insurance required by this section shall be carried in the name of
Lessee, with the Lessor and the Bank of America as their interest may appear
named as additional insureds where such may be done without additional expense
to Lessee, and shall provide that all losses thereunder shall be made payable
directly to the Lessor, subject to this Agreement and Lessee's interests
hereunder, except for (1) all policies of fire and extended coverage insurance
carried by the Lessee on the leased premises, which shall be so written as to
make any loss payable to the Lessor and the Bank of America as their interests
may appear, and (2) liability insurance, which may be payable to the claimants
thereof.
9.02 In the event of any loss or damage covered by any policy of fire or
extended coverage insurance, any appraisal or adjustment of such loss or
settlement or payment of indemnity therefore which shall be agreed upon between
the Lessee and any insurer shall, upon the written request of the Lessor, be
consented to and accepted by the Bank of America. All insurance monies received
by Lessee on account of any loss or damage to the leased premises covered by any
policy of fire or extended coverage insurance under any of the provisions of
this Section 9.02 shall to the extent of the Bank's present day lien in the
Hospital be deposited with and held by the Bank of America in the Insurance
Proceeds Account which it has established pursuant to its loan agreement with
Lessor.
9.03 All insurance hereunder shall be carried by insurance companies
authorized to do business in the State of
-8-
<PAGE> 9
California or otherwise acceptable to Lessor and the Bank of America. In the
event that an insurance carrier not authorized to do business in the State of
California is selected by Lessee to write the insurance required by this lease,
Lessor shall not unreasonably withhold consent of said insurance company. Lessee
agrees to deliver to the Lessor and to the Bank of America before June 1 of each
year a certificate showing as of April 1 of such year a schedule in detail
setting forth the insurance policies purchased by the Lessee then outstanding
and in full force and effect upon or in connection with the leased premises,
including the names of the insurers which have issued the policies, the amounts
thereof, the property or risks covered thereby (including liability risks), the
expiration date of the policy and the fact, where applicable, that there is
attached to each policy a mortgage clause in favor of the Bank of America.
ARTICLE 10
INDEMNIFICATION
Lessor shall not be liable for any loss, damage or injury of any kind or
character to any person or property arising from any use of the leased premises
or any part thereof, or caused by any defect in any building, structure or other
improvement thereon or in any equipment or other facility therein, except that
Lessee shall have no liability for any loss, damage, or injury resulting from
any latent defect of which Lessee has neither actual nor constructive notice
thereof. Lessor shall not be liable for any loss, damage, or injury of any kind
or character to any person or property caused by or arising from any act or
omission of Lessee or of any of Lessee's agents, employees, licensees or
invitees, or by or from any accident on the land or any fire or other casualty
on the leased premises, or occasioned by the failure of Lessee to maintain the
leased premises in a safe condition, or arising from any other cause whatsoever.
Lessee hereby waives, on its behalf, all claims and demands against Lessor for
any such loss, damage or injury of Lessee, and hereby agrees to defend,
indemnify, save and hold Lessor entirely free and harmless from all liability
for any such loss, damage or injury of other persons and from all costs and
expenses arising therefrom but only to the extent that such loss, damage or
injury is not caused by or does not result from any action by the Lessor.
ARTICLE 11
ASSIGNMENT AND SUBLEASE
11.01 The Lessee will not sell, assign, mortgage or transfer this lease,
sublet the premises or any part thereof, or allow any transfer hereof, or allow
any lien upon the
-9-
<PAGE> 10
Lessee's interest by operation of law, without the prior written consent of the
Lessor, which consent shall not be unreasonably withheld by Lessor.
11.02 Any sale, assignment, mortgage, transfer or subletting of this lease
which is not in compliance with the provisions of this article shall be of no
effect and void. This provision is inapplicable if Lessee exercises the purchase
options granted to it under Article 15 or Article 19 herein below.
ARTICLE 12
INDIGENT CARE
12.01 Lessee shall provide for and care for all patients diagnosed by a
licensed staff physician as seriously ill or requiring emergency services
without regard for the ability of such patients to pay for services rendered in
the Hospital emergency room.
12.02 Lessor agrees to negotiate in good faith with Humboldt County,
California officials for the transfer of the Hospital's obligations and rights
under that certain Agreement dated October 31, 1975, between the County and
Lessor, to reimburse Lessor for medical services provided to indigent persons
and other County patients, pursuant to Paragraph 21.7 of said Transfer
Agreement. Lessor agrees to assign Lessee its rights, benefits, obligations and
interest in the aforementioned contract with the County.
ARTICLE 13
DEFAULT BY LESSEE
Should Lessee default in the performance of any covenant, condition or
agreement in this lease and such default is not corrected within twenty (20)
days after receipt of written notice thereof from Lessor, and Lessee has not
commenced to correct said default and is not diligently attempting to effect a
correction within ten (10) days after receipt of written notice from Lessor to
Lessee of such default, Lessor may declare this Lease and all rights and
interests created by it to be terminated. Whereupon, this lease shall cease and
come to an end as if that were the day originally fixed herein for the
expiration of the term hereof, except that Lessor shall be responsible for the
obligations provided in Section 2.02 herein. Lessor, its agents or attorney, may
resume possession of the leased premises and relet the same for the remainder of
the term at the best rent Lessor, its agent or attorney may obtain for the
account of Lessee, who shall make good any deficiency.
-10-
<PAGE> 11
ARTICLE 14
WARRANTIES
Subject to the interest of the Bank of America and the other obligees of
Lessor, Lessor covenants and agrees that Lessee, on paying the rent and other
charges herein provided for observing and keeping the covenants, conditions and
terms of this Lease on Lessee's part to be kept or performed shall lawfully and
quietly hold, occupy and enjoy the leased premises during the term of this Lease
and any extensions thereof without any hindrance, disturbance or ejectment by
Lessor, its successors or assigns, or by any other person or persons lawfully
claiming the same, except such portion of the leased premises, if any, as shall
be taken under the power of eminent domain.
ARTICLE 15
TRANSFER TO THIRD PARTY
Lessor grants to Lessee a right of first refusal to purchase the leased
premises on the same terms and conditions as a bona fide offer received by
Lessor for the leased premises by a third party or at the "option price"
referred to in Article 19, whichever is the lesser. After receipt of notice of
such bona fide offer and the terms thereof, Lessee shall have sixty (60) days to
give notice of exercise of its right of first refusal. The Closing shall take
place within ninety (90) days from the date Lessee exercises its option, or as
soon thereafter as Lessee is reasonably able to obtain all necessary national,
state, and local approvals. This option shall be binding on any party
subsequently obtaining title to the leased premises. Transfer to a third party
shall trigger the responsibilities of Lessor under Section 2.02 and Section
18.02 herein.
ARTICLE 16
SKILLED NURSING FACILITY OPERATIONS
16.01 Lessee has been notified by Lessor of Lessor's lease of certain of
Lessor's contiguous property to Coastal Care Center, Inc. The parties agree
that, except as provided herein, Lessee shall have no rights or responsibilities
relative to said Skilled Nursing Facility.
16.02 Lessee shall have a right of first refusal, should such right become
available to Lessor, with respect to the Skilled Nursing Facility upon sale of
the Skilled Nursing Facility to Coastal Care Center, Inc. (or any other third
party purchaser) and Coastal Care Centers' subsequent sale thereof. Lessee shall
also have the right of first refusal, should such right become available to
Lessor, to lease the
-11-
<PAGE> 12
Skilled Nursing Facility. The right shall be exercised on the same terms as
specified in Article 15 of this Lease. Lessor agrees to utilize its best efforts
to cause the lease agreement described in Section 16.01 to give Lessee the
benefit of this Section 16.02.
16.03 If Lessee or any other party shall purchase that Skilled Nursing
Facility, the net proceeds thereof, after all direct expenses to Lessor/Seller
of that sale, shall be applied by the Lessor/Seller to pay down the Promissory
Note given by Lessor to Bank of America dated January 26, 1979 (which Note is
secured by the real property which is the subject of this Lease). If the
proceeds of the nursing facility exceed the amount required to retire that Note
of January 26, 1979, all net excess proceeds shall be applied in payment of that
Promissory Note dated December 8, 1976, which Note was given by Lessor to Bank
of America and is secured by the real property which is the subject of this
Lease.
ARTICLE 17
LESSOR'S APPROVAL OF EQUIPMENT
Lessor shall have the right to approve equipment added to the Hospital
which cannot be removed without damaging the Hospital's physical facilities,
which expenditures exceed $10,000 per item. Lessor's approval shall not be
unreasonably withheld. Lessee shall make the request for such approval in
writing; when such request is received, the Lessor shall notify Lessee of its
decision in writing signed by the Lessor's Chairman within thirty-five (35) days
after receipt of such requests or such request shall be deemed approved. Lessee
may violate or ignore this provision without breaching or defaulting under this
Lease; provided, however, that should Lessee violate this provision, Lessor
shall have no obligations under Section 2.02 as to that item of equipment not
approved by Lessor. Lessee shall not remove such items on termination of the
Lease under Section 2.02 herein.
ARTICLE 18
LESSOR'S APPROVAL OF CAPITAL IMPROVEMENTS
18.01. Lessor shall have the right to approve those capital improvements
to the Hospital in excess of twenty-five thousand dollars ($25,000.00) which
cannot be removed without damaging the Hospital's facilities. Except as set
forth below, this approval is limited to the right to be provided and to approve
copies of plans and specifications for the construction of said capital
improvements, for the purpose of assuring that no improvement will compromise
the structural integrity of the Hospital or decrease the value of Lessor's
-12-
<PAGE> 13
property; further, Lessor shall have the right to inspect all construction and
to require that said construction of capital improvements is done in a
workmanlike manner.
18.02. In the event that (a) a proposed capital improvement would increase
the fair market value of Lessor's property, or result in the hospital offering
services not presently available, and (b) in the further event that said capital
improvement cannot be depreciated over the life of the initial term of the lease
or sooner in accord with generally accepted accounting principles, and (c) in
the further event that Lessee does not extend this lease after the expiration of
the initial lease term as provided in Paragraph 2.01, then Lessor shall
reimburse Lessee the actual book value of said capital improvements as
determined by the actual depreciation schedule used by Lessee. Lessee shall
utilize a depreciation schedule that depreciates the improvements as rapidly as
permitted under accounting principles generally accepted by the Hospital
Industry. Lessee shall provide Lessor, on an annual basis, copies of all book
entries relative to any such capital improvements at the time of each annual
review. Payment under this provision shall be made to Lessee within one hundred
eighty (180) days from the termination of the lease or as agreed otherwise
between the parties at the time of approval of said project by Lessor.
ARTICLE 19
LESSEE'S PURCHASE OPTION
Lessor grants to Lessee, during the Lease term or any extensions or
renewals thereof, an option to buy the leased premises for an amount equal to
the unpaid outstanding long-term indebtedness of Lessor as of the date the
option is exercised. Lessee shall exercise its option hereunder by giving Lessor
written notice of its irrevocable intent to exercise the option. The Closing
shall take place within ninety (90) days from the date the Lessee exercises its
option, or as soon thereafter as Lessee is reasonably able to obtain all
necessary permits and approvals. Closing costs shall be apportioned as standard
in the local area. This option, during the Lease term or any extensions or
renewals thereof, shall be binding on any party subsequently obtaining title to
the leased premises subject to the rights of Lessor's mortgagees and other
obligees.
ARTICLE 20
GENERAL PROTECTIVE PROVISIONS
20.01 Lessee shall permit Lessor or Lessor's agents, representatives or
employees to enter onto the leased premises for the purpose of inspection to
determine whether Lessee is in compliance with the terms of this lease or for
-13-
<PAGE> 14
the purpose of showing the leased premises to prospective lessees, purchasers,
mortgagees or beneficiaries under trust deeds.
20.02 The relationship between Lessor and Lessee at all times shall remain
solely that of landlord and tenant, and shall not in any fashion be deemed a
partnership or joint venture.
20.03 Neither bankruptcy, insolvency, assignment for the benefit of
creditors nor the appointment of a receiver shall affect this lease so long as
all covenants of Lessor are continued in performance by Lessee or Lessor and
their respective successors or legal representatives.
20.04 No waiver by Lessor or Lessee of any default or breach of any
covenant, condition or stipulation herein contained shall be treated as a waiver
of any subsequent default or breach of the same or any other covenant, condition
or stipulation hereof.
ARTICLE 21
EMPLOYEES
Although Lessor understands and agrees that Lessor cannot bind Lessee
relative to the retaining of the present employees of the Hospital, Lessee
represents that it is the intention of Lessee to maintain the current staff and
that reasonable efforts will be made to insure that the transfer of the Hospital
does not result in the loss of employment for any current employees, provided
the present employees satisfy Lessee's employee performance standards. Nothing
in this provision shall be deemed to create any rights of said employees to
bring an action against Lessee for wrongful termination in the event they are
not so retained.
ARTICLE 22
COMPLIANCE WITH LEGAL REQUIREMENTS
Lessee shall at its sole cost and expense at all times throughout this
lease comply with all laws, statutes, ordinances, and governmental rules,
regulations and requirements now in force or which may hereafter be in force,
with the requirements of any board of fire underwriters or other similar body
now or hereafter constituted, with any direction or occupancy certificate issued
pursuant to any law by any public officer or officers, as well as the provisions
of all recorded documents affecting the leased premises, insofar as it relates
to or affects the condition, use or occupancy of the premises.
-14-
<PAGE> 15
ARTICLE 23
MISCELLANEOUS
23.01 All sums other than rent, notices, demands or requests from one
party to another may be personally delivered or sent by mail, certified or
registered, postage prepaid, to the addresses stated in this paragraph, and
shall be deemed to have been given at the time of personal delivery or three
days after the time of mailing. Either party may change its address for notice
purposes hereunder but such change and shall become effective only upon actual
receipt of notice of such change.
All notices, demands or requests from Lessee to Lessor shall be given to
Lessor at 123 "F" Street, Eureka, California 95501, or at such other address as
Lessor shall request in writing.
All payments, notices, demands or requests from Lessor to Lessee shall be
given to Lessee, c/o K. David McAllister, 177 N.E. 102nd Avenue, Portland,
Oregon 97220, or at such other address as Lessee shall request in writing.
23.02 This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.
23.03 This Agreement shall be construed under and in accordance with the
laws of the State of California.
23.04 In case of any one or more of the provisions contained in this
Agreement shall for any reason be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provisions hereof, and this agreement shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.
23.05 This Agreement constitutes the sole and only agreement of the
parties hereto and supersedes any prior understandings or written or oral
agreements between the parties respecting the within subject matter.
23.06 No amendment, modification or alteration of the terms hereof shall
be binding unless the same be in writing, dated subsequent to the date hereof
and duly executed by the parties hereto.
23.07 In the event Lessor or Lessee breach any of the terms of this
agreement whereby the party not in default employs attorneys to protect or
enforce its rights hereunder and prevails, then the defaulting party agrees to
pay the other party reasonable attorneys' fees so incurred by such
-15-
<PAGE> 16
other party, including attorneys' fees in all litigation and all appeals.
23.08 Lessor agrees that it will from time to time and at any reasonable
time execute and deliver to Lessee such other and further instruments and
assurances as Lessee may reasonably request approving, ratifying and confirming
this Lease and the leasehold estate created hereby and certifying that the same
is in full force and effect and that no default thereunder on the part of Lessee
exists except that if any default on the part of Lessee does exist, Lessor shall
specify in said certificates each such default.
23.09 The signatories to this lease for both Lessor and Lessee hereby
warrant that they have the authority to make this lease, and that their
signature to this lease is binding upon their corporation.
This Lease has been executed by the parties on the date and year first
above written.
LESSOR:
UNION LABOR HOSPITAL ASSOCIATION
By: /s/
------------------------------
Chairman, Board of Directors
ATTEST:
/s/
- ------------------------------
LESSEE:
BRIM HOSPITALS, INC.
By: /s/
-------------------------------
ATTEST:
/s/ David McAllister
- -----------------------------
-16-
<PAGE> 17
EXHIBIT C
LEASE PAYMENT SCHEDULE
<TABLE>
<CAPTION>
YEAR TOTAL AMOUNT DUE SCHEDULE OF PAYMENTS PER YEAR
- ---- ---------------- -----------------------------
<C> <C> <C> <C>
1981 $1,595,736.00 January 1 $ 5,000.00
------------- -------------
May 1 1,018,875.00
-------------
November 1 313,500.00
-------------
December 1 258,361.00
-------------
1982 885,361.00 May 1 313,500.00
------------- -------------
November 1 313,500.00
-------------
December 1 258,361.00
-------------
1983 1,207,523.00 May 1 478,500.00
------------- -------------
November 1 470,662.00
-------------
December 1 258,361.00
-------------
1984 1,176,174.00 May 1 462,825.00
------------- -------------
November 1 454,988.00
-------------
December 1 258,361.00
-------------
1985 1,144,823.00 May 1 447,150.00
------------- -------------
November 1 439,312.00
-------------
December 1 258,361.00
-------------
1986 1,113,474.00 May 1 431,475.00
------------- -------------
November 1 423,638.00
-------------
December 1 258,361.00
-------------
1987 1,082,123.00 May 1 415,800.00
------------- -------------
November 1 407,962.00
-------------
December 1 258,361.00
-------------
1988 1,050,773.00 May 1 400,125.00
------------- -------------
November 1 392,287.00
-------------
December 1 258,361.00
-------------
1989 1,019,421.00 May 1 384,449.00
------------- -------------
November 1 376,611.00
-------------
December 1 258,361.00
-------------
1990 988,069.00 May 1 368,773.00
------------- -------------
November 1 360,935.00
-------------
December 1 258,361.00
-------------
</TABLE>
Exhibit C
<PAGE> 18
EXHIBIT C
LEASE PAYMENT SCHEDULE
<TABLE>
<CAPTION>
YEAR AMOUNT DUE SCHEDULE OF PAYMENTS PER YEAR
---- ---------- -----------------------------
<S> <C> <C> <C>
1991 $ 713,356.00 May 1 $353,097.00
------------ -----------
November 1 345,259.00
-----------
December 1 $ 5,000.00
-----------
1992 672,004.40 May 1 337,421.00
------------ -----------
November 1 329,583.00
-----------
December 1 5,000.00
-----------
1993 640,652.00 May 1 321,745.00
------------ -----------
November 1 313,907.00
-----------
December 1 $ 5,000.00
-----------
1994 699,500.00 May 1 306,069.00
------------ -----------
November 1 298,231.00
-----------
December 1 5,000.00
-----------
1995 577,948.00 May 1 290,393.00
------------ -----------
November 1 282,555.00
-----------
December 1 5,000.00
-----------
1996 546,596.00 May 1 274,717.00
------------ -----------
November 1 266,879.00
-----------
December 1 5,000.00
-----------
1997 515,244.00 May 1 259,041.00
------------ -----------
November 1 251,203.00
-----------
December 1 5,000.00
-----------
1998 483,892.00 May 1 243,365.00
------------ -----------
November 1 235,527.00
-----------
December 1 5,000.00
-----------
1999 452,510.00 May 1 227,689.00
------------ -----------
November 1 219,851.00
-----------
December 1 5,000.00
-----------
2000 416,155.00 May 1 212,013.00
------------ -----------
November 1 204,175.00
-----------
</TABLE>
<PAGE> 19
EXHIBIT "A" - HOSPITAL
TRACT 2
-------
DESCRIPTION
All that real property in the City of Eureka, County of Humboldt, State of
California, described as follows
PARCEL ONE
That portion of Parcel 2 of Parcel Map No. 1302, according to said map as
filed in the Recorder's Office of Humboldt County on May 18, 1978 in Book 11 of
Parcel Maps, Page 102, described as follows:
Beginning at the northeast corner of Parcel 2 of said parcel map;
thence along the boundary line of said Parcel 2 the following courses:
S 89 deg. 32'14"W, 331.09 feet;
S 00 deg. 19'47"E, 127.37 feet;
S 89 deg. 37'00"W, 79.27 feet;
S 00 deg. 23'07"E, 216.40 feet;
thence leaving said boundary line, S 00 deg. 23'07" E, 41.00 feet;
thence S 89 deg. 53'50" E, 22.53 feet to the beginning of a curve concave
to the south having a radius of 40 feet;
thence easterly along said curve 45.76 feet to a point in a non-tangent
line (a radial line through said point bearing N 65 deg. 39'14" E
thence S 4 deg. 56' W 9.43 feet to the beginning of a non-tangent curve
concave to the east having a radius of 500 feet, a radial line of said curve
through said beginning of curve bearing N 84 deg. 47'47" W;
thence southerly along said curve 181.81 feet (through an angle of 20 deg.
50'04")") to a point in a non-tangent line (a radial line of said curve through
said point bearing S 74 deg. 22'09" W);
thence S 16 deg. 57' E, 60.13 feet to the beginning of a non-tangent curve
concave to the west having a radius of 524.50 feet, a radial line of said curve
through said beginning of curve bearing N 73 deg. 25'28" E
thence southerly along said curve 36.50 feet (through an angle of 3 deg.
59'14") to the north line of Parcel 1 of said Parcel Map No. 1302;
thence along said north line S 74 deg. 29' E, 60.56 feet to an angle point
in said line;
thence along said north line N 89 deg. 48' E, 250.75 feet to the east line
of said Parcel 2;
thence along said east line N 0 deg. 12' W. 709.15 feet to the point of
beginning.
PARCEL TWO
Non-exclusive rights of way for ingress, egress and utilities in and over
Hardy Drive and Woolford Drive as shown on the Record of Survey on file in the
Recorder's Office of Humboldt County in Book 31 of Surveys, page 97.
<PAGE> 20
EXHIBIT "B" - HOUSES
TRACT 3
-------
DESCRIPTION
All that real property in the City of Eureka, County of Humboldt, State
of California, described as follows:
That portion of Parcel 2 of Parcel Map No. 1302, according to said map
as filed in the Recorder's Office of Humboldt County on May 10, 1978 in Book 11
of Parcel Maps, page 102, described as follows:
Beginning at the most westerly corner of Parcel 1 of said Parcel Map;
thence N 89 deg. 54'15" W. 229.05 feet to a point in a non-tangent curve
concave to the northeast having a radius of 275.0 feet, a radial line of said
curve through said point bearing S 66 deg. 20'17" W;
thence southerly along said curve 128.60 feet (through an angle of 26 deg.
47'37") to the south line of said Parcel 2, being the north line of 23rd Street;
thence along said north line of 23rd Street N 89 deg. 48' E, 303.55 feet to
the west line of Parcel 1 of said Parcel Map No. 1302;
thence along said west line, N 0 deg. 12' W. 100.0 feet to an angle point
in said line;
thence N 89 deg. 54'15" W. 150.94 feet to the point of beginning.
<PAGE> 21
SHADED PORTIONS REFLECT PROPERTY
DESCRIBED IN EXHIBITS "A" AND "B"
[MAP]
<PAGE> 22
1995-9445-7
Recorded-Official Records
Humboldt County, California
RECORDING REQUESTED BY, AND Carolyn Crnich, Recorder
WHEN RECORDED RETURN TO: Recorded by BOGLE & GATES
Rec Fee 25.00
Jonathan A. Eddy Clerk: MM Total: 25.00
Bogle & Gates Apr 18, 1995 at 12:34
Two Union Square CONFORMED COPY
601 Union Street
Seattle, Washington 98101-2346
COLLATERAL ASSIGNMENT OF OPTION
This COLLATERAL ASSIGNMENT OF OPTION (the "Assignment") is entered
into as of this 17th day of January, 1995, by and between Brim Hospitals, Inc.,
an Oregon corporation ("Hospitals") and Key Bank of Oregon, a national banking
association ("Agent").
RECITALS
A. This Assignment concerns certain real property and the improvements
thereon (the "Property"), legally described on Exhibit A attached hereto. The
Property is subject to a Lease Agreement dated December 16, 1985, by and between
Union Labor Hospital Association ("Union Labor") and Hospitals, as amended or
otherwise modified by a First Amendment to Lease Agreement dated December 16,
1985, an Agreement Re Release of Real Property from Lease dated May 21, 1987, a
Third Amendment to Lease Agreement dated as of June 20, 1989 (the "Third
Amendment to Lease"), a Fourth Amendment to Lease Agreement dated June 18, 1992,
and a Fifth Agreement to Lease Between Union Labor Hospital Association and Brim
Hospitals, Inc. (the Lease Agreement, as so amended and as otherwise amended or
otherwise modified from time to time, being the "Lease"). The Lease Agreement or
a memorandum of the Lease Agreement was recorded in the records of Humboldt
County, California, on May 13, 1988, under number 9172, in volume 1873 official
records, at page 895.
B. Pursuant to Article 19 of the Lease (as amended by the Third
Amendment to Lease) Hospitals has been granted an option to purchase the
Property (the "Option").
C. Hospitals is also a Guarantor of certain obligations of its parent
company, Brim, Inc. (the "Company"), under the terms of that certain Revolving
Credit Agreement dated January 17, 1995, by and among Brim, Inc., Key Bank of
Oregon as agent, and the banks ("Banks") named as Banks therein (the "Credit
Agreement").
D. Hospitals has evidenced its guaranty of such obligations by
executing a Guaranty of approximate even date with the Credit Agreement.
E. Hospitals will benefit directly and indirectly from the entry of
the Company into the Credit Agreement.
1
<PAGE> 23
F. It is a condition of the Banks agreement to extend certain credit
under the Credit Agreement that Hospitals assign as security for its Guaranty
the Option.
NOW THEREFORE THE PARTIES AGREE AS FOLLOWS:
1. ASSIGNMENT FOR SECURITY. As security for the payment and
performance of all Hospitals' obligations under that certain Guaranty of
approximate even date herewith, Hospitals hereby absolutely assigns to Agent all
Hospitals' right, title and interest in the Option; provided that, until an
Event of Default shall have occurred and be continuing under the Credit
Agreement, Agent shall have no right to exercise the Option.
2. PROCEDURE UPON DEFAULT. Upon the occurrence of an Event of Default
under the Credit Agreement and only so long as said Event of Default shall be
continuing, Agent shall be entitled to exercise all rights of a secured party
under the California Uniform Commercial Code Sections 9501 et. seq., and
following foreclosure of its security interest as provided therein, shall be
entitled to exercise the Option upon the terms and conditions provided in the
Option.
3. ASSIGNMENT PRESENT AND ABSOLUTE. This Assignment is present and
absolute, and until a reassignment of the Option to Hospitals pursuant to
Section 4 below, Hospitals shall retain no right to exercise the Option.
4. REASSIGNMENT. Agent agrees that at such time as no Loans are
outstanding under the Credit Agreement, and no further Commitment of the Banks
exists, and all obligations of the Company under the Credit Agreement have been
fully satisfied, Agent will execute and deliver a reassignment of the Option to
Hospitals, and will upon request provide written notice of such reassignment to
Union Labor. Agent further agrees that, upon the request of Hospitals, it will
reassign the Option to Hospitals or Hospital's nominee if, but only if, the
conditions specified in Section 2.12(a)-(c) of the Credit Agreement are
satisfied.
5. DEFINED TERMS. Terms used as defined terms herein and not defined
herein are used as defined in the Credit Agreement.
6. CONSENT TO RECORDATION. This Assignment shall be recorded in the
real property records of Humboldt County, California.
7. GOVERNING LAW. This Assignment shall be governed by the laws of the
State of California.
BRIM HOSPITALS, INC.
By /s/ John Miller
-----------------------------------
Its President
-----------------------------------
2
<PAGE> 24
KEY BANK OF OREGON, as Agent
By /s/
-----------------------------
Its Vice President
-----------------------------
The undersigned acknowledges the
foregoing Assignment and consents
thereto. This consent is subject to the
transferee's obtaining, at or around the
time title to the property is
transferred, the consent to and/or
approval of such transfer by the
Humboldt County Hospital Authority,
and/or any other similar approval which
may be required at such time.
UNION LABOR HOSPITAL ASSOCIATION
By SEE NEXT PAGE
----------------------------------
Its
----------------------------------
STATE OF OREGON
COUNTY OF MULTNOMAH
On March 15, 1995 before me Kay B. Larson personally appeared John R. Miller of
Brim Hospitals, Inc., an Oregon corporation, personally known to me (or proved
to me on the basis of satisfactory evidence) to be the person whose name is
subscribed to the within instrument and acknowledged to me that he/she executed
the same in his/her authorized capacity, and that by his/her signature on the
instrument the person, or the entity upon behalf of which the person acted,
executed the instrument.
WITNESS by my hand and official seal.
Signature /s/ Kay B. Larson (Seal)
-----------------------------------
Notary Public in and for said County and State
3
<PAGE> 25
The undersigned acknowledges the foregoing Assignment and consents thereto,
which consent is subject to the procurement of any required approvals and/or
consents from any governmental authority and/or agency asserting jurisdiction in
connection with any transfer of title to the property.
UNION LABOR HOSPITAL ASSOCIATION
By: /s/
------------------------------
Its President
<PAGE> 26
STATE OF OREGON
County of Multnomah
On March 15, 1995 before me Diane M. Smith personally appeared Evan B. Lloyd of
Key Bank of Oregon, a national banking association, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person whose name
is subscribed to the within instrument and acknowledged to me that he/she
executed the same in his/her authorized capacity, and that by his/her signature
on the instrument the person, or the entity upon behalf of which the person
acted, executed the instrument.
WITNESS by my hand and official seal.
Signature /s/ Diane M. Smith
--------------------------------------- [Seal]
Notary Public in and for said County and State
STATE OF California
County of Humboldt
On March 21, 1995 before me Marla D. Walters personally appeared Ted W. Loring,
M.D. of Union Labor Hospital Association, a California public benefit
corporation, personally known to me (or proved to me on the basis of
satisfactory evidence) to be the person whose name is subscribed to the within
instrument and acknowledged to me that he/she executed the same in his/her
authorized capacity, and that by his/her signature on the instrument the person,
or the entity upon behalf of which the person acted, executed the instrument.
WITNESS by my hand and official seal.
Signature Marla D. Walters [Seal]
-----------------------------
Notary Public in and for said County and State
4
<PAGE> 27
ASSIGNMENT
Except as provided herein, the Union Labor Hospital Association
(hereinafter "the Association"), for value received, hereby assigns to The
Hospital Corporation of California (hereinafter "HCC"), all its existing rights
and obligations described in the Transfer Agreement dated October 31, 1975, and
Amendments thereto between the Association and the County of Humboldt, a copy of
which is attached hereto and incorporated by reference herein. It is understood
that the Assignment herein shall not include any rights or duties described in
the following provisions of the Transfer Agreement:
1. Paragraphs 4(b), 5(3) (iii), and 14(b).
2. Paragraph 21.2.6.
3. Paragraph 21.14, and all other rights and duties relative to
long-term care, said rights and duties having been previously assigned to
Coastal Care Centers, Inc., on or about May 15, 1980.
The Assignment herein is made upon the following terms and conditions:
1. The Association shall remain responsible and liable for all
obligations excepted from the Assignment herein.
2. HCC shall continue to make the General Hospital's services fully
available to Medi-Cal and Medicare recipients.
3. HCC shall make available to the Board of Supervisors and the County
Administrative Officer of the County of Humboldt, for inspection purposes only,
at its offices in the General
<PAGE> 28
Hospital, Eureka, California, all public documents which can be released without
permission by the hospital, to the extent permitted by law.
4. If HCC, to whom the Association assigns certain of its rights and
duties under the October 31, 1975, contract between the Association and the
County of Humboldt, fails in any way to perform said duties as required by the
contract, the Association will perform or arrange for the satisfactory
performance of said duties.
5. Pursuant to the lease of the General Hospital by HCC from the
Association, HCC agrees to indemnify Humboldt County (the "County"), its
employees and the members of the County Board of Supervisors, both individually
and collectively, their successors or assigns, due to any claims concerning the
County's authority to approve the assignment of the Transfer Agreement dated
October 31, 1975, and the Amendments thereto between the Association and the
County of Humboldt (the "Assignment"), in any amounts not to exceed Ten Thousand
Dollars ($10,000.00). HCC shall reimburse County, on demand, for any payment by
County at any time after the date of that; Assignment with respect to any
liability, obligation, or claim to which the foregoing indemnity by HCC relates
up to Ten Thousand Dollars ($10,000.00)
6. Except as provided in Paragraph 5 above, the Association shall provide
legal defense to any action, suit or proceeding instituted to contest the
validity of this agreement, and shall hold County of Humboldt, its officers,
agents and employees, free and harmless from liability for loss, damage, or
injury to
-2-
<PAGE> 29
It is further understood that this agreement shall become void and of no
effect in the event that Union Labor Hospital Association and/or the Hospital
Corporation of America and Hospital Corporation of California fails to perform
the conditions set forth in Humboldt County Resolution No. 81-26.
Wherefore, this Agreement Amendment has been executed this 24th day of
February, 1981.
COUNTY OF HUMBOLDT
By: /s/ Danny Walsh
-------------------------
Chairman of the Board of
Supervisors of the County of
Humboldt, State of California
(SEAL)
ATTEST:
DONALD R. MICHAEL
- -----------------------------------
County Clerk and ex officio
Clerk of the Board of Supervisors
of the County of Humboldt, State
of California
By: Doris L. Smith
--------------------------
Deputy Clerk
UNION LABOR HOSPITAL ASSOCIATION
By: /s/ Harry Britini
------------------------------
President
and
By: /s/
------------------------------
Secretary
APPROVED AS TO FROM:
/s/
- ------------------------------------
Special Counsel
- 2 -
<PAGE> 30
persons or property arising out of or attributable to the Association assigning
its responsibility to operate the General Hospital facility to HCC.
7. Hospital Corporation of America (HCA), the parent company of HCC,
guarantees the performance by HCC of all the terms and conditions of this
Assignment which are obligations of HCC, and agrees to be bound thereby.
Dated: March 20, 1981 UNION LABOR HOSPITAL ASSOCIATION
By: /s/ Hampton
----------------------------
-3-
<PAGE> 31
ACCEPTANCE OF ASSIGNMENT
Hospital Corporation of California hereby accepts the foregoing assignment,
and agrees to perform all duties and obligations to be performed by the Union
Labor Hospital Association under the contract as specified herein to the same
extent as if said corporation had been an original party thereto, and agrees to
save, indemnify, defend and hold the Union Labor Hospital Association harmless
from all liability for performance or nonperformance of such duties and
obligations.
HOSPITAL CORPORATION OF CALIFORNIA
Dated: 4/10/81 By: /s/ Leon W. Hooper
------------------ --------------------------------
Attested By: /s/
--------------------------------
Hospital Corporation of America agrees to the terms and conditions of the
Assignment herein.
Dated: 4/10/81 HOSPITAL CORPORATION OF AMERICA
------------------
By: /s/ Leon W. Hooper
--------------------------------
Attested By: /s/
--------------------------------
APPROVAL OF ASSIGNMENT
The County of Humboldt consents to the assignment as set forth in Humboldt
County Resolution No. 81-26, provided however
-4-
<PAGE> 32
that this consent shall become void and of no effect in the event that Union
Labor Hospital Association and/or the Hospital Corporation of America and
California fails to perform the conditions set forth in Humboldt County
Resolution No. 81-26.
Dated: February 24, 1987 COUNTY OF HUMBOLDT
By /s/ Danny Walsh
-----------------------------------
Chairman of the Board of
Supervisors the County of
Humboldt, State of California
(SEAL)
ATTEST:
/s/ DONALD K. MICHAEL
- ---------------------------------------------
County Clerk and ex officio
Clerk of the Board of Supervisors
of the County of Humboldt, State
of California
By: /s/ Doris L. Smith
-----------------------------------------
Deputy Clerk
APPROVED AS TO FORM:
/s/
- --------------------------------------------
Special Counsel
-5-
<PAGE> 33
AGREEMENT PROVIDING FOR TRANSFER OF
OPERATIONAL CONTROL AND OWNERSHIP OF
HUMBOLDT MEDICAL CENTER TO GENERAL HOSPITAL
TWELFTH AGREEMENT AMENDMENT
That certain agreement dated October 31, 1975, by and between the COUNTY OF
HUMBOLDT and UNION LABOR HOSPITAL ASSOCIATION relative to transfer of Humboldt
Medical Center to General Hospital is hereby amended as follows:
1. Paragraph 21.2.1 is deleted.
2. Paragraph 21.2.2 is deleted.
3. Paragraph 21.2.3 is deleted.
4. Paragraph 21.2.5 is deleted.
5. The last sentence of Paragraph 21.3 is deleted.
6. Paragraph 21.4.3 is deleted.
7. Paragraph 21.4.4 is deleted.
8. Paragraph 21.7.1 is deleted. The following is substituted therefor:
"The County shall pay General for medical services rendered pursuant
to this Agreement at the Medi-Cal rate, less Return on Equity Portion. Such
rate shall include physicians' services performed by physicians who are
hospital based and whose services are billed by the hospital, such as
radiology, pathology, and emergency room physician services."
9. Paragraph 21.7.2 is deleted.
10. Paragraph 21.7.3 is deleted.
11. Paragraph 21.10 is deleted in its entirety (including subparagraphs
21.10.1 and 21.10.2).
It is understood that this Agreement shall have prospective application
only.
<PAGE> 34
ASSUMPTION AGREEMENT
THIS AGREEMENT, dated December 31, 1985, by and among HOSPITAL CORPORATION
OF AMERICA, a Tennessee corporation (hereinafter "HCA"), HOSPITAL CORPORATION OF
CALIFORNIA, a California Corporation, ("HCC") and BRIM Hospital, Inc., an
Oregon Corporation (hereinafter "Brim") a subsidiary of HillHaven Corporation,
a Tennessee Corporation.
Preliminary Statement
On February 6, 1981, HCC and HCA entered into a lease agreement with the
Union Labor Hospital Association, a California public benefit corporation, for
the lease of the General Hospital in Eureka, California ("the Lease"). In
connection with such Lease HCC and HCA established certain deposits in Eureka,
California relating to the operation of the hospital, maintains certain
obligations for prepaid expenses, placed certain personnel in place at the
General Hospital and will collect certain receivables at the termination of such
Lease. Brim has entered into a lease to begin January 1st, 1986 with the Union
Labor Hospital Association concerning the General Hospital and will require the
services of a controller on a consulting basis at the
<PAGE> 35
General Hospital for the period January 1, 1986 - March 31, 1986.
Now THEREFORE, in consideration of the premises, and the mutual covenants
and agreements of the parties hereinafter set forth, it is hereby agreed by and
among the parties as follows:
Section 1.01. Transfers. At the termination of Lease, HCC and HCA will sell
transfer, convey, assign and deliver to Brim all HCC'S and HCA's rights, title
and interest in the following:
a. Deposits. All deposits currently relating to the operation of the
General Hospital at such deposits' actual value as more specifically set
out in Exhibit A hereto.
b. Maintenance Agreement. All prepaid expenses relating to the operation of
the General Hospital at the remaining value of such prepaid expenses as
more specifically set out in Exhibit B hereto.
c. Inventory. All current inventory at the General Hospital as of December
31, 1985. The price will be determined by a physical inventory to be taken
on Monday, December 30 1985, adjusted for disbursements through midnight,
December 31, 1985.
HCA and HCC will accept liability for payments of all items included
in the physical inventory but not paid at December 31, 1985. Brim shall
accept liability for all items ordered during the normal course of
-2-
<PAGE> 36
business through December 31, 1985 which are received after December 31,
1985.
d. Records. All patient medical records, minutes of the Board of Trustees,
the Medical Staff and quality assurance records. Brim shall afford HCA
reasonable access to such records and minutes to facilitate HCA's
collection of accounts, legal activities and responses to governmental
requirements. Such transfer will be made at no charge to Brim.
e. Prepaid Admissions' Deposits. All prepaid admissions' deposits for
future patient care at the General Hospital after the termination of the
Lease shall be transferred to Brim at no charge.
Section 1.02. Operational Issues. At the termination the Lease HCC and HCA
will bill Brim for certain services as follows:
a. A one time fee for access to HCA's Customer Support Services division on
the General Electric Computer System for a period of one year as more
specifically set out in Exhibit C hereto:
b. A monthly fee of Four Thousand Five Hundred Dollars ($4,500.00)
representing a portion of the salary and benefits of the HCA controller, at
the General Hospital, James Keeler. The controller shall manage the
controller functions of the General Hospital for Brim so long as the
controller is overseeing the collections of HCC/HCA's receivables in
Eureka,
-3-
<PAGE> 37
California. The controller will remain an employee of HCA at all times
under the terms of this Agreement.
Section 2.01. Receivables. At the termination of the Lease HCC and HCA
shall retain all patient receivables incurred through the last day of the Lease.
These receivables shall be collected by employees of Brim under the supervision
of HCA's controller or such other person as HCA may designate. HCA shall pay
Brim the actual salaries, plus benefits (at twenty-five percent of the salaries)
to be billed to HCA at the end of each pay period with payment no later than
fifteen (15) days after receipt by HCA of such invoices for Brim employees'
time.
a. Under current Medicare regulations interim bills for Medicare patients
in-house on December 31, 1985 may not be processed. Upon discharge charges
accumulated under the Lease for HCA (from admissions through December 31,
1985) will be combined with charges accumulated under Brim (from January 1,
1986 through discharge) and billed to the program as one complete bill. All
payments received for these amounts (including DRG, patient deductibles and
co-insurance) shall be prorated on a basis of charges to charges between
HCA and Brim and paid to HCA by Brim no later than ten (10) days after
receipt by Brim.
Section 3.01. Brim agrees as a part of this Agreement to pay HCC and HCA no
later than fifteen (15) days after termination of the Lease the following:
a Deposits
b. Prepaid Expenses
-4-
<PAGE> 38
c. Inventory
d. Monthly fees for Controller, To Be Paid per Section 1.02b
e. G.E. Service Agreement and Equipment Charges
(Exhibit C).
Section 4.01. Notices. All notices, requests, demands and other
communications shall be in writing and shall be deemed to have been duly given,
if delivered or mailed, first class postage prepaid, to the parties at their
respective addresses reflected on Exhibit D hereto.
Section 5.02. Cancellation or Amendment. This Agreement may not be
cancelled or amended other than by, and only by, a written instrument executed
by HCA, HCC, and Brim.
Section 5.03. Expenses. Each party to this Agreement shall pay its own
costs and expenses (including, without limitation, the fees and expenses of its
counsel, auditors, and accountants fees) incidental to the preparation and
carrying out of this Agreement.
Section 5.04. Survival of Representation and Warranties. The
representations and warranties and covenants contained herein shall survive
termination of the Lease and any investigation by the parties with respect
thereto.
Section 5.05. Attorneys' Fees. Should any party hereto institute any action
or proceeding in court to enforce any provision hereof of for damages by reason
of an alleged breach of any provision of this Agreement, the
-5-
<PAGE> 39
prevailing party shall be entitled to recover from the losing party or parties
such amounts as the court may adjudge to be reasonable attorneys' fees for
services rendered to the prevailing party in such action or proceeding. The term
"prevailing party" as used in this Section 5.05 shall include, without
limitation, any party who is made a defendant in litigation without damages
and/or other relief may be sought against such party and a final judgment or
decree is entered into such litigation in favor of such party defendant.
Section 5.06. Section and Other Headings. The section and other headings
contained in this Agreement are for reference purposes only and shall not in any
way affect the meaning or interpretation of this Agreement.
Section 5.07. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
Section 5.08. Parties in Interest. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns.
Section 5.09. Applicable Law. This Agreement shall be construed in
accordance with the laws of the State of California.
Section 5.10. Invalidity of Any Provisions. It is the intention of the
parties hereto that the provisions of this Agreement shall be enforced to the
fullest extent
-6-
<PAGE> 40
permissible under the laws and public policies of each state and jurisdiction in
which such enforcement is sought, and that the unenforceability (or modification
to conform with such laws or public policies) of any provision of this Agreement
shall be deemed invalid or unenforceable in whole or in part, this Agreement
shall be deemed amended to delete or modify, in whole or in part, if necessary,
the invalid or unforceable provisions, or portions thereof, and to alter the
balance of this Agreement in order to render the same valid and enforceable.
Section 5.11. Entire Agreement. This Agreement expresses the whole
agreement between the parties, there being no representations, warranties, or
other agreements not herein set forth or provided for.
Section 5.12. Authorization for Agreement. The Execution and performance of
this Agreement by HCC, HCA and Brim has been duly authorized by all necessary
laws, resolutions or corporate action, and this Agreement constitutes the valid
and enforceable obligations of HCC; and Brim in accordance with its terms.
-7-
<PAGE> 41
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first written above.
"HCC"
Hospital Corporation of California
By: /s/ Ronald J. Elder
-----------------------------------
Administrator
"BRIM"
BRIM, a division of Hillhaven Corporation
By: /s/ John R. Miller
-----------------------------------
"HCA"
Hospital Corporation of America
By: /s/ Ronald J. Elder
-----------------------------------
Administrator
-8-
<PAGE> 42
EXHIBIT A
DEPOSITS
ARA $6.200.00
Total $6,200.00
Both balances were brought forward from ULHA. Files indicate balance audited by
Ernst & Whinney for 9/30/80 financial statements.
<PAGE> 43
EXHIBIT B
PREPAID EXPENSES
<TABLE>
<CAPTION>
VENDOR PURPOSE AMOUNT
- ------ ------- ------
<S> <C> <C>
California Thoracic Society Blood Gas Professional Testing $ 275.00
Elec. Office Equipment PMA's - typewriters,
18 @ $100. 00 each 1,800.00
Amer. Soc. of Hosp. Pharmacists Publication 450.00
Pitney Bowes 3 Months Postage Meter 125.61
Times Standard Public Notice/Liquor License 11.00
General Electric PMS for January 3,378.00
IBM PMA on 2 typewriters for 3 months 352.50
Phillips Ultrasound PMA 681.25
Eureka Oxygen Manifold Rental 840.04
Coulter Electronics PMA 2,442.66
Radiometer America Service Contract Copiers 2,416.74
JCAH Survey Fee 1,300.00
----------
$14,072.80
==========
Petty Cash Funds 375.00
----------
$14,447.80
</TABLE>
<PAGE> 44
EXHIBIT C
1. HCA shall provide EDP systems/services through our existing agreement with
General Electric.
2. Term: Beginning January 1, 1986 through mid-January, 1987 (coincident with
the final processing for the month of December, 1986).
3. Fees/Charges/Consulting:
(a) General Electric will bill direct for:
1. $4,500 one-time set-up fee to download and convert existing
master files for operational use by the new entity.
2. Monthly "Ongoing Systems Costs". per "General Electric's
Transaction Price Schedule" under the present master agreement
between HCA and GE. Should specific charges be modified/added or
deleted as to HCA, those charges shall be accepted as to this
agreement.
(b) HCA will bill directly for:
1. $2,400 one-time fee for access to HCA Customer Support Services
for the term of this agreement. Should this agreement terminate
prior to December 31, 1986, this fee shall be prorated at the
rate of $200 per month and the difference refunded.
4. The equipment which is the property of GE/HCA and all systems manuals and
documentation which is the property of HCA shall be returned to HCA at the
termination of this agreement.
5. HCA shall be held harmless for non-payment of charges direct-billed by
General Electric.
<PAGE> 45
ONGOING SYSTEM COSTS
April 16, 1984
GENERAL ELECTRIC'S TRANSACTION PRICE SCHEDULE
*Invoiced Monthly to Participating Hospitals or Corporate*
<TABLE>
<CAPTION>
Owned Hospital
Unit of Charge Per Unit
Description Measure Of Measure
- ----------- ------- ---------------
<S> <C> <C>
A. Basic Services
1. Inpatient Processing Patient Day .73
2. Outpatient Processing Outpatient Visit .20
3. Industrial Account Charge Transaction .05
Processing
4. Medical Reporting Each Final UB-82 Bill .25
Processing
5. Microfiche Copies Microfiche .25
(Mailed to Participating
Hospitals)
6. Long Term Beds Patient Day .40
(Psychiatric Hospitals)
7. Financial System Reports Patient Day .05
(Full System)
8. Financial Systems Reports Per User #, Per Month 100.00
(OIC Only)
9. Financial Systems Reports Per User #, Per Month 150.00
and General Ledger
Option (OIC Only)
10. Accounts Payable System Patient Day .06
11. Excess A/P Generated Each .10
Checks
12. Excess Vendors Each .05
13. Excess Vouchers Each .05
14. Alpha Vendor List Per Vendor .02
15. File Retention Per Account .10
Excess A/R Accounts
</TABLE>
<PAGE> 46
<TABLE>
<CAPTION>
Owned Hospital
Unit Of Charge For Unit
Description Measure of Measure
----------- ------- ----------------
<S> <C> <C>
16. Excess A/R Follow-up Each Listed Excess .05
Listing Account
17. Excess A/R Statements Each Statement .10
18. Physicians Census Report Date Line .01
19. Care Unit Census Date Line .01
Report
20. Info Bill w/o Detail Each Bill .25
20A. Discharge Pay w/o Detail Each Bill .25
21. Info Bill w/Detail Each Bill .30
22. Final Bill w/Detail Each Bill .30
23. Interim Bill w/Detail Each Bill .30
24. Department Summary Bill Each Bill .10
25. Detailed A/R Aging Data Line .02
Report
26. Weekly A/R Cross Each Excess Listed A/R .02
Reference Report Account with No Current
Activity
27. Cumulative Credit Each Account Listed .03
Balanced Register
28. A/R Detailed Activity Date Line .01
Report
29. Collection Agency Each Record .02
Records Transmittal
30. Bad Debt Ledgers Each Record .05
31. Payroll Labels Each Label .04
31A. Requestable Payroll Labels Each Label .07
32. Payroll Custom Reports Data Line .02
33. Payroll Expanded Data Line .04
Custom Reports
34. Physicians Bill Each Bill .15
</TABLE>
<PAGE> 47
<TABLE>
<CAPTION>
Owned hospital
Unit Of Charge Per Unit
Description Measure of Measure
----------- ------- ----------
<S> <C> <C> <C>
35. Excess Inventory Date Line .01
Requests
36. Labor Productivity Each Department .50
Report
37. A/R Custom Reports Same As A/R
(Long Form) Follow-up
Listing
38. A/R Custom Reports Date Line .02
(Short Form) +.001 Per
Account
39. Employee Status Reports Per Employee .10
(Quarterly Fiche)
40. Employee Status Reports Per Employee .25
Special Request
41. Starr Workpapers Per Request 20.00
42. Requested Preliminary Per Request 20.00
Close Trial Balance
and Financial Statements
43. Notice of Admission Per Notice .05
44. A/P Cross-Reference Per Lines In Excess of .25
500 Line per Calendar
Month
45. Medical Staff Data Line .01
Activity Report Minm.5.00
46. Medicare DRG By Medical Data Line .02
Staff Member Report Minm 5.00
47. Patient Origin Index Each Report 5.00
Report
48. Financial Census Report Data Line .01
</TABLE>
<PAGE> 48
DEFINITIONS
DATA LINE:
A line on an output report containing the data pertinent to the content of
the report. This specifically excludes Header or Title lines.
Specifications for Individual reports may exclude certain Summary or Total
Lines.
EXCESS ACCOUNTS RECEIVABLE ACCOUNTS:
Those accounts in the Accounts Receivable application that are determined
to have a balance aged over 180 days as of preliminary close.
EXCESS ACCOUNTS RECEIVABLE FOLLOW-UP:
The number of account entries appearing on the Follow-Up Collection List
Reports produced by the Accounts Receivable application throughout a given
month in excess of 25% of the number of accounts on file at the end of said
month. The number of account entries are accumulated weekly. At Month-End,
the calculation is: multiply number of accounts on file by .25 and subtract
the accumulated number of account entries. A positive result represents
excess Accounts Receivable Follow-Up entries.
EXCESS ACCOUNTS RECEIVABLE STATEMENTS:
The number of statements printed for all accounts purged from the Accounts
Receivable file at the end of a given month in excess of three (3) per
inpatient and/or outpatient visits. This figure is arrived at on an account
level by multiplying number of visits by 3, and subtracting this from
number of statements generated for this account. Any positive result is
accumulated by hospital, and represents excess Accounts Receivable
statements.
INDUSTRIAL ACCOUNT:
An account is so classified in the Accounts Receivable application. Said
accounts are identified by the characters "IND" in positions 68 through 70
on the Patient Data Record of the A/R Master File.
OUTPATIENT VISIT:
All charge transactions representing services provided to an outpatient in
a single day, and posted to said outpatient's account during the period
being invoiced. Said charge transactions are also known as "Type 6
Procedures."
<PAGE> 49
PATIENT DAY:
Is the unit of measure of an account having lodging facilities provided and
services rendered to one inpatient.
WEEKLY A/R CROSS REFERENCE ACCOUNTS WITH NO CURRENT ACTIVITY:
The unit of measure for the Weekly A/R Cross-Reference Report is each
account appearing on the report that has had no activity in the current
month, i.e., since last Preliminary Closing.
EXCESS VENDORS:
A record on the Accounts Payable Master File. Each occurrence of record
represents one vendor for one hospital. The number of excess vendors is
arrived at by having the application count the number of vendor records for
a hospital, and subtracting 1000 from this count of records. Any positive
result is accumulated by hospital and represents excess vendors.
EXCESS VOUCHERS:
Basically, over 90 days from input date to pay date. For each Voucher
record, the application adds 90 days to the date the voucher was first
placed on file and subtracts the result from the date of the run. A
positive result represents an excess voucher for a hospital.
EXCESS A/P GENERATED CHECKS:
The number of checks printed for a hospital in a calendar month is counted
by the Accounts Payable application. At the end of every calendar month,
500 is subtracted from this hospital count and any positive result is
excess checks.
EXCESS INVENTORY REQUESTS:
Each hospital is entitled to four of each type of Inventory. When a user
makes the fifth or subsequent request within any calendar year, they will
be considered excess and be billed accordingly.
<PAGE> 50
Union Labor Hospital Association
(GENERAL HOSPITAL)
Eureka, California
Insured Mortgage Note (Series A)
$6,600,000 San Francisco, California
December 8, 1976
Union Labor Hospital Association, a California non-profit corporation doing
business under the name GENERAL HOSPITAL (the "Hospital"), for value received,
hereby promises to pay to BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
(the "Bank"), or order, on or before December 1, 2002, in accordance with the
provisions hereof, at such place as the holder hereof may from time to time
specify, the lesser of $6,600,000 or the aggregate amount of advances made by
the Bank, as indicated on Schedule I hereto, as part of its payment of the
purchase price for the Series A Notes pursuant to that certain Note Purchase
Agreement (the "Note Purchase Agreement") by and between the Hospital and the
Bank dated December 8, 1976 (the "principal amount"), in such coin or currency
of the United States of America as at the time of payment shall be legal tender
for public and private debts, and to pay from and after the date hereof interest
on the unpaid balance of the principal amount semi-annually on the first days of
June and December (the "Interest Payment Dates") in such coin or currency at the
rate of nine and one-half percent (9-1/23) per annum.
<PAGE> 51
or the first Interest Payment Date following the payment in full by the Hospital
of the Series B notes issued pursuant to the Note Purchase Agreement (the "First
Principal Payment Date"), and on each Interest Payment Date thereafter, the
Hospital shall make equal semi-annual principal payments in an amount equal to
two and one-half percent (2-1/2%) of the initial principal amount of the Series
A Notes until the earlier of December 1, 2002, or the Interest Payment Date on
which the entire principal amount shall have been paid. Optional prepayments of
principal and payments of prepayment premiums, if any may be made on the dates
and in the amounts provided in Section 2 hereof.
This is one of a series of Insured Mortgage Notes (Series A) executed by
the Hospital to the Bank in the aggregate principal amount of up to $6,600,000.
All of such notes shall be payable and secured pari passu and are herein
collectively referred to as the "Note" or "Notes".
All optional payments required or permitted hereunder are expressed in the
aggregate for all of the Notes and shall be applied pro rata to the Notes in
accordance with their respective principal amounts (except where Section 2.4 of
this Note may provide otherwise).
1. Security. Payment of this Note is (i) secured by a Deed of Trust of even
date herewith (the "Deed of Trust") affecting the Hospital's interest in certain
real and personal property located in Humboldt County, California, and (ii)
insured under the California Health Facility Construction Loan Insurance Law.
2
<PAGE> 52
2. Payment of principal.
2.1 Optional Prepayment Through Income or Gifts. The Hospital may on any
Interest Payment Date after the First Principal Payment Date, and upon notice as
provided in Section 2.5 hereof, prepay without premium a portion of the
principal amount of the Series A Notes: provided, however, that no such
pre-payment may be made unless (a) the aggregate of any prepayment of principal
of the Series A Notes under this Section 2.1 shall be in an amount greater than
$25,000 but not in any one year greater than five percent (5%) of the aggregate
principal of the Series A Notes, (b) the aggregate prepayments of
principal on the Series A Notes under this Section 2.1 shall not at any time
exceed the amount of $3,000,000 and (c) no such prepayment of principal under
this Section 2.1 may be made directly or indirectly from, or in anticipation of
the use of, borrowed funds if such borrowing may be effected for a similar term
at a lower rate of interest. In addition, prior to December 1, 1986, the
Hospital may prepay all or a portion of the principal amount of the Series A
Notes in excess of that permitted in clause (a) above if the conditions set
forth in clauses (b) and (c) above have been complied with and upon the payment
of a premium as follows:
<TABLE>
<CAPTION>
If prepayment is made during Prepayment premium shall
12-month period ending be the following percentage
of principal amount prepaid:
---------------------------- ----------------------------
in the year:
<S> <C>
1977 9.5
1978 9.12
1979 8.74
</TABLE>
3
<PAGE> 53
<TABLE>
<CAPTION>
If prepayment is made during Prepayment premium shall be
12-month period ending the following percentage of
in the year principal amount prepaid
-------------------------- ---------------------------
<S> <C>
1980 8.36
1981 7.98
1982 7.6
1983 7.22
1984 6.84
1985 6.46
1986 6.08
</TABLE>
The foregoing right of the Hospital under this Section 2.1 to make prepayments
of the principal amount of the Notes shall not be cumulative, and any such
permitted prepayment upon a particular date which is not exercised by the
Hospital upon such date shall thereupon cease and lapse and be of no further
force and effect.
2.2 Optional Prepayment From Any Source. The Hospital may, on any Interest
Payment Date on or after December 1, 1986, upon notice as provided in Section
2.5 hereof, prepay the entire principal amount of the Series A Notes remaining
unpaid, or any portion thereof, if in addition the Hospital pays a prepayment
premium as follows:
4
<PAGE> 54
<TABLE>
<CAPTION>
If prepayment is made during Prepayment premium shall be
12-month period ending the following percentage of
principal amount prepaid:
- ---------------------------- ---------------------------
in the year:
<S> <C>
1985 6.08
1987 5.7
1988 5.32
1989 4.94
1990 4.56
1991 4.18
1992 3.8
1993 3.42
1994 3.04
1995 2.66
1996 2.28
1997 1.9
1998 1.52
1999 1.14
2000 .76
2001 .38
2002 .00
</TABLE>
The premium provided for in this Section 2.2 shall not apply to any prepayment
which qualifies for prepayment without premium under Section 2.1.
5
<PAGE> 55
provide any new financing, in whatever term contemplated by the Hospital in
conjunction with a request made pursuant to this Section 2.4. The Hospital
further agrees that it will not undertake any such financing, with any other
parties, without first giving such consenting Noteholders, in proportion to
their respective holdings of Series A Notes, the opportunity, after having 30
days advance written notice, to provide such financing on the same terms as may
be available from any other party.
2.5 Notice of Prepayment. Written notice of each intended prepayment shall
be given by the Hospital to the holder of this Note not less than thirty (30)
days in the case of a prepayment under Sections 2.1, 2.2 or 2.4 hereof and not
less than sixty (60) days in the case of a prepayment under Section 2.3 hereof
prior to the date fixed for prepayment, specifying such date, the principal
amount of the Note to be prepaid on such date and the premium if any, applicable
to such prepayment.
2.6 Maturity of Prepayments. In the event the Hospital gives written notice
of its intention to make an optional prepayment hereunder, the principal amount
to be prepaid shall become due and payable on the date fixed for prepayment
together with any required premium and accrued interest.
2.7 Application of Optional Prepayments. All partial prepayments of this
Note, whether with
7
<PAGE> 56
or without premium, shall be applied in discharge of the installments of
principal (including the maturity payment) coming due hereunder in the inverse
order of the maturity of such installments of principal and shall not reduce any
of the mandatory payments.
3. Miscellaneous. This Note shall be construed in accordance with and
governed by the laws of the State of California. The captions of the paragraphs
of this Note are for convenience of reference only and shall not define or limit
any of the terms or provisions hereof. Any notice specified herein shall be made
in accordance with the Deed of Trust by which these Notes are secured, under and
pursuant to the Note Purchase Agreement, and shall be deemed to have been given
upon the earlier of the receipt thereof or five (5) business days following the
sending thereof.
If any Event of Default, as defined in the Note Purchase Agreement, shall
occur, the entire unpaid principal amount of this Note, together with accrued
interest and prepayment premium, may, without notice, at the option of the
holder hereof be declared immediately due and payable. Notwithstanding any
provision herein or in the Note Purchase Agreement or the Deed of Trust, the
total liability for payment hereunder in the nature of interest shall not exceed
the limits imposed by the usury laws of the State of California
8
<PAGE> 57
attorney be employed or expenses be incurred to compel payment of this Note or
any portion of the indebtedness evidenced hereby, the prevailing party shall be
entitled to its expenses and reasonable attorney's fees.
The Note is issued under and pursuant to the terms and conditions of the
Note Purchase Agreement. Said Note Purchase Agreement and the Deed of Trust
contain provisions for the acceleration of the maturity hereof upon the
happening of certain stated events as set forth therein. The rights of the
holder hereof in the event of a default are more particularly set forth in the
Note Purchase Agreement and the Deed of Trust. Any term specially defined in the
Note Purchase Agreement shall have the same meaning herein.
Each advance made by the holder hereof as part of the payment of the
purchase price hereof shall be recorded on Schedule A hereto by the holder
hereof, and, if requested upon presentation therefor, acknowledged by the
Hospital.
The undersigned, and any endorsers or guarantors hereof, jointly and
severally waive diligence, presentment, protest and demand and also notice of
protest, demand, dishonor and nonpayment of this Note, and expressly agree that
this Note, or any payment hereunder, may be extended from time to time by the
holder hereof, and consent to the acceptance by the holder hereof of further
security or the release by the holder hereof of any security for this Note, all
without in any way affecting the liability of the undersigned and any endorsers
or guarantors hereof. No extension
9
<PAGE> 58
of time for the payment of this Note, or an installment hereof, made by
agreement by the holder hereof with any person now or hereafter liable for the
payment of this Note shall affect the original liability under this Note of the
undersigned, even if the undersigned is not a party to such agreement.
IN WITNESS WHEREOF, the undersigned have set their hands and affixed
the seal of the Hospital this 8th day of December, 1976.
UNION LABOR HOSPITAL ASSOCIATION
By
---------------------------------
[SEAL]
ATTEST:
- ----------------------------------------
Secretary
10
<PAGE> 59
ADDENDUM TO ASSIGNMENT
The following is hereby added to and made a part of the Assignment of
Union Labor Hospital Association's rights and obligations described in the
Transfer Agreement dated October 31, 1975, and Amendments thereto, between the
Association and the County of Humboldt.
1. The Assignment is conditioned upon:
a. The continued operation of The General Hospital facility by
Brim Hospitals, Inc., in compliance with all applicable State and Federal laws
and regulations concerning the quality of health care.
b. Any subsequent assignments of the Transfer Agreement being
subject to the written approval of the Board of Supervisors.
c. The County receiving and reviewing proof of insurance from
Union Labor Hospital Association with limits of Five Million Dollars
$5,000,000.00 regarding exposure arising from its indemnification of the County.
2. The Assignment shall be in full force and effect for so long as Brim
Hospitals, Inc., is operating The General Hospital, as lessee or owner, and
shall terminate and be of
<PAGE> 60
no force or effect at such time as Brim Hospitals, Inc. discontinues operation
of The General Hospital.
Dated: UNION LABOR HOSPITAL ASSOCIATION
By:
--------------------------------
Dated: BRIM HOSPITALS, INC.
By:
--------------------------------
Dated: COUNTY OF HUMBOLDT
By:
--------------------------------
Chairman of the Board of
Supervisors of the County of
Humboldt, State of California
(SEAL)
ATTEST:
- ------------------------------------
County Clerk and ex officio
Clerk of the Board of Supervisors
of the County of Humboldt, State
of California
By:
---------------------------------
Deputy Clerk
APPROVED AS TO FORM:
- ------------------------------------
Robert D. Curiel
County Counsel
<PAGE> 61
FIRST AMENDMENT TO LEASE AGREEMENT BETWEEN
UNION LABOR HOSPITAL ASSOCIATION, INC.,
AND BRIM HOSPITALS, INC.
Union Labor Hospital Association, a California Public Benefit
Corporation, and Brim Hospitals, Inc., an Oregon Corporation, hereby make a
first amendment to that Lease Agreement dated December 16, 1985, entered into by
the parties hereto, in the following particulars:
It is hereby agreed between the parties as follows:
1. There is added to page 3, Article 6, after the first sentence of
said paragraph, ending with "office buildings" the following language: "Lessee
understands and fully agrees that it is expressly prohibited from operating at
the premises a skilled nursing facility, extended care facility, immediate care
facility, or long-term care facility."
2. There is added to page 12, Article 16.04, the following language:
"In the event that Lessee or any other party shall make principal payment, in
any amount, on the promissory note given by Lessor to Bank of America dated
January 26, 1979, which payment reduces the amount of
<PAGE> 62
Lessor's quarterly payments due the Bank of America then Lessee's payment under
this lease shall be reduced correspondingly."
Dated: 12/16/85 UNION LABOR HOSPITAL ASSOCIATION
By: /s/ Ted W. Loring, M.D.
--------------------------------
Dated: 12/16/85 BRIM HOSPITALS, INC.
By: /s/ K. David McAllister
--------------------------------
<PAGE> 63
SECOND AMENDMENT TO LEASE AGREEMENT BETWEEN
UNION LABOR HOSPITAL ASSOCIATION, INC.,
AND BRIM HOSPITALS, INC.
Union Labor Hospital Association, a California Public Benefit
Corporation, and Brim Hospitals, Inc., an Oregon Corporation, hereby make a
second amendment to that Lease Agreement dated December 16, 1985, entered into
by the parties hereto, as follows:
The parties agree that the Lease Agreement is and shall be subject to
the Regulatory Agreement executed by and between Union Labor Hospital
Association, (dba General Hospital) and the Director of the Office of Statewide
Health Planning for the State of California, dated as December 8, 1976, and
recorded December 8, 1976, in Book 1381 of Official Records, page 606, under
Recorder's File No. 23780, a copy of which is attached hereto and incorporated
herein (hereafter Regulatory Agreement); further, should any conflict arise or
exist between the terms and conditions of the Lease Agreement and the Regulatory
Agreement the terms and conditions of the Regulatory Agreement shall apply and
prevail .
Except as specifically set forth herein and as in the first amendment
to the lease, the lease shall remain in full force and effect as originally
agreed.
Dated: 9/16/86 UNION LABOR HOSPITAL ASSOCIATION
By: /s/ Ted W. Loring, M.D.
--------------------------------
Dated: 9/9/86 BRIM HOSPITALS, INC.
By: /s/ John R. Miller
--------------------------------
JRM:Mrm
9/8/86
<PAGE> 64
THIRD AMENDMENT TO LEASE AGREEMENT
BETWEEN
UNION LABOR HOSPITAL ASSOCIATION, INC.
AND
BRIM HOSPITALS, INC.
Union Labor Hospital Association, a California Public Benefit
Corporation, and Brim Hospitals, Inc., an Oregon Corporation, hereby make a
Third Amendment to that Lease Agreement dated December 16, 1985, as amended (the
Lease). This Amendment shall be in replacement and clarification of certain
portions of the Lease as follows:
1. Section 3.01. Attached to this Amendment and marked Exhibit C is a
revised Exhibit C which replaces in full Exhibit C as attached to the Lease.
Rents shall be due 30 days before the dates shown on Exhibit C. The parties
acknowledge that Lessee has paid rent pursuant to the attached Exhibit C through
May 31, 1989, which includes the 30-day advance payment of the amount due June
15, 1989, on the C Note.
2. Article 19. Article 19 of the Lease is clarified to resolve a patent
ambiguity with respect to the term "outstanding long-term indebtedness". This
term has always meant the amount equal to the unpaid rent as reflected on
Exhibit C as reduced under other provisions of the Lease at the date of the
closing of the purchase resulting from the exercise of the option.
1
<PAGE> 65
3. Article 16.03. Article 16.03 of the Lease is clarified to resolve a
patent ambiguity with respect to the application of net proceeds being applied
to debt. The understanding of the parties has always been the unpaid rent as
reflected on Exhibit C shall be reduced by any amounts paid pursuant to Section
16.03 of the Lease (i) to the Lessor, (ii) as a payment on the promissory note
given by Lessor to Bank of America dated January 26, 1979, or (iii) as a payment
on the promissory note dated December 8, 1976, given by Lessor to Bank of
America. In addition, for this purpose, the unpaid rent shall be reduced by any
amounts received by Lessor or paid on either of the promissory notes described
immediately above as either insurance proceeds or condemnation proceeds not used
for repair or replacement of the damaged or condemned property or amounts paid
in lieu thereof as a result of an event described in Section 7, 8 or 9 of the
Lease.
4. Article 19. Article 19 of the Lease is amended by adding the
following sentence to the end of Article 19 as follows:
"Lessor agrees that, at closing, Lessor will transfer title to the
leased premises to Lessee free and clear of all liens or encumbrances
except those created by Lessee."
5. General. Lessee acknowledges that the option to purchase the leased
premises under the terms and conditions originally agreed as clarified by this
Third Amendment to the Lease was essential to its leasing the premises. Lessor
agreed to the
2
<PAGE> 66
original option to purchase, as clarified, because Lessor believes its primary
responsibility was to provide quality health care to the residents of Eureka and
its surrounding area; in order to serve the health care needs of the community,
it was necessary to enter into the Lease with Lessee, including the provision
providing the option to purchase. By so having agreed, Lessor has assured that
General Hospital has been operating and providing health care to the community
since January 1, 1986.
Dated as of June 20, 1989.
LESSOR:
UNION LABOR HOSPITAL ASSOCIATION
By: /s/ Ted W. Loring, M.D.
--------------------------------
Ted W. Loring, M.D.
LESSEE:
BRIM HOSPITALS, INC.
By: /s/ John R. Miller
--------------------------------
President
--------------------------------
3
<PAGE> 67
EXHIBIT C
LEASE PAYMENT SCHEDULE
<TABLE>
<CAPTION>
Year A Note C Note
<S> <C> <C>
1986 May 1 $433,975.00 $888,155.27 payable
Nov. 1 426,138.00 monthly; 84 monthly
installments of
1987 May 1 $418,300.00 $10,573.28 plus
Nov. 1 410,462.00 interest of the Bank
America's Reference
1988 May 1 $402,625.00 Rate plus 1/2% on the
Nov. 1 394,787.00 outstanding balance,
with each payment being
1989 May 1 $386,949.00 made on the 15th day of
Nov. 1 379,111.00 each month beginning
January 15, 1986.
1990 May 1 $371,273.00
Nov. 1 363,435.00
1991 May 1 $355,597.00
Nov. 1 347,759.00
1992 May 1 $339,921.00
Nov. 1 332,083.00
1993 May 1 $324,245.00
Nov. 1 316,407.00
1994 May 1 $308,569.00
Nov. 1 300,731.00
1995 May 1 $292,893.00
Nov. 1 285,055.00
1996 May 1 $277,217.00
Nov. 1 269,379.00
1997 May 1 $261,541.00
Nov. 1 253,703.00
1998 May 1 $245,865.00
Nov. 1 238,027.00
1999 May 1 $230,189.00
Nov. 1 222,351.00
2000 May 1 $214,513.00
Nov. 1 206,675.00
</TABLE>
<PAGE> 68
FOURTH AMENDMENT TO LEASE AGREEMENT
BETWEEN
UNION LABOR HOSPITAL ASSOCIATION, INC.,
AND
BRIM HOSPITALS, INC.
Union Labor Hospital Association, a California Public Benefit
Corporation (hereinafter Lessor), and Brim Hospitals, Inc., an Oregon
Corporation (hereinafter Lessee) hereby make a fourth amendment to that Lease
Agreement dated December 16, 1985, entered into by the parties hereto, as
follows:
RECITALS
A. Lessor and lessee have entered into a Lease Agreement dated December
16, 1985. The Lease Agreement was amended by a First Amendment to Lease
Agreement dated December 16, 1985, a Second Amendment to Lease Agreement dated
September 9, 1985 and September 16, 1985, an Agreement Re: Release of Property
from Lease dated May 21, 1987, and a Third Amendment to Lease Agreement dated
June 20, 1989. These are hereafter referred to as the "Lease Agreement".
B. Lessee and The Hillhaven Corporation, a Tennessee Corporation
(hereinafter referred to as Hillhaven), have entered into a Purchase and Sale
Agreement dated as of March 31, 1988, pursuant to which Hillhaven may condition
or otherwise control the modification of the Lease Agreement.
In consideration of the mutual covenants contained in the agreement,
the parties agree as follows:
<PAGE> 69
1. Lessor shall pay to lessee the sum of $400,000.00 (Four Hundred
Thousand Dollars).
2. In consideration therefor, lessor shall (a) obtain a release from
Hillhaven of any interest or control it may have retained in the Lease
Agreement, and (b) Article 16.03 at page 12 of the Lease Agreement and the
reference to Article 16.03 at page 2 of the Third Amendment to Lease Agreement
shall have no force or effect and shall be stricken from the Lease Agreement in
its entirety.
3. No amendment, modification or alteration of the terms hereof shall
be binding unless the same be in writing, dated subsequent to the date hereof
and duly executed by the parties hereto.
4. In all other respects, lessor and lessee hereby ratify and confirm
the provisions of the Lease.
This modification of the Lease Agreement has been executed by the
parties on the date and year first above written.
Lessor:
UNION LABOR HOSPITAL ASSOCIATION
By: /s/ Charles M. Thomas, Jr.
--------------------------------
Charles M. Thomas, Jr.
Board of Directors
ATTEST:
/s/ Marla D. Walters
- ------------------------------------
<PAGE> 70
Lessee:
BRIM HOSPITALS, INC.
Dated: 6/18/92
By: /s/ John F. Miller
--------------------------------
ATTEST:
/s/ K. David McAllister
- ------------------------------------
<PAGE> 71
FIFTH AGREEMENT TO LEASE
BETWEEN UNION LABOR HOSPITAL ASSOCIATION
AND
BRIM HOSPITALS, INC.
UNION LABOR HOSPITAL ASSOCIATION, a California Public Benefit
Corporation, (hereinafter "Lessor") and Brim Hospitals, Inc., an Oregon
Corporation (hereinafter "Lessee") make a Fifth Amendment to that Lease
Agreement dated December 16, 1985, and entered into by the parties hereto, as
follows:
RECITALS
Lessee finances various equipment at the subject premises as well as at
other hospitals through MetLife Capital Corporation. Metlife Capital Corporation
requires that the landlord agree, subordinate, and waive any claims, demands,
or rights that Lessor may have or acquire with respect to equipment so financed.
Lessee has requested that Lessor sign the "Landlord's Waiver and Agreement", a
copy of which is attached hereto as Exhibit "A".
In consideration of the mutual covenants contained in the Agreement,
the parties agree as follows:
1. Lessor will execute the Landlord's Agreement and Waiver;
2. Lessee agrees that, by Lessor's signing, Lessor has not approved
equipment added to the Hospital which cannot be removed without damaging the
Hospital's physical facilities, as set forth in Article 17 of the Lease
Agreement. In order for Lessee to have any rights to payment for equipment
installed pursuant to paragraph 2.02 of the Lease
<PAGE> 72
Agreement, Lessee agrees it must clearly and separately follow the requirements
of Article 17 of the Lease.
3. Lessor may revoke its consent to Exhibit "A" on 15 days' written
notice. Any such revocation shall be as to equipment acquired after the
effective date of revocation.
Lessor:
UNION LABOR HOSPITAL
ASSOCIATION
Dated: 6/23/94 By: /s/ Charles M. Thomas, Jr.
--------------------------------
Lessor
BRIM HOSPITALS, INC.
Dated: 6/30/94 By: /s/ John F. Miller
--------------------------------
Attest:
/s/ Susan A. Hunt
- ------------------------------------
<PAGE> 73
When recorded please
return to: DIW Transaction No. 2011394
MetLife Capital Corporation
C-97550
Bellevue, WA 98009
Lessee/Borrower Brim Hospitals, Inc. dba The General Hospital
-------------------------------------------------
Premises 2200 Harrison Avenue
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Eureka, CA
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LANDLORD'S AGREEMENT AND WAIVER
Lessee/Borrower has applied to MetLife Capital Corporation ("MetLife")
for financing of the following described equipment:
Various new and used medical equipment together with an accessions,
attachments, and additions thereto and replacements thereof.
("Equipment"). Lessee/Borrower intends to locate the Equipment on the Premises
legally described as follows:
MetLife is willing to enter into said transaction only if Landlord subordinates
and waives as to MetLife any claims, demands or rights Landlord may have or
hereafter acquire with respect to the Equipment.
1. Subject to the terms hereof, Landlord by this agreement does hereby
waive and relinquish to MetLife, its successors and assigns, all rights, claims
and demands of every kind against the Equipment now located or to be located on
the above Premises, including but not limited to the right of foreclosure, levy,
execution, sale and distraint for unpaid rent or other rights arising under real
property law or by contract which Landlord now has or may hereafter acquire on
any of the Equipment presently or hereafter financed or leased by MetLife.
2. Landlord agrees that the Equipment shall at all times be considered
to be personal property and shall not constitute a fixture or become part of the
Premises. Landlord agrees that MetLife may remove the Equipment from the
Premises at all reasonable times, and Landlord will give MetLife not less than
sixty (60) days written notice if MetLife shall be required to remove the
Equipment; provided however, that MetLife will either repair any damage caused
by such removal or reimburse Landlord for the reasonable cost thereof
<PAGE> 74
3. This Agreement and Waiver shall be binding upon successors,
transferees and assigns of Landlord and shall inure to the benefit of the
successors and assigns of MetLife. Landlord will provide MetLife with a legal
description of the Premises upon request.
4. This Agreement and Waiver may be recorded at any time by MetLife,
is successors and assigns.
IN WITNESS WHEREOF, the undersigned Landlord has executed this
Agreement and Waiver this 27th day of June, 1994
[CORPORATE SEAL] LANDLORD: UNION LABOR HOSPITAL ASSN.
/s/ Charles M. Thomas
--------------------------------------
Attest:
By: Charles M. Thomas
- ----------------------------- -----------------------------------
Its Treasurer
-----------------------------------
ACKNOWLEDGMENT
--------------
STATE OF CALIFORNIA
COUNTY OF HUMBOLDT
On this 27th day of June, 1994, before me, a Notary Public, personally
appared Charles M. Thomas, and ________________________, to me known to be
the Treasurer, ULHA and _____________________, respectively, of __________, who
executed the foregoing instrument and acknowledged the said instrument was the
free and voluntary act and deed of said corporation, for the uses and purposes
therein mentioned.
/s/ Mark D. Walters
------------------------------------
NOTARY PUBLIC in and for the State of
California, residing at Arcata
My commission expires May 2, 1997.
[NOTARIAL SEAL]
MARLA D. WALTERS
COMM 3994024
NOTARY PUBLIC
HUMBOLDT COUNTY, CALIFORNIA
MY COMMISSION EXPIRES MAY 2, 1997
<PAGE> 75
documents necessary to establish this release, in exchange for the following.
ULHA will construct and own a building designed for and used for
purposes of housing the equipment, which will be located on the parcel of
property contained in Exhibit "B", and in which building Partnership shall
house and operate the equipment.
Further, ULHA and Partnership must execute with Brim an agreement
whereby Brim shall retain the right of approval and consent, which approval and
consent shall not be unreasonably withheld, in regards to the following aspects
of the building and the services provided by Partnership on the property
described in Exhibit "B":
1. The design, appearance,, and quality of the construction of the
building;
2. Any and all signing visible from the outside of the building;
3. What individuals and/or businesses shall occupy the building;
4. What services shall be provided in the building, including, but not
limited to, the right to reject any business or service in competition with The
General Hospital.
IT IS FURTHER AGREED between Brim and ULHA that, in the event that the
building is completed and the Partnership no longer occupies said building, Brim
may lease the building
<PAGE> 76
from ULHA under the same terms and conditions of the lease between ULHA and the
Partnership.
In addition, in the event that Brim exercises its option to purchase
the General Hospital property, the parties hereto agree that said purchase shall
include the property described in Exhibit "B" hereto, said return conditioned
upon Brim purchasing the building erected to house the equipment; the purchase
price shall be the sum of Two Hundred Thousand Dollars $200,000.00).
Unless otherwise agreed by the parties, the purchase price shall be
paid in cash at the time of the closing of the purchase from Brim of The
General Hospital property as described in Exhibit A.
The lease between Brim and ULHA relative to The General Hospital
property shall remain in full force and effect as originally executed except as
specifically set forth in this agreement. This agreement represents the entirety
of the agreement between the parties with respect to its subject matter. This
agreement can be amended only by written agreement signed by the parties . The
invalidity of any provision of this agreement shall not affect the validity and
enforceability of the remainder of the agreement.
Should any litigation be commenced among the parties hereto or their
personal representatives concerning any provision of this agreement or the
rights and duties of any person in relation thereto, the party or parties
prevailing in such litigation shall he entitled, in addition to such
<PAGE> 77
other relief as may be granted, to a reasonable sum as and for their or his
attorney's fees in such litigation which shall be determined by the court in
such litigation or in a separate action brought for that purpose. This agreement
will be governed by and construed in accordance with the laws of the State of
California, and venue for any litigation shall he Humboldt County, California.
This Agreement shall be of so force or effect if construction on the
project contemplated by this Agreement is cot commenced by January 1, 1988,
unless extended by written agreement of the parties hereto.
Dated: 5/21/87 UNION LABOR HOSPITAL ASSOCIATION
----------------
By:
------------------------------------
Dated: 5/21/87 BRIM HOSPITALS, INC.
----------------
By:/s/ John L. Miller
------------------------------------
<PAGE> 78
GUARANTY OF WORKING CAPITAL
---------------------------
For good and valuable consideration, receipt of which is hereby
acknowledged, and to induce Union Labor Hospital Association, a California
Public Benefit Corporation (Landlord), to enter into the Lease (the "Lease")
dated 12/16/85, with Brim Hospitals Inc., an Oregon corporation ("Tenant"),
Brim & Associates, Inc., an Oregon corporation, and The Hillhaven Corporation, a
Tennessee corporation, (individually and collectively referred to herein as
"Guarantor"), do hereby agrees as follows:
1. Guarantor does hereby absolutely, irrevocably and unconditionally
guarantee to make available from time to time to Tenant such sums of operating
capital as may be needed by Tenant for the purpose of conducting Tenant's
business operations in accordance with the terms of the Lease up to a maximum
sum total of Three Million Dollars ($3,000,000.00). Said sum shall be made
available to Tenant in the form of intercompany loans evidenced by a proper
journal entry on the books and records of Guarantor.
2. Within ninety (90) days of each anniversary of the Lease,
Guarantor shall provide Landlord with a schedule which discloses the amount of
funds made available to the date thereof to Tenant pursuant to this Agreement.
Said schedule shall indicate the date and amount of each loan and shall be
acknowledged in writing to be accurate by the Treasurer or Chief Financial
Officer of Hillhaven. Notwithstanding the foregoing, Guarantor's failure to
provide said schedule shall not be deemed to be a breach of its obligations
hereunder until Guarantor is given 30 days notice of its failure to comply with
said obligations.
3. If Guarantor fails to comply with the provisions of paragraph 1
above, and said failure causes Tenant to default in the performance of either
its obligations under the Lease or its obligations to any third party incurred
in connection with its obligations under the Lease, then Guarantor shall be
deemed a guarantor of Tenant's obligations pursuant to the terms of the Lease
and Landlord may proceed directly against Guarantor to enforce the provisions of
the Lease in the event of Tenant's default under the terms thereof.
<PAGE> 79
4. The obligations of Guarantor under this Guaranty are independent of
the obligations of Tenant under the Lease and a separate action or actions may
be brought and prosecuted against Guarantor for breach of its obligations
hereunder whether or not an action is brought against Tenant or Tenant is joined
in any such action or actions.
5. Guarantor waives all rights under Section 2845 of the California
Civil Code. Landlord may, at its election, exercise any right or remedy it may
have against Tenant or any security now or hereafter held by Landlord,
including, without limitation, the right to foreclose on any security by
Judicial or nonjudicial sale, without affecting or impairing in any way the
liability of Guarantor hereunder except to the extent the obligations of Tenant
under the Lease may thereby be paid or satisfied. Guarantor waives any defense
arising out of the absence, impairment or loss of any right of reimbursement or
subrogation or other right or remedy of Guarantor against Tenant or any such
security, whether resulting from such election by Landlord or otherwise.
Guarantor waives any setoff, defense or counterclaim which the Tenant or
Guarantor may have or claim to have against Landlord. Guarantor waives all
presentments, demands for performance, protests, notices of protest, notices of
dishonor, notices of acceptance of this Guaranty. Guarantor does not waive
notices of nonperformance, notices of default or diligence.
6. Guarantor authorizes Landlord and Tenant to amend or modify any
provision of the Lease or extend or renew the term of the Lease, provided,
however, that Landlord shall give Guarantor notice thereof. Guarantor further
authorizes Landlord to settle or compromise any or all of the obligations of
Tenant under the Lease, provided, however. that Landlord shall give Guarantor
notice thereof. Guarantor shall be and remain bound under this Guaranty
notwithstanding Landlord's taking any of the foregoing actions and it waives the
provisions of Civil Code Section 2819.
<PAGE> 80
7. Guarantor assumes the responsibility for being and keeping itself
informed of the financial condition of Tenant and of all other circumstances
bearing upon the risk of nonperformance of the Lease which diligent inquiry
would reveal and agrees that except as otherwise provided herein, Landlord has
no duty to advise Guarantor of information known to Landlord regarding such
condition or any such circumstances.
8. If any provision of this Guaranty is held to be invalid or
unenforceable, the validity and enforceability of the other provisions of this
Guaranty shall not be affected. Landlord shall have the right, without any
consent from but with notice to Guarantor, to assign this Guaranty in whole or
in part. This Guaranty shall bind and inure to the benefit of Landlord and
Guarantor and their respective successors and assigns.
9. All notices and other communications required or permitted under
this Guaranty shall be effective and properly given only if made in writing and
either hand delivered or mailed by first class mail, postage prepaid, to the
party intended at the address set forth below, or at such other address as may
be designated by written notice to the other party. All notices, demands or
requests to Landlord shall be given at 123 "F" Street, Eureka, California 95501.
All notices, demands or requests to Lessee shall be given at 177 N. E. 102nd
Avenue, Portland, Oregon 97220. If any such notice or other communication
hereunder is mailed, such notice shall be effective within three (3) days of the
date such notice is deposited in the mail. If any such notice or other
communication hereunder is hand delivered, such notice shall be effective on the
date of hand delivery.
10. The parties agree that the losing party shall pay all costs and
expenses, including reasonable attorneys' fees, which are incurred by the
prevailing party in connection with any litigation brought to enforce or
interpret this Guaranty.
11. This Guaranty shall be governed by and construed in accordance with
the laws of the State of California. Guarantor consents to jurisdiction and
service of process within California for any action arising under this Guaranty.
12. All obligations contained herein shall be joint and several
obligations of each of the undersigned.
<PAGE> 81
Executed this 17th day of January, 1986.
LANDLORD:
UNION LABOR HOSPITAL ASSOCIATION
BY:/s/
--------------------------------
ITS: President
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TENANT:
BRIM HOSPITALS, INC.
An Oregon Corporation
BY:/s/ K. David McAlister
--------------------------------
ITS: President
-------------------------------
GUARANTOR:
BRIM & ASSOCIATES, INC.
An Oregon Corporation
BY:/s/
--------------------------------
ITS: President
-------------------------------
GUARANTOR:
THE HILLHAVEN CORPORATION
A Tennessee Corporation
BY:/s/
--------------------------------
ITS: Vice Pres.
-------------------------------
<PAGE> 1
EXHIBIT 10.18
PALO VERDE HOSPITAL
LEASE AGREEMENT
Palo Verde Hospital Association
Landlord
Brim Hospitals, Inc.
Tenant
Dated December 1, 1992
<PAGE> 2
TABLE OF CONTENTS
1. Lease of Property..................................................1
1.1 Real Property................................................1
1.2 Fixtures and Equipment.......................................1
1.3 Personal Property............................................1
1.4 Licenses.....................................................2
2. Term...............................................................2
2.1 Initial Term.................................................2
2.2 Renewal Term.................................................2
3. Rent...............................................................2
3.1 Amount.......................................................2
3.2 Payment......................................................3
3.3 Net Lease....................................................3
4. Working Capital....................................................3
4.1 Purchase.....................................................3
4.2 Representations Concerning Working Capital...................3
5. Liabilities........................................................4
5.1 Successor Liabilities........................................4
5.2 Current Liabilities..........................................4
5.3 Assumed Contracts............................................4
5.4 Excluded Liabilities.........................................4
5.5 Payment of Excluded Liabilities..............................5
6. Purchase Price of Working Capital..................................5
6.1 Price........................................................5
6.2 Application of Funds.........................................6
7. Employees..........................................................6
8. Option to Purchase.................................................6
8.1 Notice.......................................................6
8.2 Purchase Price...............................................6
8.3 Closing......................................................7
9. Right of First Refusal to Purchase Hospital........................8
9.1 Notice.......................................................8
9.2 Exception....................................................8
10. Option to Purchase by Landlord.....................................8
10.1 Condition Precedent..........................................8
10.2 Notice.......................................................9
10.3 Purchase Price...............................................9
10.4 Termination..................................................9
11. Representations and Warranties of Landlord.........................9
i
<PAGE> 3
11.1 Organization.......................................... 9
11.2 Authority............................................. 9
11.3 Effect of Agreement................................... 9
11.4 Warranty of Title.....................................10
11.5 Financial Statements..................................10
11.7 Accounts Receivable...................................10
11.8 Employee Benefit Plans................................10
11.9 Litigation............................................11
11.10 Transactions with Certain Persons.....................11
11.11 Consents..............................................11
11.12 Compliance with Laws..................................11
11.13 Government Approvals..................................11
11.14 Labor Matters.........................................12
11.15 Finder's Fee..........................................12
11.16 Zoning................................................12
11.17 No Contracts..........................................12
11.18 Hill-Burton Liability.................................12
11.19 Environmental Matters.................................12
11.20 Bank Accounts.........................................14
12. Representations and Warranties of Tenant.....................14
12.1 Organization..........................................14
12.2 Authority.............................................14
12.3 Effect of Agreement...................................14
12.4 Litigation............................................14
12.5 Licenses..............................................15
12.6 Inspection............................................15
12.7 Accuracy..............................................15
13 Landlord's Covenants.........................................15
13.1 Quiet Enjoyment.......................................15
13.2 First Mortgage........................................15
13.3 Restrictive Covenants.................................15
13.4 Encumbrances..........................................15
13.5 Fund Raising..........................................15
14 Tenant's Covenants...........................................15
14.1 Use of Hospital.......................................15
14.2 Assumed Contracts.....................................16
14.3 Hospital Support Agreement............................16
14.4 Financial Statement...................................16
14.5 Education.............................................16
14.6 Medical Office Building...............................16
14.7 Expansion.............................................16
14.8 Inspection............................................16
15 Services and Utilities.......................................16
16 Maintenance and Repair.......................................16
16.1 Routine Maintenance...................................16
16.2 Capital Improvements..................................17
16.3 Tenant Purchases......................................17
ii
<PAGE> 4
17 Development Funds .............................................. 17
17.1 Use of Funds ........................................... 18
17.2 Deposit and Use of Funds ............................... 18
17.3 Ownership and Inclusion in Lease ....................... 18
18 Profits Participation .......................................... 18
18.1 Percentage ............................................. 19
18.2 Payment ................................................ 19
18.3 Net Income ............................................. 19
18.4 Termination ............................................ 19
19 Liens ........................................................ 20
20 Taxes and Assessments .......................................... 20
20.1 Real Property .......................................... 20
20.2 Personal Property ...................................... 20
20.3 Assessments ........................................... 20
20.4 Objection to Validity or Amount of Tax ................. 20
20.5 Expiration or Termination .............................. 20
21 Insurance ...................................................... 20
21.1 Liability Insurance .................................... 20
21.2 Property Insurance ..................................... 21
21.3 Professional Liability Insurance ....................... 21
21.4 Waiver of Subrogation .................................. 21
21.5 Insurance Policies ..................................... 21
22 Damage or Destruction .......................................... 21
22.1 Termination ............................................ 21
22.2 Reconstruction ......................................... 21
23 Condemnation ................................................... 22
23.1 Termination ............................................ 22
23.2 Rights to Award ........................................ 22
24 Assignment and Sublease ....................................... 22
25 Default by Tenant .............................................. 22
25.1 Nonpayment ............................................. 22
25.2 Noncompliance .......................................... 23
26 Landlord Remedies on Default by Tenant ......................... 23
27 Default by Landlord ............................................ 23
27.1 Payment ................................................ 23
27.2 Noncompliance .......................................... 23
28 Tenant's Remedies .............................................. 23
29 Termination for Impairment ..................................... 24
30 Surrender at Expiration ........................................ 24
iii
<PAGE> 5
31 Consequences of Expiration or Termination ....................... 24
31.1 Working Capital ......................................... 24
31.2 Capital Improvements .................................... 24
31.3 Assumed Contracts ....................................... 25
31.4 Licenses ................................................ 25
32 Adverse Changes ................................................. 25
33 Indemnity ....................................................... 25
33.1 Landlord's Obligations .................................. 25
33.2 Tenant's Obligation ..................................... 26
34 Memorandum of Lease ............................................. 26
35 Conditions to Tenant's Obligations .............................. 26
35.1 Licenses ................................................ 26
35.2 First Mortgage .......................................... 26
35.3 Hospital Support Agreement .............................. 26
35.4 Insurance ............................................... 26
35.5 Representations, Etc .................................... 27
35.6 Legal Opinion ........................................... 27
35.7 Title Insurance ......................................... 27
35.8 Environmental Audit ..................................... 27
36 Conditions to Landlord's Obligations ............................ 27
36.1 Licenses ................................................ 27
36.2 First Mortgage .......................................... 27
36.3 Hospital Support Agreement .............................. 27
36.4 Insurance ............................................... 27
36.5 Representations, Etc .................................... 28
36.6 Legal Opinion ........................................... 28
37 Arbitration ..................................................... 28
38 General Provisions .............................................. 28
38.1 Nonwaiver ............................................... 28
38.2 Expenses ................................................ 28
38.3 Notices ................................................. 28
38.4 Survival ................................................ 29
38.5 Successors and Assigns .................................. 29
38.6 Captions ................................................ 29
38.7 Governing Law ........................................... 29
38.8 Consents ................................................ 30
iv
<PAGE> 6
PALO VERDE HOSPITAL
LEASE AGREEMENT
Between: Palo Verde Hospital Association,
a California nonprofit corporation "Landlord"
And: Brim Hospitals, Inc.,
an Oregon corporation "Tenant"
Dated: December 1, 1992
BACKGROUND
Landlord owns and operates the Palo Verde Hospital in Blythe,
California. This Lease set forth the terms under which Tenant will lease the
Hospital and purchase its working capital.
AGREEMENT
1 Lease of Property. Landlord hereby leases to Tenant the following
property:
1.1 REAL PROPERTY. The parcels of real property described on Schedule
1.1, together with all improvements on and all rights, privileges and easements
appurtenant to the real property (the "Real Property");
1.2 FIXTURES AND EQUIPMENT. All improvements, fixtures, equipment
(including heating, ventilating and air conditioning equipment), machinery,
apparatus, drapes, carpets, wall, window and floor coverings, vehicles, spare
parts, computers, copiers, furniture and furnishings, wherever located, used or
useful in connection with the operation of the Hospital, but excluding current
assets to be purchased under Section 4.1;
1.3 PERSONAL PROPERTY. All personal property, tangible or intangible,
owned by Landlord, wherever located, used or useful in connection with the
operation of the Hospital, including all books and records of Landlord relating
to the Hospital, medical records, patient lists and records, Medicare, Medi-Cal,
and other third-party payor reimbursement records, plans, specifications,
drawings, handbooks, warranties, deeds, operating manuals, employee records,
equipment records, medical and administrative libraries, construction plans and
specifications, computer software and files and other documents; the name "Palo
Verde Hospital" and all derivations of such name; all trademarks and tradenames
in which Landlord has an interest, and all of Landlord's rights in any and all
health care services
<PAGE> 7
and health care programs offered at or in connection with the operation of the
Hospital; and
1.4 LICENSES. All intangible rights, relationships, licenses,
accreditations, certificates of need, certificates of exemption and other
authorizations or permits issued to Landlord in connection with the operation
and going concern value of the Hospital, including, without limitation, those
identified on Schedule 1.4.
The property identified above and the business and operations conducted with the
property is collectively referred to as the "Hospital." The term Hospital does
not include working capital.
2 TERM.
2.1 INITIAL TERM. The initial term of this Lease will begin upon the
later of January 1, 1993 or satisfaction or waiver of all of the conditions
specified in SECTION 33 (the "Commencement Date") and will expire on December
31, 2002. Tenant will notify Landlord within 10 days after satisfaction or
waiver of the conditions.
2.2 RENEWAL TERM. Tenant may renew this Lease for one additional term
of ten (10) years, from January 1, 2003 through December 31, 2012. All terms of
the Lease will remain the same during the renewal term. The option to renew may
be exercised by written notice to Landlord given on or before January 1, 2002.
The phrase "Lease Term" will mean the initial term and renewal term, if elected
by Tenant, subject to earlier termination in accordance with the terms of this
Lease.
3 RENT.
3.1 AMOUNT. Tenant will pay to Landlord as rent the sum of the amounts
determined under Sections 3.1.1 and 3.1.2 below:
3.1.1 One hundred three thousand three hundred nineteen dollars
($103,319.00) per year, payable in advance. The first rent payment will be due
on the Commencement Date. Subsequent rent payments will be due on the nineteenth
(19th) day of each October commencing October 19, 1993. Tenant will receive a
credit against the rent payment due October 19, 2001 equal to $283.07
($103,319.00 divided by 365 days) times the number of days that the Commencement
Date falls after October 1, 1992. This component of the rent is equal to the
annual debt service on the Farmers Home Administration loan secured by the trust
deed identified as item no. 4, Schedule B of the title report referenced in
Section 11.4 (the "First Mortgage"), plus one dollar ($1.00). Rent for the last
year of the Lease Term (that is, the rent due October 19, 2002) and upon
expiration or
2
<PAGE> 8
termination of the Lease Term will be prorated on the basis of the period Tenant
occupies the Hospital. Tenant will also pay, as additional rent, $861.00 per
month into the replacement reserve account maintained in connection with the
First Mortgage (such payments being collectively referred to as the "Reserve
Payments"). Tenant's obligation to pay the Reserve Payments will be suspended
during any period that the reserve account is fully funded.
3.1.2 One thousand six hundred thirteen dollars ($1,613.00) per
month on or before the first day of each month commencing January 1, 1993 to and
including October 1, 1998, and one thousand six hundred eighty two dollars
($1,682.00) on or before November 1, 1998. This component of rent is equal to
Landlord's debt service under the California Health Facilities Financing
Authority Help Program Promissory Note dated October 25, 1991 in the original
principal amount of $116,205 (the "Help Note"). If the expiration or termination
of this Lease is other than on the last day of a calendar month, the rent
payment made on the first day of the month during which the expiration or
termination occurs will be prorated.
3.2 PAYMENT. Tenant will pay rent (less $1.00) directly to the holders
of the First Mortgage and the Help Note. Alternatively, Tenant may require
Landlord to enter into an escrow or similar arrangement to assure application of
rent to the holders of the First Mortgage and the Help Note.
3.3 NET LEASE. This Lease is what is commonly called a "Net Lease." In
addition to the rent specified above, Tenant will be responsible for payment of
all taxes, utilities and insurance premiums which arise with respect to the
Hospital during the Lease Term.
4 WORKING CAPITAL.
4.1 PURCHASE. In consideration of the price determined under Section
6, Landlord hereby sells, assigns and transfers to Tenant all of the Hospital's
working capital existing on the Commencement Date, including all accounts
receivable, cash and cash equivalents, bank accounts, monies due and owing the
Hospital, rights to reimbursement from any third parties, prepaid expenses of
every kind and nature and inventories and supplies. Landlord represents that the
net book value of the working capital (after appropriate allowances for bad
debts and obsolete inventories and supplies) will be at least $50,000.
4.2 REPRESENTATIONS CONCERNING WORKING CAPITAL. Landlord represents
and warrants to Tenant that Landlord owns all of the assets sold to Tenant under
Section 4.1 free and clear all liens, encumbrances, defenses or set-offs or
charges of any
3
<PAGE> 9
nature whatsoever, subject to the release of security interests therein held by
the holder of the First Mortgage.
5 LIABILITIES.
5.1 SUCCESSOR LIABILITIES. Tenant is not and is not to be deemed to be
a successor of Landlord's business or operations at the Hospital. It is
expressly understood and agreed that Tenant has not and does not assume or agree
to assume any liability or obligation whatsoever of Landlord or of Hospital,
except as expressly agreed to in writing by Tenant.
5.2 CURRENT LIABILITIES. Tenant does hereby assume and agree to pay
all of the current liabilities of the Hospital as of the Commencement Date as
set forth on Schedule 5.2. For this purpose, current liabilities means only
those liabilities with a scheduled maturity date of less than 12 months, except
that the current portion of any long term debt will not be treated as a current
liability. Landlord represents that the current liabilities will not exceed
$1,750,000. Tenant commits to reduce the payable by approximately $300,000 to
$400,000 within 60 days after the Commencement Date.
5.3 ASSUMED CONTRACT. Tenant assumes and agrees to pay and perform
Landlord's obligations under the contracts and leases set forth on Schedule 5.3
(the "Assumed Contracts"), but only to the extent the obligations accrue during
the Lease Term.
5.4 EXCLUDED LIABILITIES. Without limiting Section 5.1, Tenant
specifically does not assume any of the following liabilities (collectively, the
"Excluded Liabilities"):
5.4.1 MEDICARE REIMBURSEMENT: COST REPORTS. All claims under
Medicare or Medi-Cal or by any third party payor for recapture of depreciation,
cost report settlements, charges, billings or other amounts arising out of
operation of the Hospital prior to the Commencement Date or the termination of
Landlord's operations at the Hospital. Landlord hereby grants Tenant the right,
but not the obligation, to appeal all Medicare, Medi-Cal or other third party
payor decisions related to periods prior to the Commencement Date. Tenant will
remit to Landlord 67% of any recovery under such appeal or appeals, after
deducting all costs incurred, and Tenant will be entitled to retain the
remainder of any such recovery. If no recovery is made, Tenant will bear all
costs of the appeal.
5.4.2 MALPRACTICE LIABILITIES. Malpractice liability for any
action, failure to act or event occurring prior to the Commencement Date.
5.4.3 EMPLOYEE BENEFIT PLANS. Obligations or liabilities to
employees of Landlord under any employment benefit
4
<PAGE> 10
plans, except for accrued amounts included as current liabilities under Section
5.2.
5.4.4. CERTAIN LIABILITIES. Any liability relating to Landlord's
balance sheet item denoted as "Due to third-party-prior" in excess of the amount
of such liability as of the Commencement Date; and all long-term debt.
5.4.5 OTHER LIABILITIES. Any other liability, claim, cost, debt or
obligation, whether liquidated or unliquidated, contingent or otherwise, not
expressly assumed by Tenant in writing.
5.5 PAYMENT OF EXCLUDED LIABILITIES. Landlord will promptly pay all
Excluded Liabilities as the same become due. If Landlord fails to pay an
Excluded Liability within 10 days after request by Tenant, Tenant may pay the
same. Landlord will promptly reimburse Tenant for such amounts together with
interest at the rate of 12 percent per year until paid in full. The unreimbursed
balance of the Excluded Liabilities paid by Tenant together with interest
thereon is referred to herein as the "Excluded Liabilities Account." If Tenant
exercises its option to purchase the Hospital under SECTION 8, Tenant will be
entitled to a credit against the purchase price for the then existing balance of
the Excluded Liabilities Account. Upon expiration or termination of this Lease
for any reason (other than the purchase of the Hospital by Tenant), Landlord
will pay the then existing balance of the Excluded Liabilities Account within 15
days after the expiration or termination. Any amounts not paid will be treated
in the same manner as other unpaid amounts in accordance with Section 31.2.
Tenant may apply Development Funds to pay Excluded Liabilities. However, only
Development Funds not attributable to property tax revenues of the District will
reduce the balance of the Excluded Liabilities Account. Development Funds
attributable to property tax revenues of the District may be used to pay
Excluded Liabilities, but will not reduce the balance of the Excluded
Liabilities Account.
6 PURCHASE PRICE OF WORKING CAPITAL.
6.1 PRICE. The purchase price of the working capital will be the
difference between the net book value of the working capital purchased under
Section 4.1 and the net book value of the current liabilities assumed under
Section 5.2. On or about the Commencement Date, Tenant and Landlord will agree
on and Tenant will pay the tentative purchase price. Tenant may withhold up to
20% of the tentative purchase price pending determination of the final price;
provided that Tenant must pay a enough of the price to enable Tenant to have
sufficient funds to bring the First Mortgage current. The final price will be
agreed upon by Tenant and Landlord as soon as possible thereafter, with the goal
of reaching agreement within 60 days after the
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Commencement Date. In determining the final price, the parties will consider the
adequacy of Landlord's allowance for bad debts in light of Tenant's experience
in collecting accounts receivables after the Commencement Date and Tenants's
evaluation of any obsolescence of inventories and supplies. If Tenant and
Landlord are unable to agree on the final price within the 60 days, either may
require an audit of Landlord's balance sheet as of the Commencement Date, the
results of which will be final and conclusive. The difference between the
interim payment and the final price will be paid within 10 days after the final
price is mutually agreed or determined by audit. The auditor will be mutually
selected and the auditor's fees and expenses will be split equally between
Landlord and Tenant.
6.2 APPLICATION OF FUNDS. The initial rent payment and the purchase
price of the working capital will be applied first to past due debt service on
the First Mortgage. Tenant will pay the funds directly to the holders of the
First Mortgage and the Help Note or require Landlord to enter into an escrow or
similar arrange to assure application of the funds to the holders of the First
Mortgage and the Help Note. The balance of the funds, if any, will be paid to
Landlord.
7 EMPLOYEES. Although Landlord understands and agrees that Landlord
cannot bind Tenant relative to the retention of the present employees of the
Hospital, Tenant's present intention is to hire a majority of the current staff.
Tenant will evaluate the current staff and use reasonable efforts, consistent
with prudent management and employment practices, to offer employment to a
majority of the Hospital's current employees, provided such employees satisfy
Tenant's employee performance standards. Nothing in this Lease will create any
rights in any Hospital employee to bring an action against Landlord or Tenant
for wrongful termination in the event he or she is not offered employment by
Tenant.
8 OPTION TO PURCHASE. Landlord grants to Tenant the exclusive option to
purchase the Hospital on the following terms:
8.1 NOTICE. The option is exercisable at any time during the Lease
Term on or after the third anniversary of the Commencement Date by written
notice to Landlord. The notice will state that Tenant wishes to purchase the
Hospital and reference this section. The notice will specify a closing date,
which will be not less than 30 or more than 180 days after the date of the
notice.
8.2 PURCHASE PRICE. The purchase price for the Hospital will be equal
to the greater of the amounts set forth in Sections 8.2.1 and 8.2.2, in each
case subject to the adjustments in Section 8.2.3:
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8.2.1 The then unpaid principal balances of the First Mortgage and
the Help Note.
8.2.2 The sum of (a) the current fair market value of the land
constituting the Real Property, adjusted for inflation as described below and
(b) the current fair market value of the improvements, fixtures and equipment on
the Real Property, less accumulated depreciation on the basis set forth below.
Current fair market value will be the fair market value as of January 1, 1993 as
determined by an appraisal to be conducted by Valuation Counselors Group, Inc,
of Dallas Texas, within 90 days after the Commencement Date. Tenant will pay the
cost of the appraisal. The appraiser will be instructed to separately value land
from improvements, fixtures and equipment, and to assign estimated remaining
useful lives to each class of improvements, fixtures and equipment. The value
assigned to the land by the appraisal will be adjusted for inflation through the
date of the notice of exercise based on the change since January 1, 1993 in the
Consumer Price Index (Riverside County metropolitan area, all urban consumers,
all items) published by the United States Department of Labor (or successor
index). The appraised value of the land will be multiplied by a fraction, the
numerator of which is the index number for the calendar month in which the
option is exercised and the denominator of which is the index number for the
month of January 1993. The resulting product will be the value of the land for
purposes of the option to purchase. The value assigned to the improvements,
fixtures and equipment will be depreciated on a straight line basis over the
estimated remaining useful lives established by the appraiser. The net
depreciated value will be added to the inflation-adjusted land value to
determine the amount under this SECTION 8.2.2.
8.2.3 The greater of the amounts set forth in Section 8.2.1 or
8.2.2 will be increased by (i) the net book value of the Capital Improvements
(as defined below) made on and after the Commencement Date, but only to the
extent paid with Development Funds (as defined below), and decreased by (ii) the
sum of the Reserve Payments paid by Tenant and the then unpaid balance, if any,
of the Excluded Liabilities Account referenced in SECTION 5.5. In determining
net book value, Landlord will be deemed to use the depreciation schedules used
by Tenant to depreciate similar assets.
8.3 CLOSING. The purchase price will be paid in cash, except that
Tenant may, with the approval of the holders of the First Mortgage and the Help
Note, assume the First Mortgage and/or the Help Note, as the case may be, and
receive a credit against the purchase price for the assumed amount. At the
closing, Landlord will execute and deliver to Tenant a warranty deed and one or
more bills of sale and certificates of title conveying the Hospital to Tenant
free and clear of all liens and
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encumbrances other than liens and encumbrances (a) listed on Schedule 11.4,
except for (i) the First Mortgage and the Help Note, each of which will be paid
in full or assumed by Tenant at the closing and (ii) liens securing Assumed
Contracts that are fully satisfied before the closing, or (b) created or imposed
by or with the written consent of Tenant. Tenant may condition its purchase on
the receipt of a commitment for title insurance (at Tenant's expense) in a form
reasonably acceptable to Tenant.
9 RIGHT OF FIRST REFUSAL TO PURCHASE HOSPITAL. This Section 9 will become
effective if Tenant purchases the Hospital. In that event, Tenant grants to
Landlord a right of first refusal with respect to any proposed sale or transfer
by Tenant of the Hospital on the terms set forth below:
9.1 NOTICE. If Tenant receives a bona fide offer to purchase or
otherwise accept a transfer of the Hospital, which offer Tenant is willing to
accept, Tenant will notify Landlord of its desire to do so. The notice will set
forth the price and terms of the proposed transaction. Landlord will have a
period of 60 days after receipt of the notice to agree to purchase the Hospital
at the proposed price and terms. If Landlord does not provide written acceptance
of the offer within the 60-day period, Landlord will be deemed to have rejected
its right to purchase the Hospital. If Landlord fails to accept the offer within
the 60-day period, Tenant may sell the Hospital upon terms not materially more
favorable to the purchaser than those set forth in the notice during the 180-day
period following expiration of the 60-day period. If Tenant does not close the
sale (or enter into a binding agreement pursuant to which the sale is closed no
later than 60 days thereafter) within the 180-day period, the Hospital will
again become subject to this restriction on transfer and will not be sold
without being reoffered to Landlord in accordance with this section.
9.2 EXCEPTION. The right of first refusal will not apply to (a) any
transfer of all or any part of Tenant's interest in the Hospital under a
mortgage, trust deed or other security instrument as collateral for obligations
of Tenant, (b) any sale or transfer of all or any part of the Hospital at a
judicial or non-judicial foreclose or such liens or a transfer of the Hospital
in lieu of foreclosure, or (c) any sale and leaseback of the Hospital that is
essentially a financing transaction.
10 OPTION TO PURCHASE BY LANDLORD. This Section 10 will become effective
if Tenant purchases the Hospital. In that event, Tenant grants to Landlord an
option to purchase the Hospital on the following terms:
10.1 CONDITION PRECEDENT. The option to purchase will become
exercisable only if Tenant ceases to operate the
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Hospital as an acute care hospital; provided, however, that the option will not
become exercisable if the decision to cease operations is based on a
determination that the Hospital is not economically feasible because alternative
acute care facilities are then available in Blythe, California or its immediate
vicinity.
10.2 NOTICE. Tenant will give Landlord at least 90 days' advance
written notice of the date Tenant intends to cease operating the Hospital as an
acute care Hospital. The option is exercisable by written notice to Tenant given
within 90 days after Landlord has actual or constructive notice that Tenant
intends to cease operating the Hospital as an acute care hospital. The notice
will state that Landlord wishes to purchase the Hospital and reference this
section. The notice will specify a closing date, which will be not less than 30
or more than 180 days after the date of the notice.
10.3 PURCHASE PRICE. The purchase price for the Hospital will be the
greater of (a) one dollar ($1.00) plus the satisfaction or assumption by
Landlord by of all then existing liens and encumbrances on the Hospital and its
equipment and fixtures or (b) the purchase price paid by Tenant upon its
purchase of the Hospital under Section 8.2.
10.4 TERMINATION. This option to purchase will terminate upon any sale
or transfer of the Hospital (subject to Landlord's right of first refusal under
SECTION 9) or upon Landlord's failure to give timely notice of exercise of the
option.
11 REPRESENTATIONS AND WARRANTIES OF LANDLORD. Landlord represents and
warrants to Tenant that:
11.1 ORGANIZATION. Landlord is a nonprofit corporation organized and
validly existing under the laws of the state of California. Landlord is
qualified as a tax-exempt organization in accordance with Section 501(c)(3) of
the Internal Revenue Code of 1986.
11.2 AUTHORITY. Landlord has all requisite power and authority to enter
into this Lease and to perform and consummate transactions contemplated hereby.
The execution and delivery of this Lease and the performance and consummation by
Landlord of the transactions contemplated hereby have been duly authorized by
all requisite action and have complied and will be in compliance with all
applicable laws and regulations. This Lease has been duly executed and delivered
by Landlord and constitutes the valid and binding obligation of Landlord,
enforceable in accordance with its terms.
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11.3 EFFECT OF AGREEMENT. The execution and delivery of this Lease by
Landlord do not, and the performance and consummation of the transactions
contemplated hereby and compliance with the provisions hereof will not, conflict
with, result in a breach of, constitute a default (with or without notice or
lapse of time, or both) under or violation of, or result in the creation of any
lien, charge or encumbrance pursuant to any provision of applicable federal,
state or local law or regulation, or any provision of any agreement, instrument,
understanding, order, judgment or decree to which Landlord or the Hospital is a
party or by which Landlord or the Hospital or any of their properties is bound
or affected, nor will it give to any other person or entity any interest or
rights of any kind to bring a legal action concerning any of the foregoing.
11.4 WARRANTY OF TITLE. Landlord owns the Hospital free and clear from
all liens, encumbrances and charges except as set forth on Chicago Title Company
(Riverside, California office) Preliminary Title Report No. 545476-30 dated
December 3, 1992 and on SCHEDULE 11.4. There are no mechanic's liens against the
Hospital and the period during which any such liens could be filed has expired.
No assessments for public improvements have been made against the Real Property
which remain unpaid and Landlord has no knowledge and has received no notice of
any proposed assessment for public improvements.
11.5 FINANCIAL STATEMENTS. Attached as SCHEDULE 11.5 is Landlord's
balance sheet dated October 31, 1992 (the "BALANCE SHEET"). To the best of
Landlord's knowledge, the Balance Sheet fairly presents the financial condition
of Landlord as of such date and was prepared in accordance with generally
accepted accounting principles on a basis consistent with that used in prior
periods.
11.6 UNDISCLOSED LIABILITIES. Except for liabilities set forth in the
Balance Sheet or on SCHEDULE 11.6, and any liabilities incurred since October
31, 1992 in the ordinary course of business in accordance with past operations
and practices, to the best of Landlord's knowledge, neither Landlord nor the
Hospital is subject to any liabilities or obligations of any kind, whether
accrued, absolute, contingent or otherwise. Landlord does not know of, nor does
it have any reasonable ground to know of, any basis for the assertion against
Landlord or the Hospital of any such liability.
11.7 ACCOUNTS RECEIVABLE. To the best of knowledge of Landlord, after
reasonable investigation, the accounts receivable of Landlord to be purchased
under SECTION 4.1 arose from bona fide transactions in the ordinary course of
Landlord's business and the allowance for bad debts is appropriate and
sufficient.
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11.8 EMPLOYEE BENEFIT PLANS. Schedule 11.8 sets forth all employee
benefit plans of Landlord, as that term is defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). All
actions and operations with respect to such plans, and all prior plans, have
been made in all material respects in accordance with the terms and requirements
of such plans, the Internal Revenue Code of 1986, as amended (the "Code"),
ERISA, and all applicable final or temporary regulations. Landlord is not a
party to any Multi-Emloyer Employee Benefit Plan within the meaning of SECTION
3(37) of ERISA and Section 414(f)(1) of the Code.
11.9 LITIGATION. No action, suit, proceeding or investigation is
pending or threatened against Landlord or Hospital before any governmental
entity seeking to restrain or prohibit, or to obtain specific damages, in
respect of this Lease or the transactions contemplated hereby. There is no
action, suit or proceeding pending, threatened against or affecting the Landlord
or the Hospital or relating to or arising out of the ownership, management or
operation of the Hospital, including with respect to claims for medical or other
professional malpractice or employment matters, except as set forth on SCHEDULE
11.9.
11.10 TRANSACTIONS WITH CERTAIN PERSONS. To the best of Landlord's
knowledge, none of the officers or directors of Landlord or any relative of any
of them have any direct or indirect interest in any firm or corporation that has
any material business relationship or has had a material transaction with
Landlord since January 1, 1991, excluding, for this purpose, transactions and
relationships in the ordinary course between the Hospital and physicians who
serve as officers or directors of Landlord.
11.11 CONSENTS. No consents or approvals are required to be obtained
from any governmental agency or any third party in connection with the execution
and performance by Landlord of this Lease except as set forth on SCHEDULE 11.11.
11.12 COMPLIANCE WITH LAWS. The Hospital is in material compliance
with all applicable laws, regulations, restrictions, orders, judgments, writs
and injunctions of courts and government authorities having jurisdiction over
the Hospital. Without limiting the foregoing, the Hospital is in material
compliance with applicable building, safety, health, fire, environmental and
zoning laws and regulations.
11.13 GOVERNMENT APPROVALS. The Hospital has all permits, licenses,
orders and approvals of all federal, state and local governmental and regulatory
bodies required for Hospital to conduct its business as presently conducted, and
is in material compliance with all requirements for maintenance of such permits,
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licenses, orders and approvals. The Hospital is certified by appropriate state
and federal authorities for Medicare and Medi-Cal programs. All such permits,
licenses, orders and approvals are valid and in good standing, free from
material restriction, waiver or limitation, and no suspension or cancellation is
threatened. No such permits, licenses, orders or approvals will be adversely
affected by the consummation of the transactions contemplated by this Lease.
11.14 LABOR MATTERS. No employee of the Hospital is party to or the
subject of any collective bargaining or employment agreement of any kind.
11.15 FINDER'S FEE. Landlord has not engaged any person who is
entitled to a fee or commission as finder or broker as a result of this
transaction.
11.16 ZONING. The Real Property is properly zoned (or any variances
required have been properly obtained and are non-appealable) for the operation
of the Hospital, and all necessary governmental consents, permits and approvals
for such use and operation have been obtained.
11.17 NO CONTRACTS. Except for the Assumed Contracts, the Hospital
will not be subject to any employment, management, equipment, supply or
maintenance contracts. Tenant shall be under no obligation to hire, or recognize
any responsibility to, any person, persons or companies employed by Landlord or
Hospital, except for the Assumed Contracts. The Hospital is in material
compliance with each Assumed Contract (except for any accrued or past due
liabilities included in the current liabilities referenced in Section 5.1) and,
to the best of Landlord's knowledge, the other parties to the Assumed Contracts
are in material compliance therewith.
11.18 HILL-BURTON LIABILITY. Landlord has no liability under the
Hill-Burton Program and Tenant will have no liability or obligation, as
transferee of the Hospital or otherwise, under the Hill-Burton Program as a
result of this Lease.
11.19 ENVIRONMENTAL MATTERS.
11.19.1 To the best of Landlord's knowledge, Landlord and the
Hospital are not subject to any existing or pending investigation or action by
any federal, state, or local governmental authority under any Environmental Law
(as defined below).
11.19.2 To the best of Landlord's knowledge, no Hazardous
Substance (as defined below) has at any time been generated, used, stored,
released, or disposed of on, under or
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from the Hospital; Landlord has filed all reports and documents required to be
filed under applicable Environmental Law with respect to the Hospital. There are
no underground tanks on the Hospital; and the Hospital is free from any
Hazardous Substance, in each case except as set forth on SCHEDULE 11.19.
11.19.3 The term "Environmental Law" means any federal, state, or
local law, statute, ordinance, or regulation pertaining to health, industrial
hygiene, the use or disposal of Hazardous Substances or the environmental
conditions (including soil and groundwater conditions) on, under, or about the
Hospital, including, without limitation (i) the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA"), 42 USC Section 9601
et seq., and (ii) the Resource Conservation and Recovery Act of 1976 ("RCRA"),
42 USC Section 6901 et seq. The term "release" will have the meaning given to it
by CERCLA.
11.19.4 The term "Hazardous Substance" includes without limitation the
following:
(a) Those substances included within the definitions of "hazardous
substances," "hazardous materials," "toxic substances," "hazardous wastes,"
or "solid wastes" in CERCLA; RCRA; the Hazardous Materials Transportation
Act, 42 USC ss.1801 et seq.; and the Clean Water Act, 33 USC ss.1251 et
seq.; and in the regulations promulgated pursuant to such statutes;
(b) Those substances defined as "hazardous substances," "hazardous
materials," "toxic substances," "hazardous wastes," "dangerous wastes," or
"solid wastes," in applicable California state and local environmental
statues and in any regulations promulgated pursuant to such statutes;
(c) Those substances listed in the United States Department of
Transportation Table (49 CFR 172.101 and amendments thereto) or by the
Environmental Protection Agency as hazardous substances (40 CFR part 302
and amendments thereto);
(d) Such other substances, materials and wastes as are or become
regulated, or are classified as hazardous or toxic under federal, state of
local laws or regulations; and
(e) Any material, waste or substance which is or which contains (i)
asbestos, (ii) polychlorinated biphenyls, or (iii) radioactive materials.
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11.19.5 Notwithstanding this SECTION 11.19, Tenant will be
responsible, and Landlord will have no liability, for any Hazardous Substance
introduced to the Hospital after the Commencement Date or for any violation of
an Environmental Law occurring in the Hospital after the Commencement Date,
unless the introduction or violation is caused by Landlord or a party acting
under Landlord.
11.20 BANK ACCOUNTS. SCHEDULE 11.20 sets forth a correct and complete
list of all (a) accounts or deposits of Landlord with banks or other financial
institutions, (b) safe deposit boxes of Landlord used in the operation of the
Hospital, (c) persons authorized to sign or otherwise act with respect thereto,
and (d) powers of attorney for Landlord or the Hospital. Landlord will sign all
documents and instruments necessary to transfer such items to Tenant and, if
requested by Tenant, to eliminate the authority of the persons referenced in (c)
and (d).
12 REPRESENTATIONS AND WARRANTIES OF TENANT. Tenant represents and
warrants to Landlord that:
12.1 ORGANIZATION. Tenant in a corporation organized and validly
existing under the laws of the state of Oregon. Tenant is qualified to conduct
business in California.
12.2 AUTHORITY. Tenant has all requisite power and authority to enter
into this Lease and to perform and consummate transactions contemplated hereby.
The execution and delivery of this Lease and the performance and consummation by
Tenant of the transactions contemplated hereby have been duly authorized by all
requisite action and have complied and will be in compliance with all applicable
laws and regulations. This Lease has been duly executed and delivered by Tenant
and constitutes the valid and binding obligation of Tenant, enforceable in
accordance with its terms.
12.3 EFFECT OF AGREEMENT. The execution and delivery of this Lease by
Tenant do not, and the performance and consummation of the transactions
contemplated hereby and compliance with the provisions hereof will not, conflict
with, result in a breach of, constitute a default (with or without notice or
lapse of time, or both) under or violation of, or result in the creation of any
lien, charge or encumbrance pursuant to any provision of applicable federal,
state or local law or regulation, or any provision of any agreement, instrument,
understanding, order, judgment or decree to which Tenant is a party or by which
Tenant or any of its properties is bound or affected, nor will it give to any
other person or entity any interest or rights of any kind to bring a legal
action concerning any of the foregoing.
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12.4 LITIGATION. No action, suit, proceeding or investigation is
pending or threatened against Tenant before any governmental entity seeking to
restrain or prohibit, or to obtain specific damages, in respect of this Lease or
the transactions contemplated hereby.
12.5 LICENSES. As of the Commencement Date, Tenant will have obtained
all required licenses, permits, certificates, approvals and authorizations
needed for operation of the Hospital and consummation of the transactions
contemplated under this Agreement.
12.6 INSPECTION. Tenant has conducted a full inspection of the
Hospital and reviewed all of the documents related to the Hospital that it
wished to review.
12.7 ACCURACY. The representations, warranties, and other documents
given by Tenant are complete, accurate and not misleading.
13 LANDLORD'S COVENANTS. Landlord covenants to Tenant to undertake the
following during the Lease Term:
13.1 QUIET ENJOYMENT. If Tenant discharges Tenant's obligations under
this Lease, Landlord will assure that Tenant will have and enjoy, during the
Lease Term, the quiet and undisturbed possession of the Hospital together with
the right to use the Hospital as contemplated in this Lease.
13.2 FIRST MORTGAGE. Landlord will apply the rent, less $1.00 per
year, exclusively to debt service on the First Mortgage and the Help Note until
the First Mortgage and Help Note are paid in full.
13.3 RESTRICTIVE COVENANTS. Landlord will not take any action that
adversely affects the Hospital or which interferes with Tenant's use and
occupancy of the Hospital.
13.4 ENCUMBRANCES. Landlord will not sell or lease the Hospital or
create or allow the imposition of any lien, encumbrance, security interest,
covenant, condition, reservation, restriction, easement, charge, or adverse
claim on or to the Hospital, without the prior written consent of Tenant.
13.5 FUND RAISING. Landlord will use its best efforts to undertake a
community-wide fund drive and/or obtain passage of Palo Verde Hospital District
bonds, which collectively will raise $150,000 to $250,000 in Development Funds
per year for each of calendar years 1993, 1994, 1995 and 1996. Tenant will
provide reasonable assistance and cooperation.
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14 TENANT'S COVENANTS. Tenant covenants to Landlord to undertake the
following during the Lease Term:
14.1 USE OF HOSPITAL. Tenant will use the Hospital to operate an acute
care hospital and ancillary services for Blythe and the surrounding community.
Tenant will also make available 24-hour emergency services. Tenant may use the
Hospital to provide any services which now or in the future are customarily
provided by hospitals and other health care facilities. Tenant will operate the
Hospital in accordance with sound business judgment, appropriate professional
standards and all applicable laws and regulations.
14.2 ASSUMED CONTRACTS. Tenant will perform the obligations of
Landlord under each Assumed Contract.
14.3 HOSPITAL SUPPORT AGREEMENT. Tenant will perform its obligations
under the Hospital Support Agreement (referenced below).
14.4 FINANCIAL STATEMENTS. Tenant will provide Landlord with the
quarterly unaudited financial statements and, if available, annual audited
financial statements, for the Hospital within 30 days after completion.
14.5 EDUCATION. Tenant will provide Landlord with information and
recommendations on seminars and conferences which the directors of Landlord
might find applicable to their duties.
14.6 MEDICAL OFFICE BUILDING. Tenant will investigate the feasibility
of developing a medical office building in close proximity to the Hospital. The
project is intended to be a joint venture between Tenant or its affiliates and
Blythe area physicians. Tenant cannot predict whether the project is feasible or
the size of the project. Tenant will deliver a feasibility report to Landlord
within one year after the Commencement Date.
14.7 EXPANSION. Tenant will not build or develop any new buildings on
the Real Property until it has prepared and Landlord has approved a master site
plan.
14.8 INSPECTION. Landlord may enter and inspect the Hospital at all
reasonable times.
15 SERVICES AND UTILITIES. Tenant will pay when due all charges for
utilities incurred during the Lease term in connection with Tenant's operation
of the Hospital, including, but not limited to, charges for fuel, water, gas,
electricity, sewage disposal, power, refrigeration, heating, ventilation, air
conditioning and janitorial services. All charges will be prorated between
Landlord and Tenant as of the Commencement Date.
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16 MAINTENANCE AND REPAIR.
16.1 ROUTINE MAINTENANCE. Tenant will provide at its expense all
normal and routine day-to-day maintenance and repairs to the Hospital ("Routine
Maintenance").
16.2 CAPITAL IMPROVEMENTS. Tenant will be responsible to apply the
Development Funds (as defined below) for the following items of maintenance,
repair and equipping of the Hospital ("Capital improvements")
16.2.1 Structural repairs including, but not limited to,
foundations, floors, exterior ceilings, exterior walls and roofs and all
maintenance and repairs necessitated by structural disrepair or defect;
16.2.2 Repair of sidewalks, driveways, service areas, curbs and
parking areas;
16.2.3 Uninsured repairs or restoration made necessary by fire or
other peril;
16.2.4 Repairs or replacements of portions of the Real Property
which are capital improvements or which extend the useful life of the Real
Property beyond that normally obtained by routine day-to-day maintenance and
repairs;
16.2.5 Major repairs or replacements of equipment leased to
Tenant where such repairs or replacements are capital improvements or which
extend the useful life of the equipment beyond that normally obtained by
routine day-to-day repairs and maintenance;
16.2.6 Repairs or replacements of electrical systems, water,
sewer and plumbing systems, air conditioning and heating systems and other
major operating systems of the Hospital to the extent repairs or replacements
are capital improvements or extend the useful life of such systems beyond that
obtained by routine day-to-day repair and maintenance;
16.2.7 Capital improvements to the Hospital;
16.2.8 Repainting, redecoration and remodeling; and
16.2.9 Purchase of new equipment or the upgrade of old equipment.
16.3 TENANT PURCHASES. Tenant may, but is not obligated, make
Capital Improvements from sources other than Development Funds. Tenant commits
to purchase or lease a CT scanner and mammography equipment and to expend at
least $50,000
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on renovations and repairs within six months after the Commencement Date. From
time to time Tenant will purchase or lease other equipment it deems reasonably
necessary for Hospital operations.
17 DEVELOPMENT FUNDS.
17.1 USE OF FUNDS. Landlord will make available to Tenant for the
purpose of making Capital Improvements, the funds listed below (collectively,
the "DEVELOPMENT FUNDS"):
17.1.1 Funds raised by Landlord in its fund drives, net of expenses;
17.1.2 Approximately $12,000, representing the current balance of
Landlord's restricted funds available to make Capital Improvements;
17.1.3 Approximately $5,000, representing the current balance of funds
available to Landlord under the replacement reserve account maintained in
connection with the First Mortgage, and any future additional funds available
from the reserve; and
17.1.4 All funds and other assets contributed to the Association by
the Palo Verde Hospital District under the Hospital Support Agreement referenced
in Section 35.3.
17.2 DEPOSIT AND USE OF FUNDS. The Development Funds will be
transferred to Tenant, as trustee, as soon as reasonably available, for the
purpose of making Capital Improvements. Interest earned on the Development Funds
will be used for the same purpose. Tenant may use the Development Funds in its
discretion to make Capital Improvements. Tenant may, but is not obligated to,
use its own funds for Capital Improvements. Tenant will not use the Development
Funds for any purpose other than Capital Improvements and the payment of
Excluded Liabilities without the approval of the Advisory Board to be formed
under the Hospital Support Agreement. Tenant will provide to Landlord, at least
annually, a written report as to the deposit and use of the Development Funds.
Landlord may, no more frequently than once per year, employ a certified
accountant to audit the records of the Development Fund. The audit will occur
during regular business hours after reasonable notice to Tenant.
17.3 OWNERSHIP AND INCLUSION IN LEASE. All Capital Improvements will be
the property of Landlord, will be automatically included as components of the
"Hospital" and subject to this Lease. Tenant will have no obligation to pay
additional rent as a result of the Capital Improvements or the use of the
Development Funds. Upon termination or expiration of this Lease, the balance of
the Development Funds (less reserves
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to pay for committed Capital Improvements) will revert to Landlord and the
District, pro rata in accordance with their respective cumulative contributions.
18 PROFITS PARTICIPATION. Tenant will pay to Landlord as additional rent
during the term of this Lease a portion of Tenant's profits from operation of
the Hospital as follows:
18.1 PERCENTAGE. Tenant will pay to Landlord one percent (1%) of
Tenant's "Net Income" for each $100,000 of cumulative Development Funds
transferred to Tenant, to a maximum of ten percent (10%). For this purpose,
Development Funds will not include (a) any Development Funds attributable to
property tax revenues of the Palo Verde Hospital District and (b) any
Development Funds not attributable to property tax revenues of the District used
to pay Excluded Liabilities. The net amount of such Development Funds herein
referred to as "Non-Tax Development Funds"). No profits will be earned until
cumulative Non-Tax Development Funds transferred reach $100,000, and will then
be earned on the following schedule:
<TABLE>
<CAPTION>
When Cumulative Non-Tax The Percentage of Net
Development Funds Reach: Income Earned will be:
------------------------ ----------------------
<S> <C>
Less than $100,000 00%
$100,000 01%
$200,000 02%
$300,000 03%
$400,000 04%
$500,000 05%
$600,000 06%
$700,000 07%
$800,000 08%
$900,000 09%
$1,000,000 and over 10%
</TABLE>
18.2 PAYMENT. The profits participation will accrue during each
calendar year at the profits percentage in effect on the first day of the year.
A transfer of Non-Tax Development Funds will not affect the then current year's
accrual rate or have any retroactive affect on prior years' accruals. Tenant
will pay the profits participation annually within 60 days after the end of each
calendar year with respect to Net Income during the calendar year at the profits
percentage in effect on the first day of the calendar year. Each payment will be
accompanied by a statement setting forth the calculation. Landlord or its
representatives may inspect and audit Tenant's records during regular business
hours to verify Net Income.
18.3 NET INCOME. Net Income means Tenants's net income after taxes for
the Hospital. Net Income will be determined using generally accepted accounting
principles on a
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consistent basis. Net Income will include a rateable allocation of Tenant's
corporate overhead. An assumed combined federal and state income tax rate of
forty percent (40%) will be used.
18.4 TERMINATION. The profits participation will terminate upon
expiration or termination of this Lease for any reason; provided expiration or
termination will not affect any profits participation earned prior to such
event.
19 LIENS. Tenant will pay when due all claims for work done on or for
services rendered or material furnished to the Hospital at Tenant's request, and
will keep the Hospital free from any liens, other than liens created by
Landlord. Tenant may, however, withhold payment of any claim in connection with
a good faith dispute over the obligation to pay, so long as Landlord's property
interests are not jeopardized.
20 TAXES AND ASSESSMENTS.
20.1 REAL PROPERTY. During the Lease Term Tenant will pay all real
estate taxes levied on the Real Property.
20.2 PERSONAL PROPERTY. During the Lease Term Tenant will pay all
personal property taxes levied on all the personal property used or useful in
the operation of the Hospital.
20.3 ASSESSMENTS. Tenant will pay all assessments against the Hospital
which are attributable to the period of time that Tenant occupies the Hospital.
If any assessment can be paid over a term of years, Tenant will have the option
to accept extended payment and will pay only those payments due during the Lease
Term.
20.4 OBJECTION TO VALIDITY OR AMOUNT OF TAX. If Tenant objects in good
faith to the validity or amount of any tax or assessment which it is required to
pay, Tenant, at its sole expense, may contest the validity or amount of such tax
or assessment and Landlord will join in any documents necessary for such
contest. Any rebate received on account of any tax or assessment paid by Tenant
will be paid to Tenant.
20.5 EXPIRATION OR TERMINATION. All taxes and assessments will be
prorated as of the expiration or termination of this Lease (other than by reason
of Tenant's purchase of the Hospital). Tenant will also pay any real and
personal property taxes assessed prior to expiration or termination with
respect to the portion of the then current years' assessment applicable to the
period after the expiration or termination to the extent not abated by reason
of Landlord's tax-exempt status.
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21 INSURANCE.
21.1 LIABILITY INSURANCE. Tenant will obtain and keep in force during
the term of this Lease a policy of comprehensive public liability insurance
insuring Landlord and Tenant's use or occupancy of the Premises and all
surrounding areas. Such insurance will be in an amount of not less than
$1,000,000 for injury to or death of one person in any one accident or
occurrence, and in an amount of not less than $1,000,000 for injury to or death
of more than one person in any one accident or occurrence. Such insurance will
further insure Landlord and Tenant against liability for property damage of at
least $100,000.
21.2 PROPERTY INSURANCE. Tenant will obtain and keep in force during
the term of this Lease a policy or policies of insurance covering loss or damage
to the Hospital in amounts and coverages Tenant deems prudent.
21.3 PROFESSIONAL LIABILITY INSURANCE. Tenant will obtain and keep in
force during the term of the Lease Term professional liability insurance
insuring Tenant and Landlord in amounts and against the risks ordinarily insured
by standard professional liability insurance available to the hospitals.
21.4 WAIVER OF SUBROGATION. Tenant and Landlord each waives any and
all rights of recovery against the other, or against the officers, employees,
agents and representatives of the other, for loss or damage to such party or its
property or the property of others under its control, where such loss or damage
results from any of the risks covered by a standard fire insurance policy with
extended coverage or from any of the risks covered under any insurance policy in
force at the time of such loss or damage. Tenant and Landlord will provide
notice to the insurance carriers that the foregoing mutual waiver of subrogation
is contained in this Lease.
21.5 INSURANCE POLICIES. Landlord and the holder of the First Mortgage
each will be named as an additional insured on all policies. All insurance
policies described above will contain a provision or an endorsement
acknowledging that the policy cannot be terminated without thirty (30) days'
prior written notice to Landlord and the holder of the First Mortgage. Tenant
may elect to assume any of Landlord's insurance policies with the consent of the
insurance company. In this case, premiums will be prorated between Landlord and
Tenant as of the Commencement Date.
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22 DAMAGE OR DESTRUCTION.
22.1 TERMINATION. If the Hospital is damaged or destroyed from any
cause whatsoever, whether or not such damage or destruction is covered by any
insurance required to be maintained under Section 21, to such an extent that
twenty percent (20%) or more of the Hospital is unusable by Tenant for a period
of 60 days or more, Tenant will have the right to terminate this Lease without
liability upon 30 days' written notice in writing to Landlord given not later
than 60 days after the occurrence of such damage or destruction.
22.2 RECONSTRUCTION. In the event the Hospital is damaged or destroyed
under circumstances not resulting in termination of this Lease under SECTION
22.1, Tenant will repair, restore and rebuild the Hospital to its condition
existing immediately prior to such damage or destruction and this Lease will
continue in full force and effect. Such repair, restoration and rebuilding will
be commenced immediately after such damage or destruction and will be diligently
prosecuted to completion. Tenant's obligation to repair, restore and rebuild is
limited to the application of the proceeds of insurance payable to Tenant and
Landlord as a result of the damage or destruction. Both Tenant and Landlord will
apply all such insurance proceed to the effort. Neither Tenant nor Landlord is
obligated to pledge, contribute or expend any other funds, or to guaranty any
loans, in connection with the rebuilding effort.
23 CONDEMNATION.
23.1 TERMINATION. If all or any portion of the Hospital or Tenant's
interest in this Lease is acquired or condemned by any governmental authority
under its power of eminent domain for any public or quasi-public use or purpose,
or if the Hospital or Tenant's interest in this Lease is conveyed under threat
of condemnation (any such event termed a "Taking"), Tenant will have the option
to terminate this Lease by notice given to Landlord within one hundred eighty
(180) days of such Taking. In the event that such a notice of termination is
given, this Lease will terminate as of the date of vesting or acquisition of
title in the condemning authority and the rents hereunder will be abated on that
date. If Tenant does not exercise its option to terminate this Lease, this Lease
will continue in force and effect.
23.2 RIGHTS TO AWARD. Upon any Taking, Tenant will be entitled to 100%
of the condemnation proceeds or award applicable to its interest in this Lease,
including its option to purchase and Capital Improvements paid from a source
other than Development Funds.
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<PAGE> 28
24 ASSIGNMENT AND SUBLEASE. This Lease may be assigned and the Hospital may
be subleased by Tenant with the consent of Landlord, which consent will not be
unreasonably withheld. Tenant may at any time sublease all or any portion of the
Hospital to any entity which, directly or indirectly, owns or controls or is
owned or controlled by Tenant.
25 DEFAULT BY TENANT. The following will be events of default by Tenant:
25.1 NONPAYMENT. Tenant's failure to pay any rent due within fifteen
(15) days after written notice of nonpayment or to pay any other charge under
this Lease within thirty (30) days after written notice of nonpayment.
25.2 NONCOMPLIANCE. Tenant's failure to comply with any term or
condition or fulfill any obligations of this Lease (other than payment of rent
or other charges) continuing thirty (30) days after written notice by Landlord
specifying the nature of the default. If the default cannot reasonably be cured
within the 30-day period, this provision will be satisfied if Tenant commences
correction of the default within the 30-day period and thereafter proceeds with
reasonable diligence and in good faith to effect the remedy as soon as possible.
26 LANDLORD REMEDIES ON DEFAULT BY TENANT. In the event of a default by
Tenant, Landlord may elect to terminate Tenant's right to possession of the
Hospital by giving written notice. The notice will specify the nature of the
default and a date for termination, which may be not less than 30 days after the
date of the notice. The termination will become effective on the specified date
unless all defaults specified in the notice are cured on or before such date.
Upon termination, Landlord may re-enter and take possession of the Hospital and
remove any persons or property by legal action or by self-help, with the use of
reasonable force. Following termination, Landlord will have the right to recover
from Tenant unpaid rent and other charges only for the period prior to
termination. If the default involves a failure to pay any amounts payable by
Tenant under this Lease, Landlord may make such payment and will be entitled to
be immediately reimbursed by Tenant together with interest at the rate of 12
percent per year until paid in full.
27 DEFAULT BY LANDLORD. The following will be events of default by
Landlord:
27.1 PAYMENT. Landlord's failure to pay any amounts due to Tenant under
this Lease within fifteen (15) days' after written notice of nonpayment.
27.2 NONCOMPLIANCE. Landlord's failure to comply with any term or
condition or fulfill any obligations of this
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<PAGE> 29
the total Reserve Payments paid by Tenant during the Lease Term. Net book value
will be determined by the depreciation schedule used by Tenant. Tenant will use
a depreciation schedule permitted by generally accepted accounting principles.
The payment will be made within 15 days after the expiration or termination. If
the payment is not made in full, Tenant will have a lien on the Hospital (which
will include a mortgage or deed of trust and Uniform Commercial Code security
interests) to secure repayment of the obligation and the unpaid balance, if any,
of the Excluded Liabilities Account. Landlord will execute lien instruments
contemporaneously with the execution of this Lease. Tenant may record the
instruments if the payment is not made in full when due. Contemporaneously with
such purchase, Landlord will assume, and agree to defend and hold Tenant
harmless from, all obligations under leases and contracts for equipment, goods,
supplies and services for the benefit of the Hospital entered into by Tenant
during the Lease Term, other than agreements with Tenant and its affiliates.
31.3 ASSUMED CONTRACTS. Tenant's assumption of the Assumed Contracts
will be effective only for the Lease Term. Following expiration or termination
of the Lease Term, Tenant will be released from all liability under the Assumed
Contracts. Landlord will defend and indemnify Tenant against all claims under
the Assumed Contracts arising after the expiration or termination.
31.4 LICENSES. Upon termination or expiration of this Lease, Tenant
will: (a) surrender or transfer to Landlord, as appropriate, all licenses,
certificates and permits associated with the Hospital; (b) transfer to Landlord
all medical records, medical staff records, financial records and other books
and records associated with the Hospital; and (c) immediately stop using the
name "Palo Verde Hospital" or any similar name.
32 ADVERSE CHANGES. Tenant will have the right to terminate this Lease
immediately upon written notice to Landlord without any liability in the event
of any adverse material changes in the financial condition or operations of the
Hospital prior to the Commencement Date.
33 INDEMNITY.
33.1 LANDLORD'S OBLIGATION. Landlord will hold Tenant harmless from,
indemnify Tenant fully for and protect and defend Tenant against any and all
claims, demands, liabilities, damages, losses, and expenses, including attorney
fees arising out of or in connection with (a) the operation or use of the
Hospital before the Commencement Date or (b) the breach of any representation,
warranty or covenant of Landlord in this Lease. Notwithstanding the "knowledge"
standard applied to Landlord's environmental representations and the attached
schedule of known
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exceptions to such representations, Landlord will indemnify Tenant with respect
to all violations of Environmental Laws with respect to acts and omissions prior
to the Commencement Date, all Hazardous Substances introduced to the Hospital
prior to the Commencement Date and all underground tanks in existence prior to
the Commencement Date. While Tenant is willing to accept Landlord's
environmental representations qualified as to Landlord's knowledge, Tenant
demands, as a matter of allocating risks associated with environmental matters,
that Landlord agree to accept and bear all claims, demands, liabilities,
damages, losses and expenses, including attorney fees, associated with
environmental matters and conditions in existence on the Commencement Date,
including with respect to matters within Landlord's current knowledge.
Notwithstanding the above, Landlord will not indemnify Tenant with respect to
the breach of a representation or warranty arising out of actions or omissions
by Tenant or its affiliates prior to the Commencement Date.
33.2 TENANT'S OBLIGATION. Tenant will hold Landlord harmless from,
indemnify Landlord fully for, and protect and defend Landlord against any and
all claims, demands, liabilities, damages, losses, and expenses, including
attorney fees arising out of or in with (a) the operation or use of the Hospital
during the Lease term or (b) the breach of any representation, warranty, or
covenant of Tenant in this Lease.
34 MEMORANDUM OF LEASE. Concurrently with the execution of this Lease, the
parties will execute and acknowledge a Memorandum of Lease and Option to
Purchase in the form attached as EXHIBIT A, and cause the same to be file in the
real property records of Riverside County, California. Tenant will pay the
recording charges.
35 CONDITIONS TO TENANT'S OBLIGATIONS. The obligation of Tenant under this
Lease are subject to the satisfaction or waiver by Tenant of each of the
following conditions on or before the Commencement Date:
35.1 LICENSES. Tenant and Hospital will have received all permits,
licenses, orders, certifications and approvals from all federal, state and local
governmental and regulatory bodies required to enable Tenant to operate the
Hospital under this Lease.
35.2 FIRST MORTGAGE. Tenant, Landlord and the holder of the First
Mortgage will have entered into an agreement under which the holder will consent
to this Lease and release its security interest in Landlord's working capital,
and Tenant and the holder will agree on subordination, attornment and
nondisturbance matters.
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35.3 HOSPITAL SUPPORT AGREEMENT. Tenant, Landlord and Palo Verde
Hospital District will have entered into a Hospital Support Agreement under
which the District will agree to make certain tax revenues available for Capital
Improvements and Landlord and the District will form an Advisory Board to the
Hospital.
35.4 INSURANCE. Landlord will have obtained a "tail" policy or Tenant
will have obtained a claims made policy, insuring Tenant and Landlord against
the risks ordinarily insured by standard professional malpractice liability
insurance available to the hospitals respect to incidents, errors, omissions and
claims which arose, existed or were created before the Commencement Date and
with limits and carriers approved by Tenant.
35.5 REPRESENTATION, ETC. Each of the representations, warranties and
covenants of Landlord set forth in this Lease will be correct and fully
performed.
35.6 LEGAL OPINION. Tenant will have received an opinion of legal
counsel for Landlord, in a form and from counsel reasonably acceptable to
Tenant, covering the matters set forth on SCHEDULE 35.6.
35.7 TITLE INSURANCE. Tenant will have received a commitment from
Chicago Title Company to issue a policy insuring the leasehold estate of Tenant
in the Real Property (at Tenant's expense), subject only to liens as approved by
Tenant.
35.8 ENVIRONMENTAL AUDIT. Tenant will have received a level one and
modified level two environmental study and will have accepted the conclusions
and results of the study, which acceptance will be in Tenant's sole discretion.
36 CONDITIONS TO LANDLORD'S OBLIGATIONS. The obligation of Landlord under
this Lease are subject to the satisfaction or waiver by Landlord of each of the
following conditions on or before the Commencement Date:
36.1 LICENSES. Tenant and Hospital will have received all permits,
licenses, orders, certifications and approvals from all federal, state and local
governmental and regulatory bodies required to enable Tenant to operate the
Hospital under this Lease.
36.2 FIRST MORTGAGE. Tenant, Landlord and the holder of the First
Mortgage will have entered into an agreement under which the holder will consent
to this Lease and release its security interest in Landlord's working capital,
and Tenant and the holder will agree on subordination, attornment and
nondisturbance matters.
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<PAGE> 32
36.3 HOSPITAL SUPPORT AGREEMENT. Tenant, Landlord and Palo Verde
Hospital District will have entered into a Hospital Support Agreement under
which the District will agree to make certain tax revenues available for Capital
Improvements and Landlord and the District will form an Advisory Board to the
Hospital.
36.4 INSURANCE. Landlord will have obtained a "tail" policy or Tenant
will have obtained a claims made policy, insuring Tenant and Landlord against
the risks ordinarily insured by standard professional malpractice liability
insurance available to the hospitals respect to incidents, errors, omissions and
claims which arose, existed or were created before the Commencement Date and
with limits and carriers approved by Tenant.
36.5 REPRESENTATIONS, ETC. Each of the representations, warranties and
covenants of Tenant set forth in this Lease will be correct and fully performed.
36.6 LEGAL OPINION. Landlord will have received an opinion of legal
counsel for Tenant, in a form and from counsel reasonably acceptable to
Landlord, covering the matters set forth on Schedule 36.6.
37 ARBITRATION. In the event of any dispute under this Lease, the matter
shall be submitted to binding arbitration. The arbitration shall be conducted in
accordance with the rules of the American Arbitration Association. If the
arbitration is instituted by Landlord, it will be conducted in Multnomah County,
Oregon. If the arbitration is instituted by Tenant, it will be conducted in
Riverside County, California. The arbitration shall be conducted by a single
arbitrator. If the parties are unable to agree on a single arbitrator, the
presiding judge of the Multnomah County, Oregon Circuit Court or the Riverside
County Superior Court, as applicable, upon request of any party, will designate
the arbitrator. The cost of the arbitrator will be shared equally by Landlord
and Tenant. Landlord and Tenant will pay their own respective attorneys fees.
38 GENERAL PROVISIONS.
38.1 NONWAIVER. Waiver by either party of strict performance of any
provisions of this Lease will not be a waiver of or prejudice the party's right
to require strict performance of the same provision in the future or of any
other provision.
38.2 EXPENSES.Each party will pay its own expenses in connection with
the transactions contemplated by this Lease, except to the extent otherwise
expressly indicated.
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38.3 NOTICES. Any notice required or permitted under this Lease will be
in writing and will be effective when actually delivered or when deposited in
the United States mail as certified mail addressed to the parties at the
addresses listed below or to such other address as may be specified from time to
time by either of the parties in writing:
If to Landlord to:
Palo Verde Hospital Association
250 North First Street
P.O. Box Z
Blythe, CA 92226-0766
Attention: Chairman of the Board
With a copy to:
Best, Best & Craggier
3750 University Avenue
P.O Box 1028
Riverside, CA 92502
Attention:
If to Tenant to:
Brim Hospitals, Inc.
305 N.E. 102nd Avenue
Portland, OR 97220
Attention: Palo Verde Hospital
With a copy to:
Tonkon, Torp, Galen, Marmaduke & Booth
Suite 1600
888 S.W. Fifth Avenue
Portland, OR 97204
Attention: Michael M. Morgan
38.4 SURVIVAL. All representations and covenants of the parties in this
Lease will survive the Commencement Date.
38.5 SUCCESSORS AND ASSIGNS. This Lease will bind and benefit not only
the parties, but their respective successors, heirs and assigns.
38.6 CAPTIONS. Paragraph captions are for convenience only and will not
affect the meaning or interpretation of any provision of this Lease.
38.7 GOVERNING LAW. This Lease will be interpreted in accordance with
the laws of the state of California.
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<PAGE> 34
38.8 CONSENTS. Any consent or approval required to be obtained under
this Lease will not be unreasonably withheld or delayed.
BRIM HOSPITALS, INC. PALO VERDE HOSPITAL ASSOCIATION
By: /s/ John R. Miller By: /s/
--------------------------- -------------------------------
Name: John R. Miller Name:
------------------------- -----------------------------
Title: President Title: President
------------------------ ----------------------------
30
<PAGE> 1
Exhibit 10.19
LEASE AGREEMENT
THIS AGREEMENT made and entered into this 15th day of May, 1986, by and
between Fort Morgan Community Hospital Association (the "Hospital Association")
and Brim Hospitals Inc., a wholly-owned subsidiary of Brim & Associates, Inc.
("BHI").
WHEREAS, Hospital Association is the owner of a 40-bed acute care facility
known as Fort Morgan Community Hospital, Fort Morgan, Colorado (the "Hospital");
and
WHEREAS, Hospital Association, Holding Company and BHI have entered into an
Operating Agreement of even date herewith whereby BHI will operate the Hospital
(the "Operating Agreement"); and
WHEREAS, to achieve the goals of the parties hereto as stated in the
Operating Agreement, Hospital Association desires to lease to BHI the real
property on which the Hospital is located and the furniture, fixtures and
equipment located in and on the Hospital (the "Leased Property") and any and all
other real property currently owned or acquired during the lease term by the
Hospital Association.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants of the parties set forth herein, it is hereby agreed as follows:
1. Subject Property. Hospital Association, in consideration of the payment
to be made and of the covenants to be kept and performed by BHI hereunder,
hereby demises and offers to BHI, and BHI hereby hires and takes from Hospital
Association, the real estate located in the Town of Fort Morgan, County of
Morgan, State of Colorado, legally described in Exhibit A attached hereto (the
"Real Property"), and the improvements constructed thereon that constitute the
40-bed acute care facility commonly known as Fort Morgan Community Hospital (the
"Hospital") and all furniture, fixtures, and equipment and other tangible
personal property owned and/or leased by Hospital Association and located
thereon or therein, also included in subject property any and all real property,
equipment, furniture, fixtures, and building improvements acquired by the
Hospital Association during the lease term (hereinafter collectively called the
"Personal Property"). (Hereinafter the Real Property, the Hospital and Personal
Property are collectively referred to as the "Leased Property.") Within ten (10)
days after execution of this Agreement, BHI and Hospital Association shall
jointly compile two schedules: Schedule A shall identify the Personal Property
owned by Hospital Association and the current book value of said property (the
"Owned Personal Property"); and Schedule B shall identify the Personal Property
leased by Hospital Association, the name of the Lessor, the date of the Lease,
the Lease Term and the rental payments owing under
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<PAGE> 2
the Lease (the "Leased Personal Property"). The Schedules shall be attached
hereto as Exhibits B-1 and B-2.
BHI does hereby covenant to take all steps necessary to assume any leases
entered into by Hospital Association prior to the Commencement Date which relate
to the Leased Personal Property and Holding Company shall not be liable for any
damage or injury which BHI or any patient of the Hospital may incur as a result
of BHI's failure to do so.
2. Term. The term of this Agreement shall commence on June 1, 1986 (the
"Commencement Date"), and shall expire on May 31, 2006, unless earlier
terminated as provided hereinafter in Sections 5, 13, 14 and 15. Any termination
of this Agreement will result in an automatic rescission of the Purchase
Agreement.
3. Use.
3.1 BHI shall use and operate the Leased Property as a general acute care
facility and, subject to Hospital Association's approval, which approval shall
not be unreasonably withheld, for health care and health care related purposes,
such as a home health care program, wellness program, long-term care and
physician's offices. BHI shall use and operate the Leased Property in compliance
with all applicable laws and regulations of the City of Fort Morgan, the State
of Colorado, the Medicare and Medicaid Programs, and any other applicable state,
federal and local laws, provided that BHI shall have the right to contest the
validity or applicability of any such laws and regulations by appropriate legal
proceedings upon furnishing Hospital Association with such security as may be
reasonably demanded by Hospital Association.
3.2 After the Commencement Date, BHI shall neither use nor permit to be
used the Leased Property or any part thereof for any purpose which would cause
the cancellation of any insurance policy covering the Hospital or any part
thereof, nor shall BHI sell or permit to be kept, used or sold in or about the
Leased Property any article which may be prohibited by the standard form of fire
insurance policies. BHI shall, at its sole cost, comply with all of the
requirements pertaining to the Leased Property of any insurance organization or
company necessary for the maintenance of said insurance.
3.3 BHI shall not commit or suffer to be committed any waste on the Leased
Property nor shall BHI cause or permit any nuisance thereon.
3.4 BHI shall neither suffer nor permit the Leased Property or any portion
thereof to be used in such a manner as (i) might reasonably tend to impair
Hospital Association's
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<PAGE> 3
title thereto, 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
thereof.
4. Rent.
4.1 As consideration for the use of the Leased Property, BHI shall pay to
Hospital Association the amount of One and No/100 Dollars ($1.00) annually (the
"Base Rent"). The Base Rent shall be due and owing on the first day of each
Lease Year and may be paid to Hospital Association in advance at the address
stated in Section 19, below.
4.2 This Lease is intended to be net to Hospital Association. Hospital
Association or Holding Company shall not be required to make any payment of any
kind with respect to the Leased Property except as may be expressly set forth
herein. Accordingly, BHI agrees to pay all additional expenses described herein
as they become due and payable. Said additional expenses shall include all real
estate taxes, general and special assessments, and other public charges which
are assessed, levied, confirmed, or imposed upon the Leased Property, (other
than Hospital Association's income taxes, if any) during the Lease Term, all
charges for water, electricity, gas, sewerage, waste, trash and garbage
disposal, telephone, cable television, and other services furnished to the
Leased Property. Forthwith upon payment by BHI of any taxes or assessments
required to be paid by it, upon request BHI shall submit to Hospital Association
the official receipt or receipts, or photostatic copies thereof, evidencing
payment of such taxes or assessments.
4.3 BHI may contest, in its own name or in the name of Hospital
Association, with Hospital Association's cooperation which Hospital Association
agrees to give, the legality or validity of any such tax or assessment or of any
law under which the same shall be imposed. This must be done in good faith, with
due diligence, and at BHI's own expense. If BHI does so contest such tax or
assessment beyond the time limit for payment thereof by BHI, BHI shall do one of
the following: BHI may pay such amount under protest; procure and maintain a
stay of all proceedings to enforce collection of such tax or assessment; or
deposit with Hospital Association reasonable security for the payment of all
contested sums. Once such action is taken by BHI, BHI shall not be considered to
be in default on any of the contested additional expense provisions hereof.
4.4 BHI shall have, and Hospital Association hereby irrevocably grants to
BHI, the power and authority, at BHI's cost to make, file and prosecute any
statement or report or claim for refund which may be required or permitted by
law, as
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the basis of or in connection with the assessment, determination, equalization,
reduction or payment of any and every tax or assessment or license or charge
which BHI is required to pay or discharge hereunder.
4.5 BHI shall be entitled to pay the Base Rent and any additional expenses,
out of all revenues and cash collections received by BHI on Hospital
Association's behalf on and after the Commencement Date from any tenants,
private pay patients and third-party payors, including Medicare, Medicaid and
private insurance.
5. Termination.
5.1 Both Hospital Association and BHI shall be entitled to terminate this
Agreement at any time after the first year of the Lease Term for any reason. The
termination shall be effective 120 days after receipt of written notice from the
terminating party (the "Termination Date").
5.2 Upon termination by either party or upon expiration of the Lease Term,
Hospital Association shall be obligated to purchase any BHI Personal Property,
as defined in Section 6.3, below. The purchase price for the BHI Personal
Property shall be the depreciated book value of such property as of the
Termination Date and shall be paid in cash. [or by execution and delivery to BHI
of a promissory note in such amount bearing interest at the Prime Rate as
announced by First Interstate Bank of Oregon as it may vary from time to time.
Principal and interest shall be amortized and payable over a five-year period
with principal and interest payment due monthly commencing one month after the
Termination Date.]
5.3 The termination of this Agreement under this Section 5 or Sections 13,
14 and 15 shall result in the rescission of the Purchase Agreement, which
rescission shall be in accordance with the terms and conditions set forth in the
Operating Agreement.
6. Maintenance, Repair, Alterations and Utilities. Throughout the Lease
Term:
6.1 BHI shall, at its own cost, and without expense to Hospital
Association, keep and maintain the Leased Property, including all sidewalks,
buildings, surface parking lots and improvements of any kind which may be a part
thereof, in good, sanitary and neat order, condition and repair, ordinary wear
and tear and obsolescence in spite of repair and acts of God excepted.
6.2 BHI shall have the right to make alterations, additions and
improvements to the Leased Property provided that
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(a) such work does not adversely affect the structural integrity of the Hospital
or diminish the value thereof, (b) any such work is performed in a good and
workmanlike manner and in conformance with all applicable building codes, and
(c) any such work that is a capital requirement, as defined below in Section
6.7, shall have been submitted to Hospital Association.
6.2.1 BHI shall have the right to replace the existing Personal Property
provided that any such purchase that is a capital requirement shall have been
submitted to Holding Company and Hospital Association for approval.
6.2.2 BHI shall also have the right to acquire any additional Personal
Property which in its judgment is needed to meet the needs of the patients of
the Hospital (the "BHI Personal Property"), provided that any such acquisition
that is a capital requirement shall have been submitted to Hospital Association
for approval.
6.3 BHI shall submit on an annual basis all planned capital requirements to
Holding Company for its review and approval.
6.4 In the event that BHI and Hospital Association agree to make
substantial alterations, additions or improvements to the Hospital, Hospital
Association agrees to undertake reasonable efforts in securing the necessary
capital financing through reasonable and available means.
6.5 The success of Hospital Association in securing capital financing shall
result in an additional expense payable by BHI under the Operating Agreement.
The additional expense shall be equal to the amount which Hospital Association
is required to pay annually to amortize the debt secured by Hospital
Association.
6.6 All such debt financing shall be in the name of Hospital Association,
although BHI shall provide Hospital Association with whatever assistance it may
need in connection therewith. Upon termination of this Agreement, Hospital
Association will be solely responsible for the continued satisfaction of any
such debt, unless the necessary financing was provided by BHI in which case
Hospital Association shall reimburse BHI for the cost of all such improvements
at their then depreciated book value.
6.7 As used in this Section 6, capital requirement shall mean alterations,
additions, improvements, equipment or personal property with a cost of over
$5,000.00 and three years or more life expectancy.
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6.8 BHI shall also maintain the Hospital grounds in a good and sightly
appearance, including regular mowing, pruning, fertilizing, and other
appropriate care of all grass, plants, and trees.
7. Liens Against the Property.
7.1 Aside from the permitted encumbrances listed in Exhibit B, BHI will not
permit the Leased Property to become subject to any lien, charge, or
encumbrance. BHI shall maintain the Leased Property free from all orders,
notices, and violations filed or entered by any public or quasi-public
authorities. Notwithstanding the foregoing, BHI may contest any such liens,
charges, encumbrances, orders, notices or violations. This must be done in good
faith, and with due diligence.
7.2 Should a judgment on any lien, charge, encumbrance, order, notice or
violation by rendered against the Leased Property, and should BHI fail to
discharge such judgment or take action to protest such judgment, Hospital
Association shall have the right but not the obligation to discharge said
judgment. If Hospital Association exercises that option, any amount paid by
Hospital Association shall be due from BHI as additional rent. Such additional
rent shall be due and payable immediately upon BHI's receipt of notice from
Hospital Association that the expense was incurred.
8. Indemnification.
8.1 BHI hereby agrees to indemnify and to hold Hospital Association and
Holding Company harmless from and against any and all claims and demands for
injury or death to persons and damage to property occurring on the Leased
Property during the Lease Term, and will defend Hospital Association and
Holding Company from any claim of liability on account thereof; provided,
however, that BHI shall have no obligation with respect to any claims resulting
from the negligent or willful misconduct of Hospital Association or Holding
Company or their officers, directors, agents or employees, or any claims
arising prior to the Commencement Date which relate to the ownership of the
Leased Property or the operation of the Hospital.
8.2 Hospital Association hereby agrees to indemnify and to hold BHI
harmless from and against any and all claims and demands for injury or death to
persons and damage to property occurring prior to the Commencement Date, and
will defend BHI from any claim of liability on account thereof. In addition,
Hospital Association agrees to indemnify and to hold BHI harmless with respect
to any claims resulting from the negligent or willful misconduct of Hospital
Association or Holding Company or their officers, directors, agents or
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employees, and any claims which relate to the ownership of the Leased Property
arising prior to the Commencement Date or during the Lease Term.
9. Quiet Enjoyment. Hospital Association warrants that BHI upon paying the
Base Rent and the additional expenses as provided for in this Agreement and upon
performing all other requirements hereof, shall quietly have, hold, and enjoy
the Leased Property during the Lease Term. Notwithstanding the foregoing,
Hospital Association shall have the right, during normal business hours, to
enter upon the Leased Property and to examine and inspect the same, provided
said inspection does not interfere with the rendering of patient care at the
Hospital.
10. Insurance.
10.1 Throughout the Lease Term BHI shall, at its expense, maintain the
following insurance:
a) Insurance against loss or damage by fire and such other risks as
may be included in the broadest form of extended coverage from time to
time; and
b) Insurance against loss or damage by explosion of steam boilers,
pressure vessels, or any similar apparatus now or hereafter installed on
the Leased Property in an amount not less than 90% of the insurable value
of the Leased Property from time to time; and
c) Insurance against claims for personal injury and property damage
occurring on the Leased Property under a comprehensive professional and
general hospital liability policy with limits of not less than One Million
Dollars ($1,000,000.00) per claim/incident, Five Million Dollars
($5,000,000.00) in the aggregate and One Million Dollars ($1,000,000.00)
for property damage arising out of any single occurrence.
d) Loss of rents under a rental value insurance policy covering risk
of loss during the first six months due to the occurrence of any of the
hazards described in a) or b) in an amount sufficient to prevent Hospital
Association or Holding Company from becoming a co-insurer.
e) Such other hazards and in such amounts as may be customary for
comparable properties in the area and is of the type available from
reputable insurance companies.
10.2 The term "insurable 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. In the event either party believes that the
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insurable value (the then replacement cost less exclusions) has increased or
decreased, it shall have the right, but only, except as provided below, at
intervals of not less than five years to have such insurable value re-determined
by the fire insurance company which is then carrying the largest amount of fire
insurance carried on the Leased Property, hereinafter referred to as an
"impartial appraiser". The party desiring to have the insurable value so
re-determined 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 BHI shall forthwith increase, or may decrease, the amount of
the insurance carried pursuant to this Section 10, as the case may be, to the
amount so determined by the impartial appraiser. The party desiring the
redetermination shall pay the fee, if any, of the impartial appraiser. If,
during any such five-year period BHI or Hospital Association shall have made
improvements to the Leased Property, Hospital Association may at its own cost
have such insurance value re-determined at any time after such improvements are
made, regardless of when the insurable value was last determined.
10.3 All insurance policies carried by either party covering the Leased
Property, including without limitation thereto, 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.
10.4 To the extent that either Hospital Association or BHI may have claims
against the other for fire or casualty damage to the Leased Property (including
business interruption caused thereby), which claims are covered by insurance
payable to and protecting the claiming party, the claiming party hereby agrees
to exhaust all claims under such insurance before asserting any claims against
the other party. The foregoing shall apply to claims for damage whether such
damage is caused, wholly or partially, by the negligence or other fault of the
other party or its agent, employees, subtenants, licensees, or assignees.
10.5 All of the policies of insurance referred to in this Section shall
name Hospital Association as an additional insured, shall be written in form
satisfactory to Hospital Association and by insurance companies satisfactory to
Hospital Association. Hospital Association agrees that it will not unreasonably
withhold its approval as to the form of or to the insurance companies selected
by BHI. BHI shall pay all of the premiums therefor, and deliver such policies or
certificates
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thereof to Hospital Association prior to their effective date (and, with respect
to any renewal policy), at least five days prior to the expiration of the
existing policy, and in the event of the failure of BHI either to effect such
insurance in the names herein called for, to pay the premiums therefor, or to
deliver such policies or certificates thereof to Hospital Association at the
time required, Hospital Association shall be entitled, but shall have no
obligation, to effect such insurance and pay the premiums therefor, which
premiums shall be repayable to Hospital Association upon written demand
therefor, and failure to repay the same shall carry with it the same consequence
as failure to pay any installment of Base Rent or additional expenses. Each
insurer mentioned in this Section shall agree, by endorsement on the policy or
policies issued by it, or by independent instrument furnished to Hospital
Association, that it will give to Hospital Association ten days written notice
before the policy or policies in question shall be altered or cancelled.
10.6 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.
10.7 Notwithstanding anything to the contrary contained in this Section,
BHI'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 BHI or its parent, provided, however, that the
coverage afforded Hospital Association 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
Section 10 are otherwise satisfied.
11. Damage and Destruction.
11.1 All proceeds payable by reason of any physical loss of any of the
improvements comprising the Leased Property and insured under any policies of
insurance required by this Lease shall be held in trust by BHI and subject to
Section 11.2 shall be available for the reconstruction or repair, as the case
may be, of any damage to or destruction of the Property, the Hospital and the
Personal Property and shall be paid out by BHI
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from time to time for the reasonable cost of such work. Any excess of money
received from insurance remaining with BHI after the restoration or
reconstruction of the Leased Property shall be retained by BHI free and clear
upon completion or restoration or construction or upon the expiration of thirty
days after Hospital Association's notice as provided for in Section 11.3, as the
case may be. All salvage resulting from any such loss covered by insurance shall
belong to Hospital Association.
11.2 In the event any improvements comprising the Leased Property are
damaged by peril covered by insurance, BHI shall commence to rebuild the same
within sixty days after the proceeds of any insurance become available unless:
11.2.1 Repair or reconstruction of the damage cannot be made under the
existing laws, ordinances, statutes or regulations of any governmental authority
applicable thereto, in which event there shall be no obligation to rebuild, and
all such insurance proceeds shall be remitted to Hospital Association.
11.2.2 The damage or loss occurs within three years of the end of the Lease
Term and Hospital Association elects not to rebuild, in which case all insurance
proceeds shall be remitted to Hospital Association;
11.2.3 The damage is thirty percent (30%) or more of the sum of (i) the
then current reconstruction cost of the Real Property and the Hospital, and (ii)
the replacement cost of all Personal Property as determined by an insurance
survey and Hospital Association elects not to rebuild, in which case all
insurance proceeds shall be remitted to Hospital Association;
11.2.4 The loss renders the Hospital unsuitable for use as an acute care
facility and Hospital Association elects not to rebuild, in which case all
insurance proceeds shall be remitted to Hospital Association.
11.3 The Hospital Association's election to rebuild or not (pursuant to
Sections 11.2.2, 11.2.3 or 11.2.4 above) shall be by written notice to BHI
within sixty days after the damage occurs and shall result in an automatic
termination of this Lease upon BHI's receipt of said notice. Hospital
Association's inability to rebuild under Section 11.2.1 shall also trigger a
termination of this Lease effective sixty days after the damage occurs.
11.4 In the event any loss occurs which renders the Hospital unsuitable for
use and there is not insurance coverage with respect to such loss, Hospital
Association may, at its election, either terminate this Lease or elect to
rebuild or
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repair the damage so incurred provided that unless Hospital Association notifies
BHI in writing sixty days after such damage as to which election it makes, it
shall be deemed to have elected to rebuild or repair. Any such replacement or
repairs shall be commenced within sixty days of the date of election by Hospital
Association, but not later than one hundred twenty days after the loss. In the
event Hospital Association does not elect to rebuild or repair, this Lease shall
automatically terminate as provided in Section 11.3, above.
11.5 For the purposes of this Section 11, the Hospital shall be deemed to
have been rendered unsuitable for use as an acute care facility if in the good
faith judgment of BHI, reasonably exercised, after any such loss the Hospital
cannot be operated on a commercial practicable basis as an acute care facility
of the type and quality existing and licensed immediately prior to such loss
taking into account, among other relevant factors, the number of usable beds
affected by such loss.
11.6 This Lease shall remain in full force and effect and BHI's obligation
to make rental payments and to pay all other charges required by this Lease
shall remain in full force and effect during the period of repair and/or
reconstruction.
12. Condemnation
12.1 If, during the term of this Lease, the whole or any portion of the
Leased Property is taken or condemned in fee for a public or quasi-public use,
then BHI shall have the option to terminate this Lease.
12.2 Damages for Taking. In the event of either a partial or a total taking
or condemnation, all damages awarded in connection with the taking of the
Property, the Hospital or the Personal Property shall vest in Hospital
Association, and any damages awarded in connection with the taking of the
leasehold estate, or BHI Personal Property shall vest in BHI.
13. Default by BHI. In the event BHI shall fail to observe, perform or
comply with any of the terms, covenants, agreements or conditions contained in
this Lease and such failure shall continue for thirty days after Hospital
Association has given BHI notice of such failure, Hospital Association shall
have the right to terminate this Lease effective sixty days thereafter and to
take immediate possession of the Leased Property; BHI shall be obligated to pay
all rent owing to the date of termination; and Hospital Association shall be
obligated to acquire any BHI Personal Property as provided in Section 5.2.
Thereafter, neither party shall have any further rights or obligations
hereunder.
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Notwithstanding the foregoing, if BHI has promptly commenced and diligently
pursued remedial action within said thirty-day period, said thirty day period
shall be extended for the minimum time reasonably required for the completion of
BHI's remedial action.
14. Default by Hospital Association. In the event (i) Hospital
Association defaults in the performance of or compliance with any of its
obligations hereunder for a period of thirty days after written notice thereof
from BHI except for any default not susceptible of being cured within thirty
days were Hospital Association is proceeding with reasonable diligence to cure
the same or (ii) laws or regulations are enacted or promulgated which, in the
reasonable opinion of BHI, severely restrict or increase the cost of operating
the Hospital for the purpose contemplated hereby, BHI shall have the right to
terminate this Lease effective sixty days thereafter, subject to BHI's
obligation to pay any rent or additional expenses owing to the date of
termination and to Hospital Association obligations under Section 5.2
15. Termination by a Third Party. In the event this Lease is terminated
by a third party over which neither BHI nor Hospital Association has any
control, both BHI and Hospital Association shall be entitled to receive whatever
compensation is owing to them under this Lease to the date of termination. BHI
and Hospital Association agree in the event of such a termination to work
together toward an orderly lease termination.
16. Assumption of Contracts. In the event that this Agreement is
terminated by either party or not renewed at the expiration of the Lease Term,
Hospital Association will assume liability for the performance, from and after
said termination/expiration date, of any contracts relating to the Leased
Property entered into or assumed by BHI which extend past the term of this
Agreement.
17. Assignment. BHI may not assign its rights or obligations under this
Agreement or sublet the Property or any part thereof to any unrelated
organization without obtaining the prior written consent of Hospital
Association. Such consent shall not be unreasonably withheld. BHI may assign to
a related party upon prior written notice to the Hospital Association. In the
event a party other than Hospital Association becomes the owner of the
Hospital's assets, the new owner shall take title subject to Hospital
Association's obligations and BHI's rights hereunder including, but not limited
to, BHI's right of first refusal referred to in Section 22 below.
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18. Arbitration.
18.1 In the event there are any matters affecting the interpretation of
this Agreement that cannot be resolved by mutual agreement of the parties,
either party shall have the right to demand that such disputed matter be
submitted to arbitration by a Board of Arbitrators composed of three members.
Each party shall appoint one arbitrator and the two so appointed shall select a
third. Their decision on any disputed matter shall be final. Either party
demanding arbitration shall notify the other in writing of its demand for
arbitration specifying the matter to be submitted to arbitration and the name of
the arbitrator selected by it.
18.2 Upon receipt of such written notice, the other party shall have
ten days within which to select its arbitrator and to notify the other party in
writing of such selection and the two so selected shall have fifteen days in
which to select a third arbitrator. In the event the third arbitrator is not
selected within said fifteen days, then such third arbitrator shall be appointed
by the Circuit Court with jurisdiction over Morgan County upon application by
either party after at least five days' written notice to the other party of the
hearing of such application.
18.3 The appointees to the Arbitration Board shall have sufficient
knowledge of hospital matters so that reasonable judgments can be made. No
arbitrator shall have the right to change or alter the terms of this Agreement.
The provisions of the Uniform Arbitration Act shall apply unless expressly in
conflict with any provision in this Agreement.
18.4 All expenses incurred in connection with the arbitration shall be
shared equally by the parties to the dispute.
19. Notices. Any notice permitted or required hereunder shall be in
writing and shall be deemed received three business days after the date on which
it is deposited in the United States mail, certified or registered mail, postage
prepaid and addressed as follows:
If to Hospital Association: Fort Morgan Community
Hospital Association
1000 Lincoln Street
Fort Morgan, Colorado 80701
Attn: President, Fort Morgan
Community Hospital
Association
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If to BHI: c/o Brim & Associates, Inc.
177 NE 102 Avenue
Portland, Oregon 97220
Attn: Doug Atkinson
Such addresses may be changed by either party by ten days prior written notice
to the other party.
20. Prior Agreements. Hospital Association warrants that, to the best
of its knowledge, this Agreement does not breach or conflict with any
commitments or responsibilities under any prior agreements to which Hospital
Association may be a party or any law by which Hospital Association may be
bound. Hospital Association warrants that it has full authority to permit the
use of the Leased Property by BHI under the terms and conditions set out in this
Agreement. BHI shall be held harmless from any claims, liabilities, and expenses
arising from agreements to which Hospital Association is or was a party on or
before the Commencement Date, except to the extent that such agreements are
assumed by BHI in writing.
21. Contractual Obligations. To the best knowledge of Hospital
Association, attached hereto as Exhibit C is a Schedule of Material Contracts to
which Hospital Association is party or is bound or will be bound as of the
Commencement Date, and which affect or relate to the Leased Property The
Contracts listed are intended to include:
a) All leases, rental agreements and other contracts affecting the
ownership or leasing of, title to, use of, or any interest in the
Leased Property; and
b) Any contract or commitment, sales order or purchase order,
whether in the ordinary course of business or not, which involves
future payments, performance of services or delivery of goods and/or
materials, to or by Hospital Association of an amount or value in excess of
Five Thousand Dollars ($5,000.00).
Except as may be stated in Exhibit C, all such Material Contracts are to the
best knowledge of Hospital Association valid and binding obligations of the
parties thereto in accordance with their respective terms and there have been no
unlisted amendments or modifications to any Material Contract. Furthermore,
Hospital Association will endeavor to disclose and explain any additional
nonmaterial contracts or agreements which impose any duty, obligation, or
liability upon the Hospital Association. To the extent required by law, BHI
agrees to perform, discharge or otherwise satisfy the legal responsibility of
Hospital Association required after the Closing Date in and under all of the
listed current Material Contracts and Agreements which are assumed by BHI
pursuant to
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this Section 21. Notwithstanding the foregoing, BHI shall retain the right to
terminate, modify, and/or renegotiate said contracts, provided Hospital
Association incurs no liability as a result thereof. Hospital Association
agrees, upon the request of BHI,, to exercise any rights or options which may
belong to the Hospital Association, which BHI may by contract be prevented from
exercising, provided any cost associated with such exercise will be borne by
BHI.
22. Right of First Refusal.
22.1 If at any time during the Lease Term Hospital Association should
offer to sell or receive an offer to buy all of the Leased Property, BHI shall
have a right of first refusal to acquire the same. Hospital Association shall
give BHI written notice of its intention to so sell, transfer or convey and BHI
shall have the option, exercisable within thirty days after receipt of such not
ice, to purchase the Leased Property on the same terms as submitted by offeror
to Hospital Association or as offered by Hospital Association in such notice.
22.2 In the event BHI exercises its option under this Section, closing
of BHI's purchase shall occur within ninety days thereafter at the offices of
Hospital Association's attorneys. At closing, Hospital Association shall execute
and deliver such instruments as reasonably may be appropriate to assign and
convey the Leased Property to BHI. Hospital Association shall cause all holders
of encumbrances on the Leased Property to release their encumbrances at closing
unless BHI elects to assume some or all of the same in which case the principal
balances of the assumed encumbrances shall be offset against the cash due at
closing. The purchase price for the Leased Property shall be paid to Hospital
Association at closing by cashiers check or by wire transfer to Hospital
Association's bank account.
22.2.1 In the event the sale of the Leased Property to BHI requires the
approval of any governmental agency, the sale shall be contingent upon the
granting of such approval. Hospital Association and BHI shall execute and
deliver to any such governmental agency such instruments as may be required by
the' agency in connection with the approval of the sale. If such approval is not
secured by the date of closing, the closing shall be postponed to the first day
of the first month after the month in which such approval is secured. Pending
such approval, the terms of this Lease shall apply to the extent practicable. If
such approval is denied, the Lease shall remain in effect in accordance with its
terms; provided, however, that Hospital Association shall thereafter be entitled
to sell the Leased Property to a third party, if such sale is closed within one
hundred eighty days after the governmental agency's denial of approval of the
sale to BHI.
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22.2.2 If title to the Leased Property is transferred to a corporation
which is affiliated with Hospital Association and by virtue of a subsequent
change in the beneficial ownership of said affiliate, the affiliate ceases to be
affiliated with Hospital Association, BHI shall have the option to purchase the
Leased Property for their Fair Market Value or the pro rata value paid by the
purchaser of the affiliate, whichever is less, in the manner prescribed in
Section 22.2.1.
22.2.3 This Lease shall terminate upon closing of the sale of the
Leased Property to BHI.
23. Hospital Association's Right to Perform BHI's Covenants.
23.1.1 If BHI defaults in the making of any of the payments, or the
performance of any of the obligations provided for in this Lease, Hospital
Association may, at its option and on behalf of BHI, make any such payments or
perform any such obligations.
23.1.2 Before exercising that option, however, Hospital Association
must give BHI written notice of BHI's default, and of Hospital Association's
intention to correct that default. If after thirty days BHI has not corrected
such default, Hospital Association may exercise its rights under this Section
23.
23.1.3 In the event Hospital Association performs any obligation on
BHI's behalf, BHI shall reimburse Hospital Association for any amounts
reasonably paid or expended. This reimbursement shall be due and payable
immediately after BHI's receipt of notice from Hospital Association that the
expense was incurred. Hospital Association shall not be held liable or in any
way responsible for any loss, inconvenience, annoyance or damage resulting to
BHI on account of such performance by Hospital Association, unless Hospital
Association is found to have been negligent in its performance. All amounts
payable to BHI to Hospital Association under any of the provisions of this
Lease, if not paid when the same become due as in this Lease provided, shall
bear interest from the date they become due until paid at the prime rate of
interest then in effect at First Interstate Bank of Portland, Oregon. In the
event First Interstate of Portland, Oregon ceases or fails to publish or
announce a prime rate, regardless of the reason therefor, interest shall accrue
at the prime rate announced by the bank designated by Hospital Association,
provided such bank is among the top twenty-five banks in the United States in
terms of deposits.
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24. Miscellaneous.
24.1 This Agreement and the Purchase Agreement constitute the entire
agreement between the parties with respect to the Leased Property and the
operation of the Hospital. No subsequent alteration, amendment, change or
addition to this Agreement shall be binding upon Hospital Association or BHI
unless reduced to writing and executed by the parties.
24.2 This Agreement shall be governed by and construed in accordance
with the laws of the State of Colorado.
24.3 If any term, covenant or condition of this Agreement, or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Agreement, or the application of
such term, covenant or condition to other persons and circumstances shall be
valid and enforceable to the fullest extent permitted by law.
24.4 Subject to the limitations on assignment set forth above, the
terms, covenants and conditions hereof shall be binding upon and shall inure to
the benefit of the parties hereto and their respective legal representatives,
successors and assigns.
IN WITNESS WHEREOF, Hospital Association and BHI have caused this Lease
Agreement to be duly executed as of the date first above written:
FORT MORGAN COMMUNITY
HOSPITAL ASSOCIATION
By: /s/ Ann Marron
--------------------------------
Its: President
-------------------------------
By:
--------------------------------
Its:
-------------------------------
BRIM HOSPITALS, INC.
By: /s/
--------------------------------
Its: AUTHORIZED REPRESENTATIVE
-------------------------------
By:
--------------------------------
Its:
-------------------------------
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STATE OF COLORADO )
) ss.
COUNTY OF )
The foregoing instrument was acknowledged before me this 15th day of May,
1986, by Ann Marron and ______________________, respectively the President
and ___________________________of Fort Morgan Community Hospital Association on
behalf of the company.
/s/ Gale Karas
--------------------------------
Notary Public
My Commission Expires: 4/20/89
STATE OF OREGON )
) ss.
COUNTY OF )
The foregoing instrument was acknowledged before me this 15th day of May,
1986, by Bill Wilber and ____________________________, respectively the Vice
President and Representative of Brim Hospitals, Inc. on behalf of the
corporation.
/s/ Antoinette J. Grabler
--------------------------------
Notary Public
My Commission Expires: 01/09/88
-18-
<PAGE> 19
AMENDMENT TO LEASE AGREEMENT
This Amendment is made and entered into this 26th day of August, 1986,
by and between Fort Morgan Community Hospital Association (the "Hospital
Association") and Brim Hospitals, Inc. ("BHI").
WHEREAS, the parties entered into a Lease Agreement dated May 15, 1986
(the "Lease") whereby BHI agreed to lease certain real property, improvements
located thereon and personal property located therein that constitute the Fort
Morgan Community Hospital, Fort Morgan, Colorado (the "Hospital"); and
WHEREAS, The parties desire to amend the definition of the Leased
Property as presently set forth in the Lease;
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants of the parties set forth herein, it is hereby agreed as
follows:
1. The parties hereby agree to amend Paragraph 1 of the Lease so that
the description of the Leased Property shall exclude the following assets
currently leased by the Hospital Association:
1. House located at 1117 Grant, Fort Morgan, Colorado;
2. Dupont Chemical Analyzer; and
3. Specialty Physician Clinic Building, Fort Moran, Colorado.
2. The parties shall negotiate and execute separate agreements for the
leasehold rights to each of the above-named assets.
3. This Amendment shall be governed by and construed in accordance
with the laws of the State of Colorado.
4. Except as hereby amended, all other terms and conditions of the
Lease shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed as of the date first above written.
FORT MORGAN COMMUNITY HOSPITAL
ASSOCIATION
BY: /s/ Ann L. Marron
------------------------------
ITS: President
-----------------------------
BRIM HOSPITALS, INC.
BY: /s/
------------------------------
ITS: Vice President
-----------------------------
Authorized Representative
<PAGE> 20
Amendment to Lease Agreement
This amendment is made and entered into this 16th day of February 1987 by and
between Fort Morgan Community Hospital Association (the "Hospital Association")
and Brim Hospital, Inc. ("BHI").
Whereas, the parties entered into a lease agreement dated May 15, 1986 (the
"Lease") whereby these capital requirement shall mean alteration, addition,
improvement, equipment or personal property with a cost of over $5,000 and
three years or more of life expectancy, shall have been submitted to the
Hospitals Association and Holding Company for approval.
Whereas, the parties desire to amend the amount of capital requirement to be
approved as presently set forth in the lease.
Now, therefore, it is hereby agreed as follows:
1. The parties hereby agree to amended paragraph 6.7 of the lease so
that the amount of capital requirements shall read:
6.7 As used in the Section 6, capital requirements shall mean
alterations, additions, improvement equipment or personal
property with a cost of over $25,000 and three years or more of
life expectancy.
2. This amendment shall be governed by and conserved in accordance
with the laws of the State of Colorado.
3. Except as hereby amended, all other terms and conditions of the
lease shall remain in full force and effect.
In witness hereof, the parties have caused this amendment to be duly executed as
of the date first above written.
Fort Morgan Community Hospital Association
by: /s/ John C. Clatworthy, President
---------------------------------------
John C. Clatworthy
it's: President
--------------------------------------
Brim Hospitals, Inc.
by: /s/ William N. Wilber
----------------------------------------
William N. Wilber
it's: Vice President, Authorized Representative
-------------------------------------------
<PAGE> 21
AMENDMENT TO LEASE AGREEMENT
This Amendment is made and entered into this 26th day of August, 1986,
by and between Fort Morgan Community Hospital Association (the "Hospital
Association") and Brim Hospitals, Inc. ("BHI").
WHEREAS, the parties entered into a Lease Agreement dated May 15, 1986
(the "Lease") whereby BHI agreed to lease certain real property, improvements
located thereon and personal property located therein that constitute the Fort
Morgan Community Hospital, Fort Morgan, Colorado (the "Hospital"); and
WHEREAS, the parties desire to amend the definition of the Leased
Property as presently set forth in the Lease;
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants of the parties set forth herein, it is hereby agreed as
follows:
1. The parties hereby agree to amend Paragraph 1 of the Lease so that
the description of the Leased Property shall exclude the following assets
currently lease by the Hospital Association:
1. House located at 1117 Grant, Fort Morgan, Colorado;
2. Dupont Chemical Analyzer; and
3. Specialty Physician Clinic Building, Fort Morgan, Colorado.
2. The parties shall negotiate and execute separate agreements for the
leasehold rights to each of the above-named assets.
3. This Amendment shall be governed by and construed in accordance
with the laws of the State of Colorado.
4. Except as hereby amended, all other terms and conditions of the
Lease shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed as of the date first above written.
FORT MORGAN COMMUNITY HOSPITAL
ASSOCIATION
BY: /s/ Ann L. Marron
--------------------------
ITS: President
--------------------------
BRIM HOSPITALS, INC.
BY: /s/ William N. Wilber
--------------------------
ITS: VICE PRESIDENT
--------------------------
AUTHORIZED REPRESENTATIVE
<PAGE> 22
ADDENDUM TO FORT MORGAN
OPERATING AGREEMENT
DATED MAY 15, 1986
This Addendum is made and entered into this 26th day of August, 1986,
by and between Fort Morgan Community Hospital Holding Company (the "Holding
Company"), Fort Morgan Community Hospital Association (the "Hospital
Association"), Brim Hospitals, Inc. ("BHI") and Brim & Associates, Inc.
("Brim").
WHEREAS, the parties hereto entered in an Operating Agreement dated May
15, 1985 (the "Agreement") whereby BHI assumed all of Hospital Association's
and Holding Company's rights and obligations with respect to operating expenses
and accounts receivable of Fort Morgan Community Hospital, Fort Morgan,
Colorado (the "Hospital"); and
WHEREAS, pursuant to the terms of the Agreement, Hospital Association
was obligated to bring the working capital balance to a positive amount of
$1,000.00 within (thirty) 30 days of completion of a working capital audit,
which audit was conducted on May 31, 1986; and
WHEREAS, Hospital Association desires to extend payment of such
obligation over a period of twelve (12) months and BHI is willing to permit
such extension of payment;
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants of the parties set forth herein, it is hereby agreed as
follows:
1. BHI and Brim hereby consent to the extension of time for
payment of the amount needed to bring the working capital balance to a positive
amount of $1,000.00 for a period of twelve (12) months commencing June 30,
1986.
2. Hospital Association hereby agrees to pay to BHI the amount
necessary to bring the working capital balance to a positive amount of
$1,000.00 by paying such sum in twelve (12) equal monthly installments
commencing June 30, 1986.
3. The amount owed to BHI by Hospital Association shall be as
determined by the working capital audit conducted by Touche Ross on May 31,
1986.
4. This Addendum shall be governed by and construed in accordance
with the laws of the State of Colorado.
5. Except as hereby amended, all other terms and conditions of the
Agreement shall remain in full force and effect.
<PAGE> 23
IN WITNESS WHEREOF, the parties have caused this Addendum to be duly
executed as of the date first above written.
FORT MORGAN COMMUNITY HOSPITAL
HOLDING COMPANY
BY: /s/ Susan
-------------------------
ITS: President
-------------------------
FORT MORGAN COMMUNITY HOSPITAL
ASSOCIATION
BY: /s/ Ann E. Morris
-------------------------
ITS: President
-------------------------
BRIM HOSPITALS, INC.
BY: /s/
-------------------------
ITS: Authorized Representative
-------------------------
BRIM & ASSOCIATES, INC.
BY: /s/
-------------------------
ITS: Vice President
Authorized Representative
-------------------------
<PAGE> 24
AMENDMENT TO LEASE AGREEMENT AND
TERMINATION OF OPERATING AGREEMENT
THIS AGREEMENT is made and entered into this 23rd day of May, 1994 by
and between Fort Morgan Community Hospital Association (the "Hospital
Association") and Brim Hospitals, Inc. ("BHI").
RECITALS
A. The Hospital Association is the owner of that 40 bed acute care
facility known as Colorado Plains Medical Center, Fort Morgan, Colorado (the
"Hospital").
B. By Lease Agreement dated May 15, 1986, as amended by Amendments
dated August 26, 1986 and February 16, 1987 (collectively, the "Lease"), the
Hospital Association leased the Hospital to BHI.
C. Concurrently with the execution of the lease, BHI and the
Hospital Association, along with Fort Morgan Community Hospital Holding Company
(the "Holding Company") and Brim & Associates, Inc. (now known as Brim, Inc.)
entered into an Operating Agreement, as amended by Addendum dated August 26,
1986 (the "Operating Agreement").
D. Since the execution of the Operating Agreement the Holding
Company has been dissolved and the material obligations of BHI and Brim and the
Hospital Association provided for therein have been performed.
E. BHI and the Hospital Association have agreed to terminate the
Operating Agreement and to incorporate into the Lease any provisions thereof
with continuing applicability to the relationship between the parties.
F. BHI and the Hospital Association have further agreed to amend
the Lease to reflect certain changes in the rights and obligations of the
parties thereunder resulting from a proposed remodeling and expansion of the
Hospital which will be financed in part through an increase in the rent due
under the Lease.
G. BHI and the Hospital Association want to document the terms and
conditions under which the Operating Agreement will be terminated and the Lease
will be amended.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants of the parties set forth herein, IT IS HEREBY AGREED AS
FOLLOWS:
AGREEMENT
1. TERMINATION OF OPERATING AGREEMENT. Effective as of May 1, 1994 (the
"Effective Date") the Operating Agreement shall be terminated and the parties
shall have no further rights or obligations thereunder.
2. AMENDMENT OF LEASE. As of the Effective Date, the Lease is hereby
amended as follows:
2.1 Section 2 is hereby deleted in its entirety and the
following inserted instead:
The initial term of this Agreement (the "Initial Term") shall
commence on May 1, 1986 (the "Commencement Date") and shall expire on
April 30, 1994. This Agreement shall automatically renew at the end of
the Initial Term for a renewal term (the "First Renewal Term") of 20
years commencing on May 1, 1994 and terminating on April 30, 2014. BHI
shall have the right to extend the term of the Agreement beyond the
First Renewal Term for one additional renewal term of five (5) years
(the "Additional Renewal Term") by written notice to the Hospital
Association delivered no less than sixty (60) days prior to the end of
the First Renewal Term. Nothing herein shall be deemed to
<PAGE> 25
preclude the termination of this Agreement prior to the end of the
First Renewal Term or any Additional Renewal Term in accordance with the
provisions of Sections 13, 14, and 15 of this Agreement. In the event BHI
exercises its rights with respect to the Additional Renewal Term, prior to
the expiration thereof, BHI and Hospital Association shall negotiate in
good faith with respect to the extension of the term of the Lease for an
additional five year renewal term (the "Second Additional Renewal Term")
which shall be effective upon the expiration of the Additional Renewal Term
and which shall be on such terms and conditions as may be mutually
acceptable to the parties.
2.2. Section 4.1 is hereby deleted in its entirety and the following
inserted instead:
4.1 As consideration of the use of the Leased Property, BHI shall pay to
the Hospital Association the following amounts:
(i) During the Initial Term an amount equal to One and no/100
Dollars ($1.00) annually, which shall be due and owing on the first
day of each Lease Year of the Initial Term and may be paid to the
Hospital Association in advance at the address stated in Section 19.
(ii) During the First Renewal Term, an amount equal to the sum of
(i) the amount specified in Attachment I plus (ii) all principal and
interest due on the New Debt (as defined below).
(iii) During the Additional Renewal Terms, an amount equal to the
principal and interest due on the New Debt.
For purposes of this Section 4.1, the term "New Debt" shall mean that
$2,500,000 mortgage to be entered into by the Hospital Association and
secured by the Leased Property in connection with the financing of the
remodeling and expansion of the Hospital (the "Remodeling") which is
described more fully in Attachment II.
2.3 The following is added to Section 4 as new Section 4.6:
4.6 In addition to the rent provided for above, as consideration
for the use of the Leased Property, during the first five years of the
First Renewal Term, BHI shall contribute to the Hospital Association's
designee, the Fort Morgan Community Hospital Foundation, an amount equal to
ten (10%) percent of the Hospital's net profits before tax, as determined
in accordance with generally accepted accounting principles; provided,
however, that BHI's obligations to make such payments shall terminate upon
commencement of the construction of the Remodeling and shall not be
reinstated until the sixth year of the First Renewal Term, at which time
BHI shall contribute to the Hospital Association's designee an amount equal
to a percentage of the Hospital's net profits before tax as specified
below:
<TABLE>
<CAPTION>
Year in First Renewal Term Percentage of Profits
-------------------------- ---------------------
or Additional Renewal Terms
--------------------------
<S> <C>
6 6%
7 7%
8 8%
9 9%
10-25 10%
</TABLE>
2.4 Section 5 is hereby deleted in its entirety.
2.5 Section 6.2.2 is hereby deleted in its entirety and the following
inserted instead:
6.2.2 BHI shall use its best efforts to acquire additional Personal
Property which in its
<PAGE> 26
judgement is needed to meet the needs of the patients of the Hospital
and is keeping with the equipment routinely provided by a 40 bed non-urban
hospital (the "BHI Personal Property"); provided, however, that any such
acquisition that would be treated as a capital expenditure, rather than an
operating expense, under generally accepted accounting principles shall be
subject to the prior approval of the Hospital Association, which approval
shall not be unreasonably withheld.
2.6 Section 6.4 is hereby amended by inserting the following at the
end thereof:
6.4 ; provided, however, that in the event the Hospital Association
advises BHI that it is unable to secure sufficient funds to finance the
cost thereof, BHI may fund the cost thereof and the annual depreciation and
interest associated therewith shall be deducted from the net profits before
tax of the Hospital and reduce the contributions due to the Association's
designee pursuant to Section 4.6 For purposes hereof an alteration,
addition or improvement to the Leased Property shall be deemed to be
substantial in the event the cost thereof exceeds $100,000.
2.7 The last sentence of Section 22.2 is hereby deleted in its entirety
and the following inserted to instead:
The purchase price for the Leased Property shall be paid to the
Hospital Association at closing by cashiers check or by wire transfer to
Hospital Association's bank account; provided, however, that in the event
said sale occurs during the First Renewal Term, BHI shall receive a credit
against the cash due at closing in an amount equal to $1,000,000.
2.8 The following is added to Section 22 as new Section 22.3:
In the event BHI fails to exercise its right of first refusal provided
for herein and the Leased Property is sold to a third party, BHI shall be
entitled to the first $1,000,000 of the proceeds of the said sale in the
event said sale occurs during the First Renewal Term.
2.9 The following are added to Section 24 as new Sections 24.5,
24.6 and 24.7:
24.5 Upon expiration of the Term of this Leases, the following shall
occur:
24.5.1 The Hospital Association shall have the option of
purchasing from BHI the net working capital of the Hospital. For
purposes hereof, the term net working capital shall be defined as
the excess of the Hospital's current assets over its current
liabilities, all as determined in accordance with generally
accepted accounting principles. A preliminary settlement of the
amount due hereunder shall be made at the end of the lease term and
a final statement shall be made within 60 days thereafter. Payment
for the working capital shall be due based on the amount reflected
in the preliminary settlement, with an adjusted payment made to or
form the Hospital Association when the final settlement is due. BHI
shall hire an independent certified public accountant to perform an
audit of the working capital and to prepare the preliminary and
final settlements.
24.5.2. The Hospital Association shall be required to purchase
the BHI Personal Property (as defined in Section 6.2.2). The
purchase price for the BHI Personal Property shall be equal to the
depreciated book value thereof as of the date on which the Term of
this Lease expires. The purchase price shall be payable at the
Hospital Association's option in cash or by execution and delivery
to BHI of the Hospital Association's promissory note in the face
amount thereof, bearing interest at the Prime Rate (as announced by
US National Bank of Oregon) as it may vary from time to time, with
principal and interest payable in equal monthly installments based
on a 5 year amortization schedule and with the first such payment
due one month after the date on which the Term of this Lease
expires.
24.6 Subject to the authority of Governing Board set forth in Section
24.7, Brim shall have
<PAGE> 27
exclusive control of and responsibility for the operations of the
Hospital. The day to day operation shall be the responsibility of the
executive director and the director of finance of the Hospital (both
of whom shall be selected by and shall be employees of Brim). In
consideration for its management services,, Brim shall receive an
annual management fee in an amount approved by the Governing Board,
which approval shall not be unreasonably withheld, which shall be due
and payable in equal monthly installments on the fifth day of each
month; provided, however that the payment of the management fee shall
be subordinate to the payment of the rent due hereunder.
24.7 The Governing Board of the Hospital shall consist of
seven members approved by BHI, one of whom shall be an officer or
director of the Hospital Association, two of whom shall be employees
or officers of BHI, two of whom shall be members of the Fort Morgan
Community, one of whom shall be a member of the Fort Morgan Community
Hospital Foundation and one of whom shall be a staff physician at the
Hospital. In addition, the Hospital's chief of staff shall be an ex
officio member of the Governing Board. If any nominated member is not
approved by BHI, the Hospital Association shall nominate an alternate
member until the full Governing Board has been nominated and approved.
The Governing Board shall have the duties and responsibilities with
respect to the operations of the Hospital as provided for in Article
VII of the BHI By-Laws as previously adopted by the Governing Board.
2.10 Any and all references to the Holding Company shall be deemed
to be references to the Hospital Association.
3. REPRESENTATIONS AND WARRANTIES.
3.1 The Hospital Association hereby represents and warrants that it
has all necessary corporate power and authority to own the Hospital, to enter
into this Agreement and to execute all documents and instruments referred to
herein or contemplated hereby and all necessary action has been taken to
authorize the individual executing this Agreement to do so. This Agreement has
been duly and validly executed and delivered by the Hospital Association and is
enforceable against the Hospital Association in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws, regulations and
authorities affecting the rights or creditors generally and by general
principles of equity, and does not require the consent of or approval by any
governmental authority.
3.2 In connection with the Remodeling, the Hospital Association
acknowledges and agrees that the cost of the Remodeling will be approximately
$4,500,000 of which $2,500,000 will be paid through the New Debt, approximately
$1 million of which will be paid from rent due under Section 4.1, and the
balance of which shall be paid through community contributions. Accordingly,
the Hospital Association hereby represents and warrants that it will:
3.2.1 Develop and carry out a community fund raising campaign
(the "Campaign") designed to raise not less than $1,000,000 to be
applied to the cost of the Remodeling; provided however, that BHI
shall provide such assistance with respect to the Campaign as may
be reasonably requested by the Hospital Association;
3.2.2 Prior to the successful completion of the Campaign, secure a
loan for $1,000,000 (the "Interim Loan"), which Interim Loan shall
(i) provide that interest only is due prior to the maturity date
thereof and (ii) be due and payable in full from the proceeds of
the Campaign; and
3.2.3 For so long as the Interim Loan is outstanding, (i) cause
the Fort Morgan Community Hospital Foundation to donate the
interest earnings from its Trust Fund to the Hospital Association
and (ii) use the same to pay the interest due on the Interim Loan
prior to the repayment thereof in accordance with the provisions of
Section 3.2.2.
3.3 Brim hereby represents and warrants that it has all necessary
corporate power and authority to enter
<PAGE> 28
into this Agreement and to execute all documents and instruments referred to
herein or contemplated hereby and all necessary action has been taken to
authorize the individual executing this Agreement to do so. This Agreement has
been duly and validly executed and delivered by Brim and is enforceable
against Brim and its affiliates in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws, regulations and authorities
affecting the rights of creditors generally and by general principles of
equity.
4. GENERAL PROVISIONS
4.1 Each of the parties hereto agrees to execute and deliver any
and all further agreements, documents or instruments reasonably necessary to
effectuate this Agreement and the transactions referred to herein or
contemplated hereby or reasonably requested by the other party to perfect or
evidence their rights hereunder.
4.2 All notices to be given by either party to this Agreement to
the other party hereto shall be in writing, and shall be given
and received in the manner and at the addresses provided for in the lease.
4.3 Each party hereto shall bear its own legal, accounting and
other expenses incurred in connection with the preparation and negotiation of
this Agreement.
4.4 This Agreement, together with the lease, constitutes the entire
understanding between the parties with respect to the subject matter hereof,
superseding all negotiations, prior discussion and preliminary agreements. In
the event of any conflict between the terms of this Agreement and any of the
terms of the asset Agreement, the terms of this Agreement will control. This
Agreement may not be modified or amended except in writing signed by the
parties hereto. No waiver of any term, provision or condition of this
Agreement in any one or more instances, shall be deemed to be or be construed
as a further or continuing waiver of any such term, provision or condition of
this Agreement. No failure to act shall be construed as a waiver of any term,
provision, condition or rights granted hereunder.
4.5 The section headings contained herein are for convenience only
and shall not be considered or referred in resolving questions of
interpretation.
4.6 This agreement may be executed in one or more counterparts and
all such counterparts taken together shall constitute a single original
Agreement.
4.7 This agreement shall be governed in accordance with the laws of
the state of Colorado.
IN WITNESS WHEREOF,the parties hereby execute this agreement as of the
day and year first set forth above.
BRIM HOSPITALS, INC.
BY: /s/
-------------------
ITS: BHI Board Director
-------------------
FORT MORGAN COMMUNITY HOSPITAL ASSOCIATION
BY: /s/
-------------------
ITS: Chairman, Fort Morgan Community Hospital Association
----------------------------------------------------
<PAGE> 29
ATTACHMENT 1
During the First Renewal Term, BHI shall be obligated to pay rent in an amount
equal to One Million and no/100 Dollars ($1,000,000) which shall be payable in
full at the commencement of the First Renewal Term (the "Prepaid Rent") and
shall be amortized over the First Renewal Term at the rate of $50,000 per lease
year. Notwithstanding the foregoing, BHI's obligation to pay the Prepaid rent
shall be subjected to the occurrence of all of the following:
1. The Hospital Association shall have secured the New Debt (as defined in
Section 4.1 of the lease) on terms acceptable to BHI.
2. The Hospital Association shall have secured the Interim Loan (as
defined in Section 3.2.2. of the attached Lease Amendment) and the
Hospital Foundation shall have pledged its interest on the Interim Loan
(as described more fully in Section 3.2.3 of the attached Lease
Amendment).
<PAGE> 30
ATTACHMENT 2
The Hospital Association, in conjunction with BHI, shall undertake a $4.5
million expansion/remodeling of the Hospital. This project will include work
described in Attachment 2A.
<PAGE> 31
ATTACHMENT 2A
The Colorado Plains Medical Center Remodel and Expansion will consist of an
expansion of the surgery and recovery area, increasing the number of surgeries
from two to four, and providing substantial increase in the number of patients
than can be treated in the Recovery area.
In addition, expansion will also occur in the Emergency Room which will expand
to be a full Trauma Center. Radiology will be doubled in size as will the
Laboratory. New treatment space will be provided to Cardia Rehab, Respiratory
Therapy, and other Ancillary Departments such as Nuclear Medicine, EKG, EEG.
On the upper level, a centralized nurse administration area will be remodeled.
Rooms currently occupied by ancillary services will be returned to patient
rooms. A new administrative area will be completed, which will house Medical
Records, the Business Office, Conference rooms, and Office Space.
Finally, major circulation corridors will be renovated as well as a relocation
of the front entrance from the southern exposure to the northern orientation
on the building. Site improvement will include additional paved parking, a new
drive-through front entry to both the hospital and Trauma/Emergency Room
services unit, and other general exterior improvements.
<PAGE> 32
AMENDMENT TO LEASE AGREEMENT
THIS AGREEMENT is made and entered into this 8th day of November, 1994
by and between Fort Morgan Community Hospital Association (the "Hospital
Association") and Brim Hospitals, Inc. ("BHI").
RECITALS
A. The Hospital Association is the owner of that 40 bed acute care
facility known as Colorado Plains Medical Center, Fort Morgan, Colorado (the
"Hospital").
B. Under the terms of its Certificate of Incorporation, the
Association was organized for the purpose of establishing and maintaining a
hospital for the care of all person who are suffering from any illness or
disability which requires that the patient receive hospital care.
C. Prior to 1986 the Association carried out the foregoing purpose
through its own operations at the Hospital. However, in 1986 the Hospital was
suffering serious financial difficulties and the Association determined that it
would further the purpose for which it was organized and best meet the needs of
the community served by it if it leased the Hospital to a third party which had
the management expertise and financial resources to ensure the continued
operation of the Hospital.
D. By Lease Agreement dated May 15, 1986, as amended by Amendments
dated August 26, 1986 the Hospital Association leased the Hospital to BHI.
E. Since entering into the Lease BHI has resolved the financial
problems facing the Hospital, has provided a significant amount of charity care
to the residents of the community served by the hospital and has invested a
significant amount of its resources into the improvement of the physical plant
of the Hospital, all of which have served to improve access to and the quality
of the care provided to the residents of the community served by the Hospital
and to further the tax exempt purpose for which the Association was organized.
F. The Lease was amended by amendments dated August 26, 1986 (the
"First Amendment"), February 16, 1987 (the "Second Amendment") and May 23, 1994
(the "Third Amendment").
G. The principal purpose of the Third Amendment was to reflect the
terms and conditions under which the Hospital would be operated after the
further expansion and renovation thereof pursuant to a capital improvement
program developed and financed in part by BHI and approved by the Association.
1
<PAGE> 33
H. Since the execution of the Third Amendment, BHI and the Association
have agreed to make certain other changes to the Lease in order to confirm
certain obligations undertaken by BHI in connection with its prior operation of
the Hospital.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants of the parties set forth herein, IT IS HEREBY AGREED AS
FOLLOWS:
AGREEMENT
1. Section 3 is hereby amended by adding the following:
3.5. In connection with its operations at the Hospital and in
furtherance of the non profit purpose of the Association, BHI shall
continue to provide charity care to residents of the community served
by the Hospital at levels and in a manner consistent with charity care
provided by BHI at the Hospital since the inception of the Lease and
BHI shall continue as a participant in the Colorado Indigent Care
Program.
2. Section 4.1 (as reflected in the Third Amendment) is hereby amended
by inserting the following:
(iv) During the First Renewal Term and any Additional Renewal Terms, an
amount equal to the principal and interest due on that $1,000,000 loan
(the "Interim Loan") entered into between the Hospital Association and
Morgan County Federal Savings & Loan Association ("Morgan County") if
and to the extent the same has not been paid in full on or before the
fifth anniversary of the date thereof or the principal and interest on
the Interim Loan is not being paid by the Foundation.
3. Section 4.1 (as reflected in the Third Amendment) is hereby further
amended by changing the reference to $2,500,000 in the last paragraph to
$3,000,000 and by reflecting that the New Debt shall be provided by Morgan
County.
4. Section 4.6 (as reflected in the Third Amendment) is hereby deleted
in its entirety and the following inserted instead:
4.6. In addition to the rent provided for above, as consideration for
the use of the Leased Property, during the first five years of the
First Renewal Term, BHI shall contribute to the Hospital Association's
designee, the Fort Morgan Community Hospital Foundation, an amount
equal to one (1%) percent of the Hospital's net revenues, as determined
in accordance with generally accepted accounting principles; provided
however, that BHI's obligation to make such payments shall terminate
upon commencement of the construction of the Remodeling and shall not
be reinstated until the sixth year of the First Renewal Term, at which
time
Substitute page to Amendment
to Lease Agreement executed
Nov. 8, 1994
/s/ John R. Miller
------------------------------
/s/ Debra L. Hays
------------------------------
2
<PAGE> 34
H. Since the execution of the Third Amendment, BHI and the Association
have agreed to make certain other changes to the Lease in order to confirm
certain obligations undertaken by BHI in connection with its prior operation of
the Hospital.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants of the parties set forth herein, IT IS HEREBY AGREED AS
FOLLOWS:
AGREEMENT
1. Section 3 is hereby amended by adding the following:
3.5. In connection with its operations at the Hospital and in
furtherance of the non profit purpose of the Association, BHI shall
continue to provide charity care to residents of the community served
by the Hospital at levels and in a manner consistent with charity care
provided by BHI at the Hospital since the inception of the Lease and
BHI shall continue as a participant in the Colorado Indigent Care
Program.
2. Section 4.1 (as reflected in the Third Amendment) is hereby
amended by inserting the following:
(iv) During the First Renewal Term and any Additional Renewal Terms, an
amount equal to the principal and interest due on that $1,000,000 loan
(the "Interim Loan") entered into between the Hospital Association and
Morgan County Federal Savings & Loan Association ("Morgan County") if
and to the extent the same has not been paid in full on or before the
fifth anniversary of the date thereof or the principal and interest on
the Interim Loan is not being paid by the Foundation.
3. Section 4.1 (as reflected in the Third Amendment) is hereby further
amended by changing the reference to $2,500, 000 in the last paragraph to
$3,000,000 and by reflecting that the New Debt shall be provided by Morgan
County.
4. Section 4.6 (as reflected in the Third Amendment) is hereby deleted
in its entirety and the following inserted instead:
4.6. In addition to the rent provided for above, as consideration for
the use of the Leased Property, during the first five years of the
First Renewal Term, BHI shall contribute to the Hospital Association or
its designee an amount equal to one (1%) percent of the Hospital's net
revenues, as determined in accordance with generally accepted
accounting principles; provided however, that BHI's obligation to make
such payments shall terminate upon commencement of the construction of
the Remodeling and shall not be reinstated until the sixth year of the
First Renewal Term, at which time
2
<PAGE> 35
BHI shall contribute to the Hospital Association or its designee an
amount equal to a percentage of the Hospital's net revenues as
specified below:
<TABLE>
<CAPTION>
Year in First Renewal Term
or Additional Renewal Terms Percentage of Net Revenues
- --------------------------- --------------------------
<S> <C>
6 .6%
7 .7%
8 .8%
9 .9%
10-25 1.0%
</TABLE>
Any payments made by BHI prior to the date of this Fourth Amendment
pursuant to this Section 4.6 as currently written or as previously
written shall be deemed to have satisfied the requirements of Section
4.6 as reflected in this Fourth Amendment.
5. Section 6.1 is hereby amended by adding the following to the end
thereof:
During the first year of the First Renewal Term of the Lease, BHI
shall, at its sole cost and expense, undertake the repairs and
alterations (as Tenant Improvements) described in Exhibit A hereto. The
estimated cost of said Tenant Improvements is approximately $1,500,000.
BHI shall ensure that the same are undertaken in a good and workmanlike
manner and are of such quality as will foster the provision of quality
care by the Hospital to the patients served by it.
6. Section 22 (as reflected in the Third Amendment) is hereby amended
by adding the following:
provided, however, that BHI's right to the proceeds of said sale shall
be subject and subordinate to any interest in the Leased Property which
Morgan County may have under the terms of the documents evidencing or
securing the Interim Debt or the new Debt and no such payment shall be
made without the prior written consent of Morgan County.
7. The last sentence of Section 24.1 is hereby deleted in its
entirety and the following inserted instead:
This Lease may not be amended or modified except by written instrument
signed by the parties hereto and approved in writing by Morgan County.
8. This Amendment shall be effective as of May 1, 1994.
3
<PAGE> 36
9. Except as specifically set forth herein, the Lease as originally
executed and amended to date, shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereby execute this Agreement as of the
day and year first set forth above.
BRIM HOSPITALS, INC.
By: /s/ John R. Miller
------------------------------------------
Its: President
-----------------------------------------
FORT MORGAN COMMUNITY HOSPITAL
ASSOCIATION
By: /s/ Debra L. Hays
------------------------------------------
Its: Pres.
-----------------------------------------
LENDER CONSENT
The undersigned, being a duly authorized officer of Morgan County
Federal Savings & Loan Association does hereby consent to the Amendments to
Lease set forth above.
MORGAN COUNTY FEDERAL SAVINGS & LOAN
ASSOCIATION
By: /s/ Michael M. Berryhill
------------------------------------------
Its: President
-----------------------------------------
4
<PAGE> 37
EXHIBIT A
TENANT IMPROVEMENTS
As a component part of the expansion of Colorado Plains Medical Center, certain
tenant improvements will be made which primarily focus on building systems.
These improvements include certain general improvements to mechanical systems in
the building, the replacement of boilers and the upgrading of the hot water
heating system in the existing building. In addition, the existing domestic
water supply system will be replaced, a secondary domestic water service will be
attached, and chases to distribute the replacement hot water heating system and
the domestic water supply system will be provided. The existing non-friable
asbestos located in areas where equipment is to be replaced will be removed.
The $1,500,000 tenant improvement package also includes related architectural
and engineering, mechanical engineering and electrical engineering to complete
this work.
<PAGE> 38
FIFTH AMENDMENT TO LEASE AGREEMENT
THIS FIFTH AMENDMENT TO LEASE AGREEMENT (the "Amendment") is made and
entered into this _____ day of March, 1995 by and between FORT MORGAN COMMUNITY
HOSPITAL ASSOCIATION (the "Hospital Association") and BRIM HOSPITALS, INC.
("BHI").
RECITALS
A. The Hospital Association and BHI are parties to that certain Lease
Agreement dated May 15, 1986 (the "Lease Agreement"), pursuant to which BHI
leases from the Hospital Association that certain real property located in Fort
Morgan, Colorado as improved with that certain 40 bed acute care hospital
commonly known as "Colorado Plains Medical Center" (the "Facility").
B. The Lease Agreement has been previously amended by those certain
lease amendments (collectively, the "Prior Amendments") dated August 26, 1986,
February 16, 1987, May 23, 1994 and November 8, 1994 (the "Fourth Amendment").
The Lease Agreement as amended by the Prior Amendments is referred to herein as
the "Lease".
C. The Hospital Association and BHI are working together in an effort
to expand and renovate the Facility. In contemplation of future growth, the
Hospital Association acquired, subsequent to the execution of the Lease
Agreement, title to parcels of real property situated adjacent to the Facility
and intends to acquire additional land in the near future.
D. It is the original intent of the parties that all such additional
parcels of real property be included as part of the land subject to the Lease.
E. The purpose of this Amendment is to amend the description of the
"Leased Property" subject to the Lease and to modify the Lease in certain other
particulars as provided below.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants of the parties set forth herein, IT IS HEREBY AGREED AS
FOLLOWS:
AGREEMENT
1. SUBJECT PROPERTY
Section "1. Subject Property." of the Lease is hereby amended
by deleting in its entirety Exhibit A attached to the Lease which sets forth the
description of the Real Property included as part of the Leased Property and
substituting in its place Revised Exhibit A attached hereto and incorporated
into the Lease by this reference. The Hospital Association and BHI acknowledge
that the Hospital Association is currently attempting to acquire fee title to
those certain additional parcels of real property described on Schedule 1
attached hereto and incorporated herein by this reference (the "Additional
Land"). It is the intent of the parties that at such time that the Hospital
Association
1
<PAGE> 39
acquires a fee title interest to any portion of the Additional Land that such
portion be included as part of the Leased Property. Accordingly, as a matter of
administrative convenience for the parties, BHI and the Hospital Association
hereby agree that at such time as the Hospital Association acquires fee title
interest to any portion of the Additional Land, the portion so acquired shall
automatically be deemed a part of the Real Property subject to the Lease without
the requirement of the parties executing a further amendment to the Lease.
2. RENT DURING FIRST RENEWAL TERM
Attachment 1 to the Third Amendment to the Lease Agreement is
hereby amended to provide that the payment of the Prepaid Rent in the amount of
One Million Dollars ($1,000,000.00) shall not be required to be paid in full at
the commencement of the First Renewal Term and, in lieu thereof, said amount
shall be paid in accordance with the following schedule:
<TABLE>
<S> <C>
Upon the closing of the loan to be
made by Morgan County Federal
Savings & Loan Association,
representing the New Debt: $450,000.00
April 1, 1995 $100,000.00
May 1, 1995 $225,000.00
June 1, 1995 $225,000.00
</TABLE>
Except as expressly modified above, the obligation of BHI to
pay the Prepaid Rent shall remain subject to all of the conditions set forth in
Attachment 1 to the Third Amendment.
3. NEW DEBT
BHI and the Hospital Association acknowledge that there is
currently outstanding loans from Farmer's State Bank to the Hospital Association
in the total collective amount of approximately One Hundred Eighty Thousand
($180,000.00) (the "Old Loan"), the repayment of which is secured by certain of
the assets comprising the Leased Property. In order to repay in full the
outstanding balance of the Old Loan and to provide additional financing to the
Hospital Association for the purchase of the Additional Land, the amount of the
loan from Morgan County Federal Savings & Loan Association to the Hospital
Association has been increased by an amount not to exceed Three Hundred Thirty
Thousand Dollars ($330,000). Accordingly, Section 4.1 of the Lease, as set forth
in the Third Amendment and as subsequently amended by the Fourth Amendment, is
hereby further amended by increasing the amount of $3,000,000.00 referenced in
the last paragraph of Section 4.1 to an amount not to exceed $3,330,000.00.
Section 4.1 is hereby further amended to provide that the payment by BHI of all
principal and interest due under the New Debt shall be paid to the Hospital
Association by deposit of the required amount into a separate account to be
maintained in the name of the Hospital Association at Morgan County Federal
Savings & Loan
2
<PAGE> 40
Association ("Lender"). Promptly following the execution of this Amendment, the
Hospital Association covenants and agrees to open said account with Lender and
to make the necessary arrangements with Lender in order to (i) permit Lender to
make automatic withdrawals from said account for payment of the monthly
installments of principal and interest due under the New Debt and (ii) to
restrict access to the account by the Hospital Association so as to assure that
all amounts deposited by BHI pursuant to the Lease shall be applied to the
principal and interest payments due pursuant to the New Debt.
4. FINANCIAL STATEMENTS
BHI shall, from time to time upon not less than 10 days prior
written notice from the Hospital Association, furnish to the Hospital
Association and/or its lender a current financial statement which accurately
reflects BHI's then financial condition.
5. EFFECT OF AMENDMENT
Except as specifically set forth herein, the Lease as originally
executed and amended to date, shall remain in full force and effect.
6. DEFINED TERMS
Any term used herein which commences with an initial capital letter
and is not otherwise defined herein shall have the same meaning in this
Amendment as such term has in the Lease.
7. COUNTERPARTS
This Amendment may be executed in two or more counterparts each of
which shall be deemed an original for all purposes and all of which, when taken
together, shall constitute one agreement.
IN WITNESS WHEREOF, the parties hereby execute this Amendment as of the
day and year first set forth above.
BRIM HOSPITALS, INC. FORT MORGAN COMMUNITY HOSPITAL
ASSOCIATION
By: /s/ John R. Miller By: /s/ Debra L. Hays
--------------------------- --------------------------------
Its: President Its: Chairman
-------------------------- -------------------------------
3
<PAGE> 41
LENDER'S CONSENT
The undersigned, being a duly authorized officer of Morgan County
Federal Savings & Loan Association, does hereby consent to the foregoing Fifth
Amendment to Lease.
MORGAN COUNTY FEDERAL SAVINGS & LOAN
ASSOCIATION
By: /s/ Michael M. Berryhill
-------------------------------------
Its: President
------------------------------------
4
<PAGE> 42
REVISED EXHIBIT A
LEGAL DESCRIPTION OF REAL PROPERTY
PARCEL I:
Lots 1 through 22, inclusive, Block 7,
OLD FORT ADDITION TO THE CITY OF FORT MORGAN,
according to the recorded plat thereof,
Morgan County, Colorado.
PARCEL II:
Lot 1, Replat of Block 8,
OLD FORT ADDITION TO THE CITY OF FORT MORGAN,
according to the recorded plat thereof,
Morgan County, Colorado.
PARCEL III:
Lots 3, 4, and 5, Replat of Block 8,
OLD FORT ADDITION TO THE CITY OF FORT MORGAN,
according to the recorded plat thereof,
Morgan County, Colorado.
PARCEL IV:
Lot 6, REPLAT OF BLOCK 8,
OLD FORT ADDITION TO THE CITY OF FORT MORGAN,
according to the recorded plat thereof,
Morgan County, Colorado.
PARCEL V:
Lot 7, Replat of Block 8,
OLD FORT ADDITION TO THE CITY OF FORT MORGAN,
according to the recorded plat thereof,
Morgan County, Colorado.
PARCEL VI:
Lot 8, Replat of Block 8,
OLD FORT ADDITION TO THE CITY OF FORT MORGAN,
according to the recorded plat thereof,
Morgan County, Colorado.
PARCEL VII:
Lot 9, Replat of Block 8,
OLD FORT ADDITION TO THE CITY OF FORT MORGAN,
according to the recorded plat thereof,
Morgan County, Colorado.
5
<PAGE> 43
SCHEDULE I
DESCRIPTION OF ADDITIONAL LAND
Lots 2 and 10, Replat of Block 8,
OLD FORT ADDITION TO THE CITY OF FORT MORGAN,
according to the recorded plat thereof,
Morgan County, Colorado.
6
<PAGE> 44
SIXTH AMENDMENT TO LEASE AGREEMENT
THIS SIXTH AMENDMENT TO LEASE AGREEMENT (the "Amendment") is made and
entered into the ______ day of ______________, 1996 by and between FORT MORGAN
COMMUNITY HOSPITAL ASSOCIATION (the "Hospital Association") and BRIM HOSPITALS,
INC. ("BHI")
RECITALS
A. The Hospital Association and BHI are parties to that certain Lease
Agreement dated May 15, 1986 (the "Lease Agreement"), pursuant to which BHI
leases from the Hospital Association that certain real property located in Fort
Morgan, Colorado as improved with that certain 40 bed acute care hospital
commonly known as "Colorado Plains Medical Center") (the "Facility").
B. The Lease Agreement has been previously amended by those certain
lease amendments (collectively, the "Prior Amendments") dated August 26, 1986,
February 16, 1987, May 23, 1994 (the "Third Amendment"), November 8, 1994 (the
"Fourth Amendment") and March _____, 1995 (the "Fifth Amendment"). The Lease
Agreement as amended by the Prior Amendments is referred to herein as the
"Lease".
C. The Hospital Association and BHI are working together in an effort
to expand and renovate the Facility.
D. In order to facilitate that expansion, the Hospital Association has
entered into a Loan Agreement with Morgan County Federal Savings & Loan
Association (the "Lender") which has agreed to finance a portion of the costs
thereof (the "Loan").
E. The cost of the expansion has exceeded the original estimate of the
parties. In order to finance the additional costs required to complete the
expansion, the Hospital Association has agreed to increase the amount to be
raised by its community funding raising campaign, the Lender has agreed to
increase the principal balance of the Loan and BHI has agreed to increase the
amount of its Prepaid Rent.
F. Brim and the Hospital Association now desire to amend the Lease to
reflect such sources of additional financing and the additional rent obligation
imposed on Brim as a result of the increase in the principal amount of the
Loan.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants of the parties set forth herein, IT IS HEREBY AGREED AS
FOLLOWS:
-1-
<PAGE> 45
AGREEMENT
1. NEW DEBT
Section 4.1 is hereby amended to reflect that the "New Debt" as
referenced therein shall be the amount of the loan from Morgan County Federal
Savings & Loan Association to the Hospital Association in an amount not to
exceed $3,680,000.00.
2. PREPAID RENT
The amount of Prepaid Rent as set forth in Attachment 1 to the
Third Amendment to the Purchase Agreement is hereby amended by increasing said
amount from $1,000,000 to an amount equal to $1,350,000. After all of the
proceeds of the Loan and the proceeds of the Hospital Association's "Campaign"
(as that term is defined below) have been disbursed and applied toward the cost
of the expansion of the Facility, the $350,000 of additional Prepaid Rent shall
be paid by BHI in increments as jointly determined by BHI and the Hospital
Association to pay for the final costs of construction; provided, however, in
no event shall said $350,000 be paid later than April 1, 1997.
3. CAMPAIGN
The amount to be raised by the Hospital Association pursuant to its
Community fund raising campaign (the "Campaign"), as provided for in the Third
Amendment, is hereby increased from $1,000,000 to an amount equal to
$1,350,000, all of which shall be applied by the Hospital Association toward
the cost of constructing the expansion of the Facility.
4. EFFECT OF AMENDMENT
Except as specifically set forth herein, the Lease as originally
executed and amended to date, shall remain in full force and effect.
5. DEFINED TERMS
Any term used herein which commences with an initial capital letter
and is not otherwise defined herein shall have the same meaning in this
Amendment as such term has in the Lease.
6. COUNTERPARTS
This Amendment may be executed in two or more counterparts each of
which shall be deemed an original for all purposes and all of which, when taken
together, shall constitute one agreement.
-2-
<PAGE> 46
IN WITNESS WHEREOF, the parties hereby execute this Amendment as of the
day and year first set forth above.
BRIM HOSPITALS, INC. FORT MORGAN COMMUNITY HOSPITAL
ASSOCIATION
By: _______________________ By: __________________________
Its: _______________________ Its: __________________________
LENDER'S CONSENT
The undersigned, being a duly authorized officer of Morgan County
Federal Savings & Loan Association, does hereby consent to the foregoing Fifth
Amendment to Lease.
MORGAN COUNTY FEDERAL SAVINGS & LOAN
ASSOCIATION
By: __________________________
Its: __________________________
-3-
<PAGE> 47
[NATIONWIDE HEALTH PROPERTIES, INC. LETTERHEAD]
September 18, 1996
Via Facsimile
Randi Nathanson, Esq.
The Nathanson Group
1411 Fourth Avenue
Suite 905
Seattle, WA 98101
RE: NATIONWIDE HEALTH PROPERTIES, INC. TRANSACTIONS WITH BRIM, INC. ("BRIM")
AND BRIM SENIOR LIVING, INC. ("BSL")
Dear Randi:
This letter is in response to your Memorandum dated August 28, 1996
(the "Memorandum") regarding the sale of Brim's stock (the "Stock Transaction")
and the merger of BSL (the "Merger Transaction"). Please be advised that
Nationwide Health Properties, Inc. ("NHP") is agreeable to the proposed
transactions subject to the following provisions.
As provided herein, NHP is willing to consent to the proposed
transactions and waive its right under the Leases (as hereinafter defined) to
"put" the facilities to the tenant thereunder as a result of the Stock
Transaction and/or the Merger Transaction. As used herein, "Leases" shall mean
those certain leases between NHP, as landlord, and Brim subsidiaries, as
tenant, with respect to those facilities commonly known as Ojai Valley
Community Hospital, in Ojai, California, The Retirement Inn at Quail Ridge, in
Oklahoma City, Oklahoma. The Retirement Inn at Forest Lane, in Dallas, Texas
and Mesa Senior Village, in Mesa, Arizona. The aforementioned waiver shall be
limited to NHP's put rights as a result of the Stock Transaction and the Merger
Transaction. NHP's willingness to consent to the assignments under the Leases
as a result of such transactions shall not, however, be deemed or construed as a
consent and/or waiver of its put rights with respect to any other transfer or
assignment in violation of the terms of any of the Leases.
The Leases and other documents executed in connection therewith
(collectively, the "NHP Documents") shall be appropriately modified to reflect
the Stock Transaction and the Merger Transaction and the newly formed LLC shall
fully assume all obligations of BSL to NHP. Except as set forth in such
amendments and assumption agreements, all terms and conditions of the NHP
Documents shall remain in full force and effect. NHP shall have also received
appropriate reaffirmations form any guarantors of obligations under the NHP
Documents.
<PAGE> 48
Randi Nathanson, Esq.
Page 2
Prior to the closing of the Stock Transaction and the Merger
Transaction, NHP shall have completed and approved its due diligence,
including, without limitation, satisfaction by NHP of the material terms and
conditions of the proposed transactions; satisfaction by NHP with the final
organization of and structure of the newly formed LLC and the purchaser of the
Brim stock; receipt and approval by NHP of the then current financial
statements of the purchaser of the Brim stock and the LLC; receipt and approval
by NHP of evidence as to the due formation, power and authority of all parties
to each transaction and the enforceability of all documents and agreements
contemplated thereunder, receipt and approval of evidence of all governmental
authorizations and approvals as are necessary for the continued operation of
the leased facilities following the Stock Transaction and/or the Merger
Transaction; and all necessary consents and/or amendments to the material
contracts for the Mesa development project. Brim shall reimburse expenses
incurred by NHP in connection with the above, including legal fees and expenses.
Sincerely,
/s/ Gary E. Stark
- ------------------
Gary E. Stark
vice President and General Counsel
GES:pb
cc: T. Andrew Stokes
Kevin Sherry
Tracy Johnson
<PAGE> 1
Exhibit 10.20
LEASE AGREEMENT
THIS LEASE AGREEMENT (the "Lease") is made and entered into effective
as of the 24th day of April, 1996 by and between Parkview Regional Hospital,
Inc., a Texas non-profit corporation ("Landlord"), and Brim Hospitals, Inc.,
an Oregon corporation ("Tenant").
RECITALS
In consideration of the mutual undertakings and covenants hereinafter
contained and the acts to be performed hereunder, Landlord and Tenant
hereby agree to the within Lease for the following acute care facility:
Parkview Regional Hospital, 312 East Glendale Street, Mexia, Texas, (the
"Hospital"), which is located on the real property described in Exhibit "A"
attached hereto, and incorporated herein by this reference (the "Real
Property"). For purposes hereof, the term "Hospital" shall include any
additions or renovations thereof which result from the completion of the
Development Program (as hereinafter defined).
PART I
Section 1. Landlord's Representations and Warranties. Landlord hereby
makes the following representations, warranties and covenants to Tenant:
(a) Authority. Landlord has full power and authority to execute and to
deliver this Lease and all related documents, and to carry out the transaction
contemplated herein. This Lease is valid, binding and enforceable against
Landlord in accordance with its terms, except as such enforceability may be
limited by creditors rights laws and general principles of equity. The
execution of this Lease and the consummation of the transaction contemplated
herein will not result in a breach of the terms and conditions of nor constitute
a default under or violation of any law, regulation, court order, note, bond,
indenture, articles of incorporation, agreement, license or other instrument or
obligation to which Landlord is now a party or by which Landlord or any of the
assets of Landlord may be bound or affected, Landlord has duly and properly
taken or obtained or caused to be taken or obtained, or prior to the
Commencement Date will have duly and properly taken or obtained or caused to be
taken or obtained, all action necessary for Landlord (i) to enter into and to
deliver this Agreement and any and all documents and agreements executed by
Landlord in connection herewith or in furtherance hereof and (ii) to carry out
the terms hereof and thereof and the transaction contemplated herein and
therein. Landlord represents and warrants that as of the date of execution of
this Agreement, it has secured the consent of its Board of Directors for the
execution of this Agreement and of any documents or agreements necessary to
carry out the terms hereof and for the consummation of the transactions
contemplated by this Agreement. No other action by or on behalf of Landlord is
or will be necessary to authorize the execution, delivery and performance of
this Agreement and any documents and agreements executed by Landlord in
connection herewith or consummation of the transactions contemplated herein,
other than securing those third party consents and regulatory approvals for
which Landlord is responsible under the terms hereof. Nothing herein shall be
construed as a guarantee by Landlord that it will be able to secure the third
party consents or regulatory approvals for which it is responsible, but rather
this paragraph
-1-
<PAGE> 2
paragraph shall be limited to Landlord's representation and warranty that it
will use its best efforts to secure such third party consents and regulatory
approvals;
(b) Title/Ownership of Real Property and Personal Property. On the
Commencement Date, as defined below, Landlord will provide Tenant with
the Hospital, including the Personal Property (as defined below). Landlord has
fee title to the Hospital and the Real Property and marketable title to the
Personal Property, subject only to the real and personal property encumbrances,
set forth in Exhibit "B". The Personal Property is all of the property
currently utilized for the operation of the Hospital at its current occupancy
level and all of the Personal Property is owned by Landlord except as otherwise
provided in those operating and capital leases attached hereto as Exhibit "C."
(c) Operating Contracts. Landlord has entered into certain operating
agreements in connection with its operation of the Hospital and those
which Tenant shall assume as of the Commencement Date are listed on Exhibit "D"
(the "Operating Agreements"), subject to Landlord securing any and all consents
necessary for said assumption, it being understood and agreed that any such
agreements which are not listed on Exhibit "D" shall be and remain the
responsibility of Landlord after the Commencement Date and Tenant shall have no
liability with respect thereto;
(d) Licenses/Certification. The Hospital has a current license for 77
acute care beds issued by the Texas Department of Health and current valid
provider agreements under the Medicaid/Medicare Programs for reimbursement for
acute care services and is accredited by the Joint Commission on Accreditation
of Health Care Organizations. To the best of Landlord's knowledge, the Hospital
is in compliance with all applicable State and Federal statutes, rules or
regulations governing the operations of the Hospital, except as may be shown on
State survey reports previously provided to Tenant. There is no action pending
or, to the best knowledge of Landlord, threatened by the appropriate State or
Federal agency having jurisdiction thereof, to revoke or rescind the Hospital's
license or to terminate the participation of the Hospital in the Title XVIII
and/or XIX Programs or the JCAHO accreditation of the Hospital, nor is there
any decision not to renew any provider agreement related to the Hospital, or
any action of any other type which would have a material adverse effect on the
Hospital, its operations or business.
(e) Intentionally Omitted.
(f) Employees of the Hospital; Unions. Except as set forth in Exhibit
"E", none of the employees of the Hospital are subject to any employment
agreement or collective bargaining agreement nor, to Landlord's actual
knowledge, are any such employees engaged in any union organizing activities.
Landlord is not presently a party to any labor dispute or grievance subject to
Federal labor laws, except as disclosed to Lessee prior to the execution of
this Agreement. Landlord will promptly advise Tenant of any such labor matters
which arise subsequent to the execution of this Agreement.
(g) Surveys and Reports. Complete copies of the most recent survey
reports, any waivers of deficiencies, plans of correction, and any
other investigation reports issued with respect to the Hospital have been
provided by Landlord to Tenant prior to execution of this Agreement.
-2-
<PAGE> 3
(h) Inventory. All inventories of non-perishable food and central
supplies located at the Hospital are in sufficient condition and quantity to
operate the Hospital at normal capacity for two (2) weeks or at such higher
levels as may be required by law. All inventories of perishable food are at
levels normally maintained by Landlord or at such higher levels as may be
required by law.
(i) Litigation. Except as provided in Exhibit "F", there is no
litigation, investigation or other proceeding pending or threatened
against or relating to Landlord, its properties or business, which is material
to the Premises (as defined below) or to this Agreement, and the transaction
contemplated herein has not been challenged by any governmental agency or any
other person, nor does Landlord know, or have reasonable grounds to know, of
any basis for any such litigation, investigation or other proceeding;
(j) Liens. There are no mechanic's, materialmen's or similar claims or
liens presently claimed or, to the best of Landlord's knowledge, which will be
claimed against the Hospital for work performed or commenced prior to the date
hereof at the request of Landlord or of which Landlord has knowledge, Landlord
having made or caused to be made arrangements for payment of all those
improvements now under construction or development including those which may be
shown on the preliminary title commitment;
(k) Mortgages/Security Instruments. Neither the Real Property nor the
Hospital nor the Personal Property is subject to any mortgages or deeds
of trust or other security instruments, other than those described in Exhibit
"B" hereto nor, without the prior written consent of Tenant, which consent
shall not be unreasonably withheld, shall Landlord so encumber the Real
Property or the Hospital at any time during the term hereof; provided, however,
that Landlord shall be entitled to encumber the Real Property and the Hospital
in connection with the execution and delivery of the deed of trust or mortgage
and related security documents securing the Loan (as defined in Part I, Section
l(x))(collectively, the "Development Mortgage") provided Landlord secures
Tenant's prior approval of the terms and conditions thereof, which approval
shall not be unreasonably withheld;
(l) Financial Statements. Attached as Exhibit "G" is Landlord's balance
sheet dated January 31, 1996 (the "Balance Sheet"). To the best of Landlord's
knowledge, the Balance Sheet fairly presents the financial condition of
Landlord as of such date and was prepared in accordance with generally accepted
accounting principles on a basis consistent with that used in prior periods.
(m) Undisclosed Liabilities. Except for liabilities set forth in the
Balance Sheet or in Exhibit "H", and any liabilities incurred since
January 31, 1996 in the case of the Balance Sheet in the ordinary course of
business in accordance with past operations and practices, to the best of
Landlord's knowledge, neither Landlord nor the Hospital is subject to any
liabilities or obligations of any kind, whether accrued, absolute, contingent
or otherwise. Landlord does not know of, nor does it have any reasonable ground
to know of, any basis for the assertion against Landlord or the Hospital of any
such liability. With respect to any liabilities either set forth in the Balance
Sheet or otherwise incurred in the ordinary course of business which involve
claims by third parties with respect to the services provided by Landlord or
its agents or employees, Landlord
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maintains professional liability insurance with limits of $1 million per
occurrence and $3 million in the aggregate which provides coverage on a claims
made basis and said insurance is, as of the date hereof, and shall remain until
the Commencement Date, in full force and effect;
(n) Accounts Receivable. To the best knowledge of Landlord, after
reasonable investigation, the accounts receivable of Landlord to be
purchased under Part II, Section 5.1 arose from bona fide transactions in the
ordinary course of Landlord's business and the allowance for bad debts is
appropriate and sufficient.
(o) Zoning. The Real Property is currently not subject to any zoning
requirements of the City of Mexia or the County of Limestone, Texas.
Accordingly, Landlord has no reason to believe that the rebuilding of the
Hospital in the event of the damage thereto or destruction thereof would not be
permitted. Landlord has obtained all necessary governmental consents, permits
and approvals, including, but not limited to, a Certificate of Occupancy, for
the use and operation of the Hospital. Landlord has provided Tenant with a
letter issued by the City of Mexia confirming the representation set forth
herein with respect to the absence of zoning affecting the Real Property and
with a true and correct copy of the Certificate of Occupancy for the Hospital.
(p) Hill-Burton Liability. Landlord has no liability under the
Hill-Burton Program and Tenant will have no liability or obligation, as
transferee of the Hospital or otherwise, under the Hill-Burton Program as a
result of this Lease.
(q) Environmental Matters.
(i) Neither Landlord nor the Hospital is subject to any existing or
pending investigation or action by any federal, state, or local governmental
authority under any Environmental Law (as defined below).
(ii) Except as set forth in that Phase I Assessment prepared by ATC
Environmental, a true and correct copy of which is attached hereto as Exhibit
"I", no Hazardous Substance (as defined below) has at any time been generated,
used, stored, released, or disposed of on, under or from the Hospital; Landlord
has filed all reports and documents required to be filed under applicable
Environmental Law with respect to the Hospital. There are no underground tanks
on the Hospital; and the Hospital is free from any Hazardous Substance, in each
case except as set forth on Exhibit "I".
(iii) The term "Environmental Law" means any federal, state, or
local law, statute, ordinance, or regulation pertaining to health, industrial
hygiene, the use or disposal of Hazardous Substances or the environmental
conditions (including soil and groundwater conditions) on, under, or about the
Hospital, including, without limitation (a) the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA"), 42 USC Section
9601 et seq., and (b) the Resource Conservation and Recovery Act of 1976
("RCRA"), 42 USC Section 6901 et seq., and (c) to the extent that the laws of
the State of Texas establish a meaning for "hazardous substance" or "release"
which is broader than that specified in CERCLA, as CERCLA may be amended from
time to time, or a meaning for "solid waste," "disposal," and "disposed" which
is broader than
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specified in RCRA, as RCRA may be amended from time to time, such broader
meanings under said state law shall apply in all matters relating to the laws
of the State of Texas. The term "release" will have the meaning given to it by
CERCLA.
(iv) The term "Hazardous Substance" includes without limitation the
following:
(a) Those substances included within the definitions of "hazardous
substances," "hazardous materials," "toxic substances," and "hazardous
wastes," or "solid wastes" in CERCLA; RCRA; the Hazardous Materials
Transportation Act, 42 USC Section 1801 et seq.; and the Clean Water Act, 33
USC Section 1251 et seq.; and in the regulations promulgated pursuant to such
statutes;
(b) Those substances defined as "hazardous substances," "hazardous
materials," "toxic substances," "hazardous wastes," "dangerous wastes,"
or "solid wastes," in applicable Texas state and local environmental statutes
and in any regulations promulgated pursuant to such statutes;
(c) Those substances listed in the United States Department of
Transportation Table (49 CFR 172.101 and amendments thereto) or by the
Environmental Protection Agency as hazardous substances (40 CFR part 302 and
amendments thereto);
(d) Such other substances, materials and wastes as are or become
regulated, or are classified as hazardous or toxic under federal, state or
local laws or regulations; and
(e) Any material, waste or substance which is or which contains (i)
asbestos, (ii) polychlorinated biphenyls, or (iii) radioactive materials.
(r) Petty Cash. Exhibit "J" sets forth a correct and complete list of
all petty cash accounts maintained by Landlord. Landlord will sign all
documents and instruments necessary to transfer such petty cash to Tenant. Any
other cash or cash equivalents owned by Landlord shall be and remain the
property of Landlord after the Commencement Date.
(s) Licenses. Landlord has all material licenses, permits and
authorizations necessary for the lawful ownership and operation of the
Hospital (the "Landlord Licenses"). True and correct copies of the licenses
issued most recently by the applicable health care authority with respect to
the operation of the Hospital are attached hereto as Exhibit "K." Landlord has
not received written or verbal notice of any action or proceeding which has
been initiated or is proposed to be initiated by the appropriate state or
federal agency having jurisdiction thereof, to either revoke, withdraw or
suspend any of the Landlord Licenses or to terminate the participation of the
Hospital in either the Medicare or Medicaid Programs (to the extent it
participates therein) or any judicial or administrative agency judgement or
decision not to renew any of the Landlord Licenses or any licensure or
certification action of any other type, which would have a material adverse
effect on the business, assets or financial condition of the Hospital.
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(t) Compliance with Law. With respect to the compliance of the
Hospital with law:
(i) Set forth in Exhibit "L" is a list of the most recent
licensure or certification survey for the Hospital and the clinical
service areas included therein, such as pharmacy, laboratory and X-Ray,
copies of which have been made available to Tenant as of the date hereof. To
the best of Landlord's knowledge, the Hospital and its current operation and
use is in substantial compliance with all applicable municipal, county,
state and federal laws, regulations, ordinances, standards and orders and
with all municipal health, building and zoning by-laws and regulations
(including, without limitation, the building, zoning and life safety codes)
where the failure to comply therewith would have a material adverse effect
on the business, property, condition (financial or otherwise) or operation
thereof;
(ii) There are no outstanding cited deficiencies or written work
orders of any authority having jurisdiction over the Hospital requiring
conformity to any applicable statute, regulation, ordinance or bylaw, which
have not been corrected as of the date hereof;
(iii) Landlord has not received written or, to the best of
Landlord's knowledge, verbal notice from any licensing or certifying
agency supervising or having authority over the Hospital requiring it to be
reworked or redesigned or additional furniture, fixtures, equipment or
inventory to be provided thereat so as to conform to or comply with any
existing law, code or standard except where the requirement either (A) has
been fully satisfied prior to the date hereof, (B) will be satisfied by
Landlord prior to the Commencement Date, (C) will be in the process of being
satisfied in the ordinary course of Landlord's business pursuant to the
terms of a Plan of Correction or other documentation submitted to and
approved by the appropriate authority or (D) will be the subject of a valid
written waiver issued by the applicable licensing or certifying agency; and
(iv) If and to the extent applicable, Landlord has no knowledge
based on the results of facility surveys or complaint investigations
provided verbally or in writing to the Hospital by the applicable
supervising agency or authority that the Hospital participating in the
Medicare or Medicaid Programs or certified by JCAHO is not in substantial
compliance with all Conditions and Standards of Participation in the
Medicare and Medicaid Programs or with all applicable requirements of the
JCAHO.
(v) There is no action pending or threatened against the Hospital
to revoke or suspend its license or to ban or limit admissions thereto or, to
the extent applicable, to terminate or not renew its participation in the
Medicare or Medicaid Programs.
(u) Taxes. All tax and other returns, reports and filings of any
kind or nature, required to be filed by Landlord with respect to its ownership
of and operations at the Hospital prior to date of execution of this Agreement
have been properly completed and timely filed, or extensions for the filing
thereof have been timely secured, with all such filings being in material
compliance with all applicable requirements and all taxes due with respect to
Landlord have been timely paid, except to the extent that the same are being
duly contested in good faith in accordance with applicable law and adequate
reserves therefor are reflected on the Balance Sheet or will be reflected in
any subsequent
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financials prepared in accordance with the representations and warranties
contained in this Agreement.
(v) Fraud and Abuse. Landlord has not (i) made any contributions,
payments or gifts to or for the private use of any governmental
official, employee or agent where either the payment or the purpose of such
contribution, payment or gift is illegal under the laws of the United States or
the jurisdiction in which made, (ii) established or maintained any unrecorded
fund or asset for any purpose or made any false or artificial entries on its
books, (iii) given or received any payments or other forms of remuneration in
connection with the referral of patients which would violate the
Medicare/Medicaid Anti-kickback Law, Section 1128(b) of the Social Security
Act, 42 USC Section 1320a-7b(b) or any analogous state statute or (iv) made any
payments to any person with the intention or understanding that any part of
such payment was to be used for any purpose other than that described in the
documents supporting the payment. Landlord shall not be deemed to be in breach
of this representation and warranty in the event the same is untrue as a result
of the acts or omissions of Tenant's or the same was known to be untrue to,
affiliate, Brim Healthcare, Inc., in its capacity as the manager of the
Hospital.
(w) Disclosure. No representation or warranty by or on behalf of
Landlord contained in this Agreement, as those representations have
been modified by any written exceptions thereto delivered by Landlord to Tenant
and no statement contained in any certificate, list, exhibit, or other
instrument furnished or to be furnished to Tenant pursuant hereto contains or
will contain any untrue statement of a material fact, or omits or will omit to
state any material facts which are necessary in order to make the statements
contained herein or therein, in light of the circumstances under which they
were made, not misleading.
(x) Development Program. As of the date hereof, Landlord has committed
to undertake the development program described in Exhibit "M," which
is currently estimated to have a cost of approximately $4.9 million (the
"Development Program"). In order to facilitate the same, Landlord represents
and warrants that it will proceed with all due diligence to secure a loan in
the principal amount of approximately $3 million from a commercial lender to
finance the cost of the Development Program (the "Loan"), the terms and
conditions of which shall be acceptable to both Landlord and Tenant, it being
understood and agreed that this Lease shall be pledged by Landlord as
collateral for the Loan. In addition, Landlord shall make available such
additional funds as may be needed to ensure the timely completion of the
Development Program, it being understood and agreed, however, that Tenant shall
provide the vehicles, equipment, furniture, fixtures and furnishings listed on
Exhibit "R" (the "Development Program Equipment"), which has an aggregate value
of approximately $660,000 in order to assist Landlord in the completion of the
Development Program. Landlord shall bear any and all costs necessary to
negotiate and consummate the Loan, including but not limited to, survey fees,
title fees, loan commitment fees and legal fees.
Section 2. Tenant's Representations and Warranties. Tenant hereby makes
the following representations, warranties and covenants to Landlord:
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(a) Authority. Tenant has full power and authority to execute and to
deliver this Lease and all related documents, and to carry out the transaction
contemplated herein. This Lease is valid, binding and enforceable against
Tenant in accordance with its terms, except as such enforceability may be
limited by creditors rights laws and general principles of equity.
(b) No Conflict. Subject to obtaining the approval of Tenant's Board of
Directors, the execution of this Lease and the consummation of the transaction
contemplated herein, will not result in a breach of the terms and conditions of
nor constitute a default under or violation of any law, regulation, court
order, mortgage, note, bond, indenture, articles of organization, agreement,
license or other instrument or obligation to which Tenant is now a party or by
which Tenant or any of the assets of Tenant may be bound or affected.
Section 3. Landlord's Covenants. Landlord covenants and agrees for the
benefit of Tenant as follows:
Section 3.1. Pre-Delivery Date. From and after the date of the execution
of this Agreement and until the fifth day after the satisfaction or waiver of
the conditions to the effectiveness of this Lease set forth in Part I, Sections
6 and 7 (the "Delivery Date"), except as contemplated by this Agreement or with
the consent of Tenant, which consent shall not be unreasonably withheld,
conditioned or delayed:
Section 3.1.1. Landlord will comply with all of its obligations under
that Management Agreement dated November 27, 1991 between Landlord and Tenant's
affiliates, Brim Healthcare, Inc., as amended by First Amendment, Second
Amendment and Third Amendment dated February 1, 1992, February 1, 1993 and June
27, 1995, respectively (the "Management Agreement").
Section 3.1.2. As soon as practicable after the date hereof but in no
event later than April 30, 1996, Landlord will deliver to Tenant (i) a
UCC-1 search report in the name of Landlord and the Hospital conducted at the
state and county level and (ii) a title insurance commitment for a leasehold
policy with respect to the Premises (the "Leasehold Title Policy") with a value
equal to the present value of the aggregate rent due hereunder during the
Initial Term and each Extension Term, the cost of both of which shall be borne
by Tenant;
Section 3.1.3. Within five (5) days after Landlord's receipt of
Tenant's title objections, UCC search and survey objections pursuant to Part I,
Section 4.1.1, Landlord shall advise Tenant whether it intends to correct the
defects to which Tenant has objected.
Section 3.1.4. Landlord will use its best efforts to cause all of the
conditions set forth in this Part I, Sections 6 and 7 which are within
Landlord's control to be satisfied and Landlord will not take any action
inconsistent with its obligations under this Agreement or which could hinder or
delay the consummation of the transaction contemplated by this Agreement or
which is intended to cause any representation, warranty or covenant made by
Landlord in this Agreement or in any certificate, list, exhibit, or other
instrument furnished or to be furnished pursuant hereto, or in connection with
the transaction contemplated hereby, to be untrue in any material respect as of
the Commencement Date;
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Section 3.1.5. Neither Landlord nor any of its board members, officers
advisors, or others authorized to act on its behalf shall directly initiate or
solicit discussions relating to any alternative acquisition proposal or similar
transaction including, without limitation, a merger or other business
combination involving Landlord or the Premises or any part thereof, or offer to
acquire or convey in any manner, directly or indirectly, all or substantially
all of the equity interests in Landlord or the Premises; provided, however,
that public announcements of the transaction contemplated by this Agreement
shall not be prohibited hereby;
Section 3.1.6. Landlord will not do or to cause to be done any of the
acts which it has covenanted not to do under this Part I, Section 3.1; and
Section 3.1.7. Landlord will proceed with all due diligence to secure
any regulatory approvals and third party consents for which it is responsible
under the terms hereof.
Section 3.2. Delivery Date. On the Delivery Date, Landlord will deliver
or cause to be delivered to Tenant the following:
Section 3.2.1. The Premises in their AS IS, WHERE IS condition, it being
understood and agreed that Tenant has agreed to accept the same in said
condition;
Section 3.2.2. A certificate of a responsible officer of Landlord
dated as of the Delivery Date, certifying on behalf of Landlord in such detail
as Tenant may reasonably specify the fulfillment of the conditions set forth
in this Part I, Section 6.4;
Section 3.2.3. Evidence reasonably satisfactory to Tenant that the
requisite consent of the Board of Directors of Landlord has been obtained
authorizing and approving the transactions contemplated herein;
Section 3.2.4. A duly executed Assignment of the Operating Contracts,
which shall be in the form attached hereto as Exhibit "N" (the "Operating
Contract Assignment Agreement");
Section 3.2.5. A duly executed Assignment of Landlord's Working Capital
(as defined in Part II, Section 5,1) which shall be in the form attached
hereto as Exhibit "O" (the "Working Capital Assignment Agreement");
Section 3.2.6. The Leasehold Title Policy; and
Section 3.2.7. A duly executed Employee Leasing Agreement, which shall be
in the form attached hereto as Exhibit "P" (the "Employee Leasing Agreement").
Section 3.3. Post Delivery Date. From and after the Delivery Date,
Landlord shall take such actions and properly execute and deliver to
Tenant such further instruments of assignment, conveyance and transfer as, in
the reasonable opinion of counsel for Tenant and Landlord, may be reasonably
necessary to assure, complete an evidence the transaction provided for herein.
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Section 4. Tenant's Covenants. Tenant covenants and agrees with
Landlord as follows:
Section 4.1. Pre-Delivery Date. Between the date hereof and the
Delivery Date, except as contemplated by this Agreement or with the
consent of Landlord, which consent shall not be unreasonably withheld,
conditioned or delayed:
Section 4.1.1. Within ten (10) days after its receipt of the Title
Commitment and an ALTA survey of the Real Property and the Hospital
(the "Survey"), Tenant shall advise Landlord in writing of its objections, if
any, to the Title Commitment, Survey and UCC search report. If Landlord refuses
to correct some or all of the title, survey or lien defects objected to by
Tenant or to give Tenant reasonable assurances that the same will be corrected
as of the Commencement Date, Tenant shall have ten (10) days to advise Landlord
of its decision to close, notwithstanding the defects, or of its election to
terminate this Agreement, in which case neither party shall have any further
rights or obligations hereunder. Any matter reflected on the Title Commitment
or Survey and not objected to by Tenant in accordance with the terms hereof,
shall be deemed accepted by Tenant;
Section 4.1.2. Tenant will proceed with all due diligence to obtain any
third party consents and regulatory approvals for which it is responsible under
the terms hereof.
Section 4.1.3. Unless specifically prohibited by law, Tenant will use its
best efforts to cause all of the conditions set forth in Part I; Sections 6 and
7 which are within its control to be satisfied and Tenant will not take any
action inconsistent with its obligations under this Agreement or which could
hinder or delay the consummation of the transaction contemplated by this
Agreement or which is intended to cause any representation, warranty or
covenant made by Tenant in this Agreement or in any certificate, list, exhibit,
or other instrument furnished or to be furnished pursuant hereto, or in
connection with the transaction contemplated hereby, to be untrue in any
material respect as of the Commencement Date; and
Section 4.1.4. Tenant will not do or to cause to be done any of the acts
which it has covenanted not to do under this Part I, Section 4.
Section 4.2. Delivery Date. On the Delivery Date, Tenant will deliver to
Landlord the following documents:
Section 4.2.1. A certificate of a responsible officer of Tenant dated as
of the Delivery Date certifying on behalf of Tenant in such detail as Landlord
may reasonably specify the fulfillment of the condition set forth in Part I,
Section 7.3;
Section 4.2.2. Resolutions of Tenant's Board of Directors, certified by the
Secretary of Tenant authorizing and approving the transaction contemplated
herein;
Section 4.2.3. The executed Operating Contract Assignment Agreement,
Section 4.2.4. The executed Working Capital Assignment Agreement; and
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Section 4.2.5. The executed Employee Leasing Agreement.
Section 4.3. Post-Delivery Date. After the Delivery Date, Tenant will:
Section 4.3.1. Provide Landlord with access during normal business hours
to any books or records which Landlord may need to file or to defend tax returns
or other filings filed prior to or subsequent to the Commencement Date which
relate to the period prior to the Commencement Date; and
Section 4.3.2 Take such actions and properly execute and deliver such
further instruments as Landlord may reasonably request to assure, complete and
evidence the transaction provided for in this Agreement.
Section 5. Mutual Covenants. Following the execution of this
Agreement, Landlord and Tenant agree:
Section 5.1. Cure of Preventing Conditions. If any event should occur,
either within or without the knowledge or control of any party, which would
prevent fulfillment of the conditions to the obligations of any party hereto to
consummate the transactions contemplated by this Agreement, to use its or their
reasonable efforts to cure the same as expeditiously as possible;
Section 5.2. Cooperation. To cooperate fully with each other in
preparing, filing, prosecuting, and taking any other actions which are or may be
reasonable and necessary to obtain the consent of any governmental
instrumentality or any third party, to accomplish the transactions contemplated
by this Agreement;
Section 5.3. Delivery. To deliver such other instruments of title,
certificates, consents, endorsements, assignments, assumptions and other
documents or instruments, in form reasonably acceptable to the party requesting
the same and its counsel, as may be reasonably necessary to carry out and/or to
comply with the terms of this Agreement and the transactions contemplated
herein;
Section 5.4. Conferences. To confer on a regular basis with the other,
report on material operational matters and promptly advise the other orally and
in writing of any change or event having, or which, insofar as can reasonably be
foreseen could have, a material adverse effect on such party or which would
cause or constitute a material breach of any of the representations, warranties
or covenants of such party contained herein;
Section 5.5. Information. To promptly provide the other (or its
counsel) with copies of all other filings made by such party with any state or
federal governmental entity in connection with this Agreement or the
transactions contemplated hereby;
Section 5.6. Consents/Approvals. Each of Tenant and Landlord will use
its best efforts to obtain prior to the Commencement Date all consents,
approvals and licenses necessary to permit the consummation of the transactions
contemplated by this Agreement, including, but not limited to, such licensure
and certification approval as may be necessary to enable Tenant to lawfully own
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and/or operate the Hospital from and after the Commencement Date and the consent
of its lenders, lessors and other third parties to the extent required under any
loan documents, lease agreements, management agreements or other instruments to
which it is a party.
Section 5.7 Press Releases. The parties shall consult with each other
prior to the issuance by either party of any press release or any written
statement with respect to this Agreement or the transactions contemplated
hereby.
Section 6. Conditions to Tenant's Obligations. The obligation of
Tenant under this Lease are subject to the satisfaction or waiver by Tenant of
each of the following conditions on or before the Commencement Date:
Section 6.1. Licenses. Tenant and Hospital will have received all
permits, licenses, orders, certifications and approvals from all federal, state
and local governmental and regulatory bodies required to enable Tenant to
operate the Hospital under this Lease.
Section 6.2. Adverse Changes. There shall be no material adverse
change in the financial condition or operations of the Hospital prior to the
Commencement Date. In addition, there shall be no material adverse changes or
modifications to any of the disclosures set out in the Exhibits to this Lease
prior to the Commencement Date.
Section 6.3. Insurance. Landlord will have obtained a "tail" policy or
Tenant will have obtained a claims made policy, acceptable to Tenant, insuring
Tenant and Landlord against the risks ordinarily insured by standard
professional malpractice liability insurance available to the hospitals respect
to incidents, errors, omissions and claims which arose, existed or were created
before the Commencement Date and with limits and carriers approved by Tenant.
Section 6.4. Representations. Etc. Each of the representations,
warranties and covenants of Landlord set forth in this Lease will be correct and
fully performed.
Section 6.5. Title Insurance. Tenant will have received a commitment
from Chicago Title Insurance Company to issue a policy (the "Title Policy")
insuring the leasehold estate of Tenant in the Real Property (at Tenant's
expense), subject only to liens approved by Tenant.
Section 6.6. Environmental Audit. Tenant will have received, at
Landlord's expense, a level one environmental study and will have accepted the
conclusions and results of the study, which acceptance will be in Tenant's sole
discretion.
Section 6.7. Due Diligence. Tenant shall be satisfied with the results
of its due diligence investigation of Landlord and the Premises, which
investigation shall include, but not be limited to, a review of (i) the books
and records of Landlord related to the Hospital, (ii) the books and records of
the Hospital, including records relating to escrow accounts, accounts payable,
leases or occupancy agreements in effect with the patients or tenants of the
Hospital or any portion thereof, operating statements for the prior three (3)
years, rent rolls for the prior three (3) years, operating contracts with
vendors and other third parties providing goods and services to the Hospital,
(iii) an MAI
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appraisals of the Premises in the possession of Landlord, (iv) a structural
inspection of the Premises conducted by an engineer retained by Tenant and (v)
any seismic assessments, wetlands and soils reports in Landlord's possession and
delivered to Tenant or otherwise acquired by Tenant at its own cost and expense.
Section 6.8. UCC Search. Tenant shall be satisfied with the results of
the UCC Search.
Section 6.9. Damage, Destruction, Condemnation. The Premises shall not
have been damaged or destroyed nor taken by condemnation or eminent domain
proceeds nor subject to any pending condemnation action or eminent domain
proceeding.
Section 7. Conditions to Landlord's Obligations. The obligation of
Landlord under this Lease are subject to the satisfaction or waiver by Landlord
of each of the following conditions on or before the Commencement Date:
Section 7.1. Licenses. Tenant and Hospital will have received all
permits, licenses, orders, certifications and approvals from all federal, state
and local governmental and regulatory bodies required to enable Tenant to
operate the Hospital under this Lease.
Section 7.2 Insurance. Landlord will have obtained a "tail" policy or
Tenant will have obtained a claims made policy, insuring Tenant and Landlord
against the risks ordinarily insured by standard professional malpractice
liability insurance available to the hospitals respect to incidents, errors,
omissions and claims which arose, existed or were created before the
Commencement Date and with limits and carriers approved by Tenant.
Section 7.3. Representations. etc. All of the representations and
warranties of Tenant set forth herein shall be true and correct as of the
Commencement Date in all material respects and Tenant shall have performed as of
the Commencement Date all of its obligations hereunder which it is required to
perform as of said date.
Section 7.4. Assignment and Assumption Agreement. Landlord and Tenant
shall have executed and delivered an Assignment and Assumption Agreement with
respect to the Operating Contracts listed in Exhibit D and the liabilities set
forth in Exhibit G-1.
Section 8. Termination.
Section 8.1. By Landlord or Tenant. This Agreement may be terminated
by Tenant or Landlord prior to the Commencement Date upon the following
conditions:
(a) By mutual consent of the parties;
(b) By Tenant if the conditions set forth in Part I, Section 6 have
not been satisfied or waived by the Outside Commencement Date;
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(c) By Landlord if the conditions set forth in Part I, Section 7 have
not been satisfied or waived by the Outside Commencement Date; and
(d) By either party if the Lease Term has not commenced by July 1, 1996
(the "Outside Commencement Date").
Section 8.2. Notice and Cure. Neither party to this Agreement may
claim termination or pursue any other remedy referred to in Part I, Section 8.1
on account of a breach of a condition, covenant or warranty by the other,
without first given such other party written notice of such breach and not less
than ten (10) days within which to cure such breach. The Commencement Date shall
be postponed if necessary to afford such opportunity to cure provided, however,
in no event shall it be postponed beyond the Outside Commencement Date.
Section 8.3. Landlord's Remedies. In the event of the termination of
this Agreement by Landlord under either Part I, Section 8.1(c) or Section 8.1(d)
where, in either case the term has failed to commence as a result of a
material breach by Tenant of its obligations hereunder, Landlord shall be
entitled to terminate this Agreement and sue to recover any damages suffered by
it as a result of said breach.
Section 8.4. Tenant's Remedies. In the event of the termination of
this Agreement by Tenant under either Part I, Section 8.1(b) or Section 8.1(d)
where, in either case the term has failed to commence as a result of a
material breach by Landlord of its obligations hereunder, Tenant shall have the
right either (A) to seek specific performance of Landlord's obligations
hereunder or (B) to terminate this Agreement and sue to recover any damages
suffered by it as a result of said breach.
Section 8.5. Mutual Termination Without Recourse. In the event of the
termination of this Agreement pursuant to Part I, Section 8.1(a) neither party
shall have any further rights or obligations hereunder.
PART II
Section 1. The Premises.
Section 1.1. Landlord hereby demises and leases to Tenant and Tenant
hereby leases and takes from Landlord, the real estate described in Exhibit "A"
attached hereto and by this reference made a part hereof (the "Real Property")
and the improvements thereon or to be added thereto in conjunction with the
Development Program that do or will upon completion constitute the Hospital.
Notwithstanding the foregoing, Landlord and Tenant acknowledge and agree that
Landlord shall be responsible for the supervision of the Development Program and
that Tenant shall not be in breach of its obligations hereunder in the event of
any delay in the completion of the Development Program which results from a
breach by Landlord of its obligations with respect thereto; provided, however,
that Tenant shall provide a project manager to assist Landlord with the
supervision of the Development Program; and provided, further, that in the event
that neither Landlord nor the lender under the Loan has completed the
Development Program on or before December 1, 1997, Tenant shall have the right
to terminate this Lease, it being understood and
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agreed that the completion of the Development Program was a material inducement
to both Landlord's and Tenant's willingness to enter into this Lease.
Section 1.2. Landlord hereby demises and leases to Tenant, and Tenant
hereby leases and takes from Landlord, the vehicles, equipment, furniture,
furnishings, and fixtures listed on Exhibit "Q", attached hereto and by this
reference made a part hereof located therein (such equipment, vehicles,
furniture, furnishings and fixtures, together with all replacements thereof and
additions thereto financed with the proceeds of the Loan as part of the
Development Program, will hereinafter be referred to as the "Personal
Property"). The Development Program Equipment together with any other equipment
that is necessary or convenient to operate the Hospital and which is acquired,
in addition to the Personal Property, shall be acquired by and at the cost of
Tenant and the same shall be and remain the property of Tenant ("Tenant's
Equipment"). Landlord and Tenant acknowledge and agree that Tenant's Equipment
shall include, but not be limited to, the equipment described in Exhibit "R"
which Tenant has agreed to lease in connection with and to facilitate the
Development Program and which Tenant shall have the right to remove from the
Hospital at the end of the Term hereof, whether by expiration or earlier
termination, unless Landlord elects to assume the leases with respect thereto if
and to the extent Tenant has obligations outstanding thereunder as of said
termination date; provided, however, that in the event of the termination of
this Lease as a result of the default of Tenant hereunder, Tenant shall have no
right to remove said portion of the Tenant's Equipment from the Hospital but
shall be obligated to assign the leases related thereto to Landlord effective
upon the date of said termination and any default by Tenant thereunder which is
cured by Landlord in conjunction with said assumption shall be added to the
damages owing to Landlord as a result of Tenant's default hereunder.
Section 1.2.1. Tenant shall keep all of the Personal Property in good
working order and condition at Tenant's sole cost and expense, and at the
expiration or termination of the Lease Term shall return and deliver all of such
property to Landlord in as good order and condition as when received hereunder,
reasonable wear and tear excepted. If necessary for the proper operation of the
Hospital, Tenant shall during the Lease Term replace part or all of the items of
Personal Property which have been damaged or destroyed or become worn out or
obsolete, and such replacement shall be at the sole cost of Tenant, but any such
replaced equipment shall be and remain the property of Landlord, subject,
however, to Landlord's obligations under Part II, Section 2.3. In furtherance of
Tenant's obligations hereunder, Landlord shall assign to Tenant all of its
right, title and interest in and to any warranties granted to Landlord in
connection with any of the Personal Property acquired as a part of the
Development Program.
Section 1.2.2. Landlord agrees upon request of Tenant to subordinate
any statutory or Landlord's lien that Landlord may have to any security interest
granted by the Tenant to secure a purchase money obligation or an acquisition
lease of any of Tenant's Equipment acquired by Tenant pursuant to Part II,
Section 1.2.1.
Section 1.3. Throughout this Lease Agreement, the Real Property, the
Hospital and the Personal Property will collectively be referred to as the
"Premises". The Premises shall in no event include Tenant's Equipment as defined
in Part II, Section 1.2.1.
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Section 2. Term and Right of First Refusal.
Section 2.1. Initial Lease Term. Subject to the satisfaction of the
conditions set forth in Part I, Section 3 and 4, and regardless of the date of
the execution of this Agreement or of the Delivery Date as defined in this
Agreement, the Term of this Lease shall commence effective retroactively to
February 1, 1996 (the "Commencement Date") and shall extend for a period of
fifteen (15) years thereafter, unless extended or earlier terminated as provided
herein (the "Initial Lease Term").
Section 2.1.1. Tenant shall have the right to renew this Lease beyond
the Initial Lease Term for two five (5) year renewal term(s) (the "Renewal
Term(s)) by giving notice of the exercise of its renewal option at least one
hundred twenty (120) days prior to the expiration of the Initial Lease Term and
each Renewal Term. In the event Tenant is in default on the date of the giving
of notice of its intent to renew the Lease, the notice may at Landlord's option
be ineffective; in the event Tenant is in default on the date the applicable
Renewal Term is to commence, then at Landlord's option the Renewal Term shall
not commence and this Lease may expire as of the end of the Initial Lease Term
or any applicable Renewal Term.
Section 2.1.2. Upon the termination of this Lease, whether by
forfeiture, lapse of time or otherwise, or upon termination of Tenant's right to
possession of the Premises, Tenant will at once surrender and deliver the
Premises, together with all improvements thereof, to Landlord, (but, except as
otherwise provided in Part II, Section 1.2, specifically excluding Tenant's
Equipment) in good condition and repair, reasonable wear and tear excepted. At
the time of surrender, Tenant shall remove Tenant's Equipment; provided,
however, that Tenant shall repair any injury or damage done to the premises
which may result from such removal and shall restore the Premises to the same
condition as existed prior to the installation thereof.
Section 2.2. Right of First Refusal. During the Lease Term, Landlord
shall not sell the Premises to a third party ("Third Party") at any time when
this Lease is not in default unless and until (i) Landlord has received and,
subject to Tenant's right of first refusal, accepted a bona fide written offer
("Offer") from Third Party containing the sales price and all of the terms and
conditions upon which Landlord is willing to sell the Premises to Third Party,
and (ii) Landlord has provided Tenant with a copy of the Offer.
Section 2.2.1. If Tenant, within twenty (20) days after receipt of
Landlord's written notice, gives Landlord written notice of its desire to
purchase the Premises, Landlord and Tenant shall, within thirty (30) days after
Landlord receives Tenant's notice, enter into a written purchase and sale
agreement for Landlord's sale of the Premises to Tenant for the price, and on
the terms and condition, set forth in the Offer. In the event Tenant wrongfully
fails to close under said agreement, then the Tenant shall have no further
rights under this Part II, Section 2.2.
Section 2.2.2. If Tenant does not give Landlord its written notice
within such twenty (20) day period, Landlord thereafter shall have the right to
sell the Premises to Third Party on the terms and conditions set forth in the
Offer, so long as the sale to Third Party closes within one hundred eighty (180)
days after delivery of the Offer to Tenant. If such sale to Third Party does
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not close within the time period specified herein, then all of Tenant's first
refusal rights stated in this Part II, Section 2.2 shall be reinstated with
respect to such Offer and any and all subsequent offers.
Section 2.3. Payment on Termination. Upon the termination of the Lease
at the end of the Initial Lease Term or the Renewal Terms, as applicable, (a)
Landlord shall reimburse Tenant for the cost less depreciation of (i) any and
all capital improvements made to the Hospital at Tenant's expense and (ii) any
Personal Property acquired by Tenant and used in connection with the operation
of the Hospital, (b) Landlord will have the right to purchase from Tenant all,
but not less than all, of Tenant's working capital then in use at the Hospital
(which, for purposes hereof, shall specifically exclude all cash and cash
equivalents) and (c) Landlord shall have the option, exercised in writing no
later than sixty (60) days prior to the end of the Initial Term or the Renewal
Terms, as applicable, to acquire Tenant's Equipment for a purchase price equal
to the book value thereof less depreciation attributable thereto as reflected on
Tenant's financial statements, in the case of any owned equipment, and
assumption of any lease obligations outstanding with respect thereto, in the
case of any leased equipment. The purchase price to be paid by Landlord for
Tenant's working capital will be equal to the then current assets less the then
current liabilities, which liabilities shall be assumed by Landlord using a form
of Assignment Agreement similar to the Working Capital Assignment Agreement
executed by Landlord and Tenant pursuant to the terms hereof. The purchase price
for Tenant's working capital and/or Tenant's Equipment shall be payable in cash
within 15 days after the end of the Initial Term or the Renewal Terms, as
applicable. The then "Current Assets" shall include the net book value of
Landlords inventories and supplies and accounts receivable but shall include
cash and cash equivalents.
Section 2.4. Licenses. Upon termination or expiration of this Lease,
Tenant will: (a) surrender or transfer to Landlord, as appropriate, all
licenses, certificates and permits associated with the Hospital; (b) transfer
to Landlord all medical records, medical staff records, financial records and
other books and records associated with the Hospital; and (c) immediately stop
using the name "Parkview Regional Hospital" or any similar name.
Section 3. Rent.
Section 3.1. Basic Rent. During the Initial Lease Term the annual rent
due hereunder (the "Basic Rent") shall be as follows:
(i) From the Commencement Date until the completion of the Development
Program (the "Completion Date") as evidenced by (i) the issuance of an
unconditional Certificate of Occupancy from the City of Mexia and of
all necessary licenses and permits to operate the same from the State
of Texas and (ii) the certification of the project architect that the
same is substantially complete subject only to the correction of
approved punch list items, the annual Basic Rent shall be in the
amount of Two Hundred Thousand and no/100 Dollars ($200,000), payable
in equal monthly installments of Sixteen Thousand Six Hundred Sixty
Six and 67/100 Dollars ($16,666.67).
(ii) During the first Lease Year after the Completion Date, the annual
Basic Rent shall be in the amount of Three Hundred Seventy Five
Thousand and no/100 Dollars ($375,000)
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payable in equal monthly installments of Thirty One Thousand Two
Hundred Fifty and no/100 Dollars ($31,250.00).
(iii) During each subsequent Lease Year after the Completion Date, the
annual Basic Rent shall be in an amount equal to the annual Basic Rent
paid during the immediately preceding Lease Year increased by the
lesser of (i) the percentage change in the Consumer Price Index (the
"CPI") (as hereinafter defined) from the CPI in effect as of the first
day of the immediately preceding Lease Year to the CPI in effect as of
the first day of the current Lease Year and (ii) three (3%) per cent
per annum; provided, however, in no event shall the Basic Rent payable
in any Lease Year be less than the Basic Rent paid during the
immediately preceding Lease Year.
For purposes of this Part II, Section 3, a Lease Year shall be the
twelve (12) month period commencing on the Completion Date. In the event the
Commencement Date or the Completion Date shall be other than the first day of
the month, Tenant shall pay to Landlord a pro rata portion of rent for the
month. All annual rental payments shall be made in advance in equal monthly
installments in the amounts specified and shall be paid on the fifth day of each
month; provided, however, that the first monthly payment shall be due on the
fifth day after the Commencement Date.
For purposes of this Part II, Section 3, the CPI shall be the Consumer
Price Index for Wage Earners and Clerical Workers, Dallas-Fort Worth SMSA: All
Items (1982-1984=100), published by the Bureau of Labor Statistics (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, the adjustment to the rent provided for herein 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 and Lessee.
Section 3.2. Payment of Basic Rent. The Basic Rent shall be payable
without offset, abatement or other deduction (including offsets resulting from
any defaults by Landlord under any other agreement to which it or its affiliates
and Tenant or its affiliates may be a party, unless expressly set forth herein)
to Landlord at the address set forth in Part II, Section 16, or to such other
person, firm or corporation at such other address as Landlord may designate by
notice in writing to Tenant.
Section 3.2.1. This Lease is intended to be triple net to Landlord, and
Tenant shall pay to Landlord, net throughout the Initial Lease Term and any
Renewal Term, the Basic Rent prescribed by Part II, Section 3.1, free of any
offset, abatement, or other deduction, except as may be expressly set forth
herein. Tenant is hereby obligated to make all rental payments set
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forth herein to Landlord. Landlord shall not be required to make any payment of
any kind with respect to the Premises, except as may otherwise be expressly set
forth herein and except for the payment of the principal and interest due on the
mortgages and security instruments described in Exhibit "B." Accordingly, Tenant
agrees to pay all additional rent payments described in Part II, Section 3.4.1
and all charges described in Part II, Section 6 as they become due and payable.
Section 3.3. Late Charges. If any payment of any sums required to be
paid or deposited by Tenant to Landlord under this Lease and payments made by
Landlord under any provision hereof for which Landlord is entitled to
reimbursement by Tenant shall become overdue for a period of ten (10) days
beyond the date on which they are due and payable as provided for in Part II,
Section 12.1.1. of this Lease, a late charge of one percent (1%) per month on
the sums so overdue shall begin to accrue as of the expiration of said period
and shall immediately be due and payable to Landlord, and said late charge shall
be payable on the first day of the month next succeeding the month during which
such late charge becomes payable. Such late charge shall compensate Landlord
only for loss of interest on the payments due Landlord and shall be in addition
to any and all other amounts, including damages, to which Landlord may be
entitled pursuant to this Lease or in law or equity. The acceptance by Landlord
of a late charge shall not limit or preclude Landlord from exercising its rights
pursuant to Part II, Section 12. If non-payment of any late charge shall occur,
Landlord shall have, in addition to all other rights and remedies, all rights
and remedies provided for herein and by law in the case of non-payment of rent.
No failure by Landlord to insist upon the strict performance by Tenant of
Tenant's obligations to pay late charges shall constitute a waiver by Landlord
of its rights to enforce the provisions of this Section in any instance
thereafter occurring.
Section 3.4. Additional Rent.
Section 3.4.1. The additional rent shall consist of all real estate
taxes, general and special assessments, personal property taxes, and other
public charges which are assessed, levied, confirmed, or imposed upon the
Premises during the Lease Term, and all sales taxes and other taxes that are now
or hereafter may be payable in connection with the Basic Rent payable hereunder
during the Initial Lease Term and any Renewal Term (other than income taxes
owing by Landlord as a result of Tenant's payment of Basic Rent hereunder).
Section 3.4.2. Any taxes and assessments relating to a fiscal period of
any authority, a part of which is already included within the Initial Lease Term
or any Renewal Term and a part of which is included in a period of time before
or after the Initial Lease Term or any Renewal Term, shall be adjusted pro rata
between Landlord and Tenant and each party shall be responsible for its pro rata
share of any such taxes and assessments.
Section 3.4.3. Nothing herein shall require Tenant to pay income taxes
assessed against Landlord if and to the extent the same may hereafter be
assessed against Landlord as a result of the existence of this Lease, it being
specifically understood and agreed that as of the Commencement Date, no such
taxes are assessed against Landlord.
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Section 3.4.4. Tenant may contest, in its own name or in the name of
Landlord, with Landlord's cooperation, which Landlord agrees to give, the
legality or validity of any such tax or assessment or of any law under which the
same shall be imposed. This must be done in good faith, with due diligence,
and at Tenant's own expense. If Tenant does so contest such tax or assessment
beyond the time limit for payment thereof by Tenant, Tenant shall do one of the
following: Tenant may pay such amount under protest; procure and maintain a stay
of all proceedings with adequate bond to enforce collection of such tax or
assessment; or deposit with Landlord reasonable security for the payment of all
contested sums. Once such action is taken by Tenant, Tenant shall not be
considered to be in default hereunder with respect thereto.
Section 3.4.5. Tenant shall have, and Landlord hereby irrevocably grants
to Tenant, the power and authority, at Tenant's cost to make and file and
prosecute any statement or report or claim for refund which may be required or
permitted by law, as the basis of or in connection with the assessment,
determination, equalization, reduction or payment of any and every tax or
assessment or license or charge which Tenant is required to pay or discharge
hereunder.
Section 3.4.6. Upon the termination of any such proceeding, Tenant shall
pay the amount of such taxes and assessments or part thereof as finally
determined in such proceedings, the payment of which may have been deferred
during the prosecution of such proceedings, together with any costs, fees,
interest, penalties or other liabilities in connection therewith.
Section 3.4.7. If any income, profits or revenue tax shall be levied,
assessed or imposed upon the income, profits or revenue arising from rents
payable hereunder, partially or totally in lieu of or as a substitute for real
estate or personal property taxes imposed upon the Premises during the term of
this Lease, then Tenant shall be responsible for the payment of such tax.
Section 3.4.8. Tenant shall pay before delinquency any and all real and
personal property taxes and assessments, payable hereunder by Tenant. In the
event of a late payment, Tenant shall pay all interest and penalties plus the
amount due. Tenant shall further provide Landlord with evidence of payment as
soon as practicable after Landlord's written request therefor.
Section 4. Use of the Premises/Compliance With Laws.
Section 4.1.1. Tenant covenants upon execution of this Lease to use its
best efforts to obtain all approvals needed to operate the Hospital under
applicable state and federal law, including, but not limited to, certificate of
need, licensure and certification, and, during the Initial Lease Term and any
Renewal Terms, to operate the Hospital as a provider of health care services and
to maintain its certification for reimbursement and its licensure and its JCAHO
accreditation. Landlord agrees to assist Tenant as reasonably necessary to
obtain such approvals. Tenant shall not amend or alter the Hospital license or
certification without the prior written approval of Landlord, which shall not be
unreasonably withheld. In addition, Tenant covenants and agrees that in
connection with its operation of the Hospital it shall provide charity care in
each Lease Year in a manner consistent with the past practices of the Hospital.
For purposes hereof, charity care shall be deemed to be the care provided to
patients who are determined under the Hospital's charity care policy in effect
at the time of execution of this Agreement (Exhibit T) to otherwise
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pay for their care, it being the intent of the parties to provide hospital care
and related services to residents of the Hospital's primary service area without
regard to ability to pay.
Section 4.1.2. Tenant covenants and agrees that it will return the
Hospital to Landlord at the end of the Initial Lease Terms and/or any applicable
Renewal Terms licensed and certified in the same manner as it is on the
Commencement Date. Tenant shall provide at all times sufficient personnel,
equipment and supervision to operate the Hospital safely and effectively and
shall take such measures as are necessary (including disciplinary actions
against, and termination of employment of, personnel where appropriate).
Section 4.2. After the Commencement Date, Tenant shall neither use nor
permit to be used the Premises, or any part thereof for any purpose or purposes
other than as an acute care facility without the prior written consent of
Landlord, which shall not be unreasonably withheld. No use shall be made or
permitted to be made of the Premises, and no acts shall be done, which will
cause the cancellation of any insurance policy covering the Premises or any part
thereof, nor shall Tenant sell or permit to be kept, used or sold in or about
the Premises any article which may be prohibited by the standard form of fire
insurance policies. Tenant shall, at its sole cost, comply with all of the
requirements pertaining to the Premises of any insurance organization or company
necessary for the maintenance of insurance, as herein provided, covering the
Premises.
Section 4.3. Tenant covenants and agrees that the Premises shall not
be used for any unlawful purpose. Tenant shall not commit or suffer to be
committed any waste on the Premises, nor shall Tenant cause or permit any
nuisance thereon. Tenant further covenants and agrees that Tenant's use of the
Premises and maintenance, alteration, and operation thereof shall at all times
conform to all applicable and lawful local, state, and federal ordinances, rules
and regulations; including but not limited to the certificate of need, licensure
and certification. Tenant may, however, contest the legality or applicability of
any such ordinance, rule or regulation, or any licensure or certification
decision. This must be done in good faith, with due diligence, without prejudice
to Landlord's rights hereunder, and at Tenant's own expense. If Tenant does so
contest any such ordinance, rule, regulation or decision, Landlord may require
Tenant to deposit with Landlord reasonable security for the payment of all
liability, costs, and expenses which may arise from the litigation. Once such a
deposit has been made or while such a contest is pending, even if no such
deposit is required by Landlord, Tenant shall not be considered in default under
this Part II, Section 4.3. of the Lease.
Section 4.4. Tenant shall neither suffer nor permit the Premises or
the Hospital or any portion thereof to be used in such a manner as (i) might
reasonably tend to impair Landlord's interest in the Premises 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.
Section 4.5. Within ten (10) days after receipt of Landlord's written
request therefor, Tenant shall deliver to Landlord a copy of the results of all
surveys, investigations and inspections of the Hospital and its operation
performed by state or federal authorities, including, but not
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limited to, notifications of actual or possible violations of state or federal
law and regulations pertaining to the Hospital.
Section 4.6. Tenant shall timely pay all Hospital payroll and related
payroll taxes and impositions.
Section 4.7 In connection with its operations at the Hospital,
Tenant shall work with the Hospital's Governing Board established pursuant to
Tenant's Bylaws, which Board shall be comprised of three members of the
community served by the Hospital, two physicians with staff privileges at the
Hospital and two officers or employees of Tenant and (ii) Tenant shall take
such action as the Governing Board may deem to be necessary from time to time
to monitor the satisfaction of the patients and community served by the
Hospital and to take any action which is deems to be appropriate to address
concerns raised by said patients and community members. The community members
shall be selected as follows: one of the community members shall be appointed
from a list of nominees recommended by the Hospital Board and two of the
community members may, but shall not be required to, be appointed from said
list of nominees.
Section 5. Liabilities.
Section 5.1 In consideration of the payment on the Delivery Date of
an amount equal to the Excess Assets (as defined herein), Landlord hereby sells,
assigns and transfers to Tenant all of the Hospital's working capital existing
on the Commencement Date as reflected on the balance sheet attached hereto as
Exhibit "G" (the "Working Capital"). Landlord and Tenant acknowledge and agree
that the Working Capital does not include all of Landlord's assets or
liabilities existing on the Commencement Date. For purposes hereof, the term
"Excess Assets" shall mean the amount by which the current assets included in
the Working Capital exceed the current liabilities included therein. For
purposes hereof, the term "current assets" shall include the net book value of
Landlord's inventories and supplies and accounts receivable but shall exclude
cash and cash equivalents.
Section 5.2 Landlord represents and warrants to Tenant that Landlord
owns all of the assets sold to Tenant under Part II, Section 5.1 free and clear
all liens, encumbrances, defenses or set-offs or charges of any nature
whatsoever other than those liens described in Exhibit "B".
Section 5.3 Tenant is not and is not to be deemed to be a successor
of Landlord's business or operations at the Hospital. It is expressly understood
and agreed that Tenant has not and does not assume or agree to assume any
liability or obligation whatsoever of Landlord or of Hospital, except as
expressly agreed to in writing by Tenant.
Section 5.4 Tenant does hereby assume and agree to pay all of the
current liabilities of the Hospital as of the Commencement Date as set forth on
Exhibit "G-1". For this purpose, current liabilities means only those
liabilities with a scheduled maturity date of less than 12 months. Landlord
represents that the current liabilities will not exceed $1,450,000.
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Section 5.5. Tenant assumes and agrees to pay and perform Landlord's
obligations under, but only to the extent such obligations accrue during the
Lease Term, (i) the Operating Agreements set forth in Exhibit "D," and (ii) the
equipment leases set forth on Exhibit "C."
Section 5.6. In order to facilitate the transfer of operational
responsibility for the Hospital to Tenant and to enable Tenant to continue to
operate the Hospital under Landlord's Medicare and Medicaid provider numbers,
Tenant agrees to assume responsibility for all claims under Medicare or
Medicaid, including payments of any amounts in excess of the amounts shown as
due to Medicare or Medicaid on Landlord's Balance Sheet or by any third party
payor for recapture of depreciation, cost report settlements, charges, billings
or other amounts arising out of operation of the Hospital prior to the
Commencement Date or the termination of Landlord's operations at the hospital,
subject to Landlord's agreement that, as between Landlord and Tenant, Landlord
shall be obligated to reimburse Tenant for any amounts paid by it pursuant to
this Part II, Section 5.6 together with interest at the rate of 12 percent per
year until paid in full; provided, however, that Landlord's failure to so
indemnify Tenant shall not affect Tenant's obligations hereunder to Medicare and
Medicaid and the appropriate fiscal intermediaries. Landlord hereby grants
Tenant the right, but not the obligation, to appeal all Medicare, Medicaid, or
other third payor decisions related to periods prior to the Commencement Date.
Tenant will remit to Landlord any recovery under such appeal or appeals, after
deducting all costs incurred and any amounts which are the subject of the
indemnity provisions of the immediately preceding sentence and which have not
been paid by Landlord to Tenant as and when due.
Section 5.7. Without limiting Part II, Section 5.3, Tenant
specifically does not assume any of the following liabilities (collectively, the
"Excluded Liabilities"):
Section 5.7.1. Malpractice liability for any action, failure to act or
event occurring prior to the Commencement Date.
Section 5.7.2. Obligations or liabilities to employees of Landlord
under any employment benefit plans, except for accrued amounts included as
current liabilities under Part II, Section 5. 4.
Section 5.7.3. Any other liability, claim, cost, debt or obligation,
whether liquidated or unliquidated contingent or otherwise, not expressly
assumed by Tenant in writing, including, but not limited to, those set forth in
Exhibit "S."
Section 5.8. Landlord will promptly pay all Excluded Liabilities as
the same become due. If Landlord fails to pay an Excluded Liability within 10
days after request by Tenant, Tenant may pay the same. Landlord will promptly
reimburse Tenant for such amounts together with interest at the rate of 12
percent per year until paid in full. The unreimbursed balance of the Excluded
Liabilities paid by Tenant together with interest thereon is referred to herein
as the "Excluded Liabilities Account." Upon expiration or termination of this
Lease for any reason (other than the purchase of the Hospital by Tenant pursuant
to its right of first refusal granted under this Lease or otherwise), Landlord
will pay the then existing balance of the Excluded Liabilities Account
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within 15 days after the expiration or termination. Any amounts not paid will be
treated in the same manner as other unpaid amounts in accordance with Part II,
Section 2. 3.
Section 6. Maintenance. Repair. Alterations and Utilities.
Section 6.1. Tenant shall, at its own cost, and without expense to the
Landlord, keep and maintain the Premises, including all sidewalks, buildings,
surface parking lots and improvements of any kind which may be a part thereof in
good, sanitary and neat order, condition and repair, ordinary wear and tear and
obsolescence in spite of repair and acts of God excepted, and, except as
specifically provided in Part II, Section 10, below, restore and rehabilitate
any of the Premises which may be destroyed or damaged by fire, casualty or cause
whatsoever and in such a manner as may be necessary to operate the Hospital in
accordance with applicable state and/or federal laws or regulations. Tenant
shall perform all interior and exterior painting, and maintain the grounds of
the Hospital in a good and sightly appearance. Tenant shall be obligated during
the Lease Term to make any repairs, replacements or renewals of any kind, nature
or description whatsoever to the Premises.
Section 6.2. For changes, alterations or additions to the Premises in
excess of $50,000.00 after the Commencement Date, other than the changes,
alterations and additions included in the Development Program, Tenant shall
obtain the prior written consent of Landlord, which shall not be unreasonably
withheld, except as hereinafter provided. Further, Tenant shall make any and all
alterations required by applicable state and/or federal laws or regulations,
without the need to first obtain Landlord's consent thereto regardless of the
cost thereof. Landlord acknowledges and agrees under Part II, Section 2.3,
Landlord is obligated to reimburse Tenant at the expiration of the Initial Lease
Term or any Extended Term, as applicable, for the cost less depreciation of any
changes, alterations or additions to the Premises which constitute capital
improvements thereto.
Section 6.3. Tenant shall pay all charges for water, electricity, gas,
sewage, waste, trash and garbage disposal, telephone, cable television, and
other services furnished to the Premises from and after the Commencement Date.
Section 7. Liens Against the Premises.
Section 7.1. Tenant will not permit the Premises to become subject to
any lien, charge, or encumbrance as a result of work performed by or at the
request of Tenant, including the work included in the Development Program.
Tenant shall maintain the Premises free from all orders, notices, and violations
filed or entered by any public or quasi-public authorities. Notwithstanding the
foregoing, in the event any such lien, charge, or encumbrance is imposed, Tenant
may contest any such lien, charge, encumbrance, order, notice or violation. This
must be done in good faith, with due diligence and at Tenant's own expense and
Tenant shall not be considered in default of the provisions of this Part II,
Section 7.1. as a result of such contest, provided Tenant posts adequate bond
with the court or, upon Landlord's request, deposits with the Landlord
reasonable security for the payment of all contested sums.
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Section 7.2. Should a judgment on any lien, charge, encumbrance,
order, notice or violation be rendered against the Premises and should Tenant
fail to discharge such judgment or take action to protest such judgment,
Landlord shall have the right but not the obligation to discharge said judgment.
If Landlord exercises that option, any amounts paid by Landlord shall be due
from Tenant as additional rent. Such additional rent shall be due and payable on
the next date after the expense is incurred that Basic Rent is otherwise due.
Section 7.3. Tenant shall take all reasonable steps necessary to
ensure that no lien arising under Texas Mechanic's or Materialman's Law as a
result of construction done at the Premises at Tenant's request, shall extend to
the interest of Landlord in the Premises. Tenant shall pay all costs incurred by
Tenant in connection with the construction, alteration, demolition, maintenance
and repair of any and all improvements on the Premises. Should a lien or claim
of lien be filed against the Landlord's or Owner's interest in the Premises by
any contractor, subcontractor, mechanic, laborer, materialman or any other
person whomsoever retained by Tenant, Tenant shall, within sixty (60) days after
the filing thereof, cause the same to be discharged of record.
Section 8. Non-Liability and Indemnification.
Section 8.1. During the Lease Term, Tenant agrees to protect,
indemnify and save harmless Landlord from and against all claims arising out of
or connected with the use, occupancy and condition of the Premises and shall pay
all costs and expenses incurred by Landlord in connection with such claims,
including without limitation, court costs and reasonable attorney's fees for
trial and appellate proceedings. Landlord shall be protected hereby from all
claims arising during the Lease Term from loss of or damage to property, or
death or injury to persons except to the extent such loss, damage, death or
injury is caused by the negligence or willful actions of Landlord or from the
acts or omissions of Landlord or Landlord's tenant prior to the Commencement
Date.
Section 8.1.1. Landlord agrees to protect, indemnify and save harmless
Tenant, including the members, managers, employees and agents of Tenant and
their successors and assigns, from and against all claims arising out of or
connected with its use, operation, and occupancy of the Premises prior to the
Commencement Date or a breach by Landlord of any of its representations,
warranties and covenants set forth herein, and Landlord shall pay all costs and
expenses incurred by Tenant in connection with such claims, including without
limitation, court costs and reasonable attorneys' fees for trial and appellate
proceedings. In furtherance of Landlord's indemnity obligations hereunder,
Landlord agrees to keep available $150,000 of cash until the later of (i) one
year after the Delivery Date or (ii) the final non-appealable resolution of any
claims for indemnity made by Tenant during said one year period.
Section 9. Insurance.
Section 9.1. During the term of this Lease, Tenant shall at all times
keep the Premises insured with the kinds and amounts of insurance described
below through an insurance carrier qualified to do business in the state of
Texas which is reasonably acceptable to Landlord. The policies must name
Landlord as a named insured or loss payee as their interests may appear and
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must provide that no policy will be cancelled or terminated in any way without
not less then 10 days prior written notice to Landlord. Losses shall be payable
to Landlord and Tenant in the manner set forte in Part II, Section 10.1 herein.
Any loss adjustment shall require the written consent of Landlord and Tenant.
Evidence of insurance shall be deposited with Landlord. The policies on the
Premises shall insure against the following risks:
Section 9.1.1. 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 (which shall include the effects of floods and hurricanes if the
Premises are located in a designated flood plain area) in amounts sufficient to
prevent Landlord or Tenant from becoming a coinsured 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
Part II, Section 9.2.);
Section 9.1.2. Loss or damage from leakage of any sprinkler system now
or hereafter installed in the Hospital on the Premises;
Section 9.1.3. Loss or damage by explosion of steam boilers, pressure
vessels or similar apparatus, now or hereafter installed in the Hospital, in
such limits with respect to any one accident as may be reasonably requested by
Landlord from time to time;
Section 9.1.4. Business interruption insurance covering the risk of loss
during the reconstruction resulting from the occurrence of any of the hazards
described in Part II, Sections 9.1.1., 9.1.2. or 9.1.3. in an amount sufficient
to pay the rental required under this Lease for a period of 6 months;
Section 9.1.5. Claims for personal injury or property damage under a
policy of general public liability insurance with combined single limits in
respect of bodily injury and property damage of not less than One Million and
no/100 Dollars ($1,000,000) per occurrence and annual aggregate limits of not
less than Three Million and no/100 Dollars ($3,000,000). If obtainable at a
reasonable cost, the public liability insurance shall be on an as occurrence
basis as opposed to a claims made basis;
Section 9.1.6. Professional liability insurance insuring Tenant and
Landlord in amounts and against the risks ordinarily insured by standard
professional liability insurance available to the hospitals, but in no event
less than One Million Dollars ($1,000,000) per occurrence and annual aggregate
limits of not less then Three Million Dollars ($3,000,000);
Section 9.1.7. Claims for employee injuries covered by worker's
compensation in accordance with the requirements of Texas law, provided that
Tenant may self-insure if duly qualified in accordance with Texas law or with
the consent- of the Landlord elect to operate the Hospital without worker's
compensation insurance to the extent permitted by Texas law; and
Section 9.1.8. Such other hazards and in such amounts as may be
customary for comparable properties in the area.
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Section 10.1. All proceeds payable by reason of any physical loss of
any of the improvements comprising the Premises and insured under any policies
of insurance required by this Lease shall be held in trust by Landlord and
(subject to Part II, Section 10.2.) shall be available for the reconstruction or
repair, as the case may be, of any damage to or destruction of the Premises and
shall be paid out by Landlord from time to time for the reasonable cost of such
work. Any excess of money received from insurance remaining with the Landlord
after the restoration or reconstruction of the Premises shall be paid to Tenant
free and clear upon completion or restoration or reconstruction. Any shortfall
shall be the Tenant's responsibility. All salvage resulting from any such loss
covered by insurance shall belong to Landlord.
Section 10.2. In the event any improvements comprising the Hospital,
the Premises or the Personal Property are damaged by peril covered by insurance
or required to be covered by insurance in accordance with the terms hereof,
Tenant shall commence to rebuild the same within sixty (60) days after the
proceeds of any insurance become available and pursuant to plans and
specifications prepared by Tenant and approved by Landlord within said sixty
(60) day period, and Tenant shall proceed with all due diligence to complete
said restoration within a commercially reasonable period of time unless Tenant
is not obligated to rebuild in accordance with Part II, Section 10.2.1 below.
Any repair or restoration shall be undertaken by Tenant in such a manner as to
ensure that upon its completion the Hospital is of the same standard and quality
as prior to the damage or destruction.
Section 10.2.1. Tenant shall not be obligated to rebuild if the repairs
or reconstruction of the damage cannot be made under existing laws, ordinances,
statutes or regulations of any governmental authority applicable thereto in
which case this Lease shall terminate effective thirty (30) days after the
damage occurs and all insurance proceeds with respect to the Premises shall be
payable to and retained by Landlord, free of any claims by Tenant; provided,
however, Tenant shall be entitled to retain any business interruption proceeds
payable with respect to such loss.
Section 10.3. In the event any damage occurs which renders the Hospital
unsuitable for use as an acute care facility and no insurance coverage against
the loss was required under the terms hereof and Tenant did not otherwise elect
to maintain such insurance, Landlord may, at its election, either terminate this
Lease or elect to rebuild or repair the damage so incurred provided that unless
Landlord notifies Tenant in writing within thirty (30) days after such damage as
to which election it makes, Landlord shall be deemed to have elected to
terminate this Lease. In the event of such an uninsured loss which does not
render the Hospital unsuitable for use as an acute care facility, Landlord shall
be required to rebuild or repair the damage so incurred. Any replacement or
repairs performed by Landlord pursuant to this Part II, Section 10.3 shall be
commenced within sixty (60) days of the date of election by Landlord, but not
later than one hundred twenty (120) days after the loss. In the event Landlord
does not elect to rebuild or repair, this Lease shall automatically terminate as
provided in Part II, Section 10.2.1 above. In the event Landlord elects not to
rebuild the Hospital pursuant to this Part II, Section 10.3 and it is determined
to be in the best interests of the patients to be transferred from the Hospital
as a result of the damage thereto, Tenant shall be entitled to transfer the
patients of the Hospital to any other facilities operated by it or its
affiliates to which said patients are willing to move.
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Section 10.4. In the event Tenant or Landlord, as appropriate, is not
obligated or does not elect to rebuild or repair, Tenant shall promptly, at its
own expense, remove from the Premises any of Tenant's Equipment not so damaged
or destroyed, subject to Landlord's right to acquire the same pursuant to Part
II, Section 2.4.
Section 10.5. For the purposes of this Part II, Section 10, the
Hospital shall be deemed to have been rendered unsuitable for use as an acute
care facility if, in the good faith judgment of Tenant and Landlord, reasonably
exercised, after any such loss the Hospital cannot be operated on a commercially
practicable basis as an acute care facility of the type and quality existing and
licensed immediately prior to such loss, taking into account, among other
relevant factors, the number of licensed and operational beds affected by such
loss.
Section 10.6. This Lease shall remain in full force and effect and
Tenant's obligation to make rental payments and to pay all other charges
required by this Lease shall remain unabated during the first six (6) months of
any period of repair or reconstruction, but thereafter, assuming the
reconstruction has been commenced and is being diligently pursued by Tenant and
the failure to complete the restoration is through no fault of Tenant, rental
payments shall be abated to the extent that is fair, just and equitable to both
Tenant and Landlord, taking into consideration, among other relevant factors,
the number of licensed beds rendered unusable by such loss or damage.
Section 11. Condemnation.
Section 11.1 If, during the Lease Term, so much of the Premises are
taken or condemned for a public or quasi-public use that the Premises are
rendered unsuitable for use as an acute care facility, this Lease shall
terminate. Termination will be effective without entry or notice. Termination
shall occur as of the day when possession is required to be surrendered to the
taking or condemning authority.
Section 11.2. If, during the term of this Lease, a portion of the
Premises and/or the Hospital is taken or condemned in fee for a public or
quasi-public use such that the Hospital is not rendered unsuitable for use as an
acute care facility, this Lease shall not terminate. If, however, as a result of
the taking, the number of beds available for operation of the Hospital as an
acute care facility of the type and quality existing and licensed prior to the
taking has been or must be reduced, Tenant shall be entitled to an abatement of
rent. The rent abatement shall be to the extent that is fair, just and equitable
to both Tenant and Landlord, taking into consideration, among other relevant
factors, the number of licensed beds rendered unusable by such loss or damage.
Section 11.3. All damages awarded in connection with the taking of the
Premises shall vest in Landlord. All damages awarded in connection with the
taking of the leasehold estate and Tenant's Equipment shall vest in Tenant.
Section 11.4. For purposes of this Part II, Section 11, the Premises
shall be deemed to have been rendered unsuitable for use as an acute care
facility if, in the good faith judgment of
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Landlord and Tenant reasonably exercised, after any such loss the Premises
cannot be operated on a commercially practicable basis as an acute care facility
of the type and quality existing and licensed immediately prior to such loss,
taking into account, among other relevant factors, the number of licensed beds.
Section 12. Default.
Section 12.1. The occurrence of any of the events, acts or
circumstances described in Part II, Sections 12.1.1. and 12.1.2. shall
constitute an Event of Default under this Lease.
Section 12.1.1. Failure by Tenant to pay in full any rent payable under
this Lease when due, and the continuance of such failure for ten (10) days.
Section 12.1.2. Failure by Tenant to observe, perform or comply with
any of the terms, covenants, agreements or conditions contained in this Lease
(other than as specified in Part II, Section 12.1.1 or Section 12.1.6), and the
continuance of such failure for thirty (30) days after Landlord has given Tenant
notice of such failure. If Tenant has promptly commenced and diligently pursued
remedial action within said thirty (30) day period but has been unable to cure
its default (except for any default that can be reasonably cured by the payment
of money) prior to the expiration thereof, said thirty (30) day period shall be
extended for the minimum time reasonably required for the completion of Tenant's
remedial action. Notwithstanding the foregoing, in the event any such failure of
performance by Tenant is deemed to pose a substantial risk of harm to the
patients of the Hospital or to the licensure or certification status or JCAHO
accreditation of the Hospital, Tenant shall be required to cure such failure
within a period of time as may be established by the state or federal authority
having jurisdiction over the Hospital or, if no such time frame is established,
as soon as is reasonably practicable, but in no event within more than one week
from the determination of the existence of such condition; provided, however,
that in the event Landlord is not satisfied that the Tenant is undertaking such
cure within one half of the time allocated by such authority or by the terms
hereof, then Landlord shall have the right to enter into the Hospital and to
undertake the completion of such cure, in which case Landlord shall have no
liability to Tenant with respect thereto except for liability which Tenant
incurs as a result of the Landlord's negligence or wrongful misconduct in
undertaking such cure.
Section 12.1.3. The making by Tenant or any guarantor of this Lease of
an assignment for the benefit of its creditors or the commencement of
proceedings in a court of competent jurisdiction for the reorganization,
liquidation or involuntary dissolution of Tenant of any guarantor of this Lease
or for the adjudication of either such party as a bankrupt or insolvent or for
the appointment of a receiver of the property of either such party, which
proceeding are not dismissed and any receiver, trustee or liquidator appointed
therein is not discharged, within sixty (60) days after the institution thereof.
Section 12.1.4. The abandonment of the Premises by Tenant other than as
a result of the damage or destruction or taking thereof.
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Section 12.1.5. The levying of a writ of execution or attachment on or
against the property of Tenant or any guarantor of this Lease which is not
discharged or stayed by action of said party contesting the same within sixty
(60) days after such levy or attachment and/or the sale of the interest of
Tenant in the Premises under such a writ of execution or attachment.
Section 12.1.6. If (i) any government agency having jurisdiction over
the Hospital revokes or terminates any license required for the operation of the
Hospital as a licensed acute care facility; (ii) there is any involuntary
decertification of the Hospital from participation in any state or federal
reimbursement program; or (iii) there is any action taken by a state or federal
agency which results in the removal of patients from the Hospital as a result of
deficiencies cited by said agency in the care rendered by Tenant at the
Hospital.
Section 12.1.7. If there is any generation, disposal, release or use of
any hazardous substance upon or from the Premises other than in compliance with
applicable laws and regulations.
Section 12.2. Upon the occurrence of any Event of Default, Landlord,
in addition to the other rights or remedies it may have, shall have the
option at any time thereafter to pursue any one or more of the following
remedies without any notice or demand whatsoever: (i) the immediate right of
re-entry; (ii) enter upon the Premises and repossess any equipment, furniture,
fixtures, or other personalty encumbered by a lien or security interest in
favor of Landlord and sell such personalty in the manner as provided in this
Lease; (iii) alter any and all locks and other security devices restricting
access to the Premises; and (iv) exercise any and all other rights or remedies
given hereunder or available to Landlord at law or in equity.
Section 12.2.1. Should Landlord 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, Landlord may either terminate this Lease or it may
from time to time, without terminating this Lease, relet the Premises or any
part thereof for such term or terms, which may be for a term shorter than or for
a term extending beyond the Lease Term, and at such rental or rentals and on
such other terms and conditions as Landlord, in its reasonable discretion, may
deem advisable. In the event that Landlord relets all or a portion of the
Premises, the rents actually received by Landlord shall be applied as follows:
first, to the payment of any cost or expense incurred by Landlord for which
Tenant is liable; second, to the payment of any indebtedness, other than rent,
due to Landlord from Tenant; third, to the payment of all past due rent and any
other amounts then due and payable by Tenant under this Lease; and fourth, to
any other amounts payable by Tenant hereunder. Any net amounts received by
Landlord as a result of reletting in excess of the amounts payable by Tenant
hereunder shall be remitted by Landlord to Tenant.
Section 12.2.2. Should Landlord at any time terminate this Lease as a
result of any Event of Default, in addition to any other remedy it may have,
Landlord may recover from Tenant all damages incurred by reason of such Event of
Default, including the cost of recovering the Premises.
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Section 12.2.3. Whether or not Landlord elects to terminate this Lease,
Landlord may terminate Tenant's right to possession of the Premises by any
lawful means, in which case all of Tenant's rights in this Lease shall terminate
and Tenant shall immediately surrender possession of the Premises to Landlord.
Possession of the Premises includes but is not limited to possession of all
Personal Property, patients, patient records, Hospital business records, general
intangibles and proceeds. If Landlord elects to terminate this Lease or
terminate Tenant's right to possession of the Premises, Tenant shall immediately
vacate the Premises. If Tenant fails TO immediately vacate the Premises,
Landlord may, without prejudice to any other right or remedy and without being
deemed guilty of trespass and with or without resort to legal process,
immediately enter upon and take possession of the Premises and expel or remove
Tenant or any other person occupying the Premises (other than the patients and
any third party operators of departments within the Hospital who are not
affiliates of Tenant) and any property found within the Premises. To the extent
permitted by law, Tenant hereby waives (i) any notice of Landlord's intent to
re-enter or retake possession, (ii) any notice provided by statute or otherwise
of such re-entry or repossession or the changing of locks, (iii) any claim or
cause of action, whether based upon trespass, conversion, or otherwise, against
Landlord for any damages caused by the alteration of any locks or any re-entry,
or repossession by Landlord, except if by the negligence or wilful misconduct of
Landlord or otherwise, and (iv) any right of redemption, re-entry or
repossession of Tenant and any notice of legal proceedings for re-entry,
including any actions in forcible entry and detainer. Tenant shall have no right
to re-enter the Premises or to obtain any key to the Premises until Tenant cures
all Events of Default hereunder and pays all amounts owing to Landlord
hereunder, including any late charges, as a result of said Event of Default.
Section 12.2.4. Any termination of this Lease by Landlord shall not in
any event terminate Tenant's obligation to pay rent and other amounts owed by
Tenant pursuant to this Lease for the full Lease term. Upon the occurrence of an
Event of Default, Landlord shall have the right to recover from Tenant the
following:
(a) the worth, at the time of the award, of the unpaid Basic Rent that
had been earned at the termination of this Lease; and
(b) the worth, at the time of the award, of the amount by which the
unpaid Basic Rent that would have been earned after the date of
termination of this Lease until the time of the award exceeds the
amount of the loss of rent that Tenant proves could have been
reasonably or has actually been avoided by Landlord; and
(c) the worth, at the time of the award, of the amount by which the
unpaid Basic Rent for the balance of the Lease Term after the time of
the award exceeds the amount of the loss of rent that Tenant proves
could have been reasonably or actually has been avoided by Landlord;
and
(d) any other amount, and court costs and reasonable attorneys' fees,
necessary to compensate Landlord for all detriment and damage
proximately caused by Tenant's default.
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The worth at the time of the award as used in (a) and (b) of the
preceding sentence is to be computed by allowing interest at the maximum rate
permitted by law (or 12% per annum if there is no maximum rate). The worth at
the time of the award as referred to in (c) above is to be computed by
discounting the amount at the annual discount rate of the Federal Reserve Bank
of San Francisco at the time of the award, plus 1%.
Section 12.3. No remedy herein conferred upon or reserved to Landlord
or Tenant 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 a waiver thereof unless and until such Event
of Default has been cured. No waiver by Landlord of any provision of this Lease
or any breach by Tenant of any obligation of Tenant hereunder shall be deemed to
be a waiver of any provision hereof or of any subsequent breach by Tenant of the
same or any other provisions hereof. Neither the acceptance of rent by Landlord
following the occurrence of an Event of Default by Tenant (whether known to
Landlord or not) nor any custom or practice followed in connection with this
Lease shall constitute a waiver by Landlord of such Event of Default or any
other Event of Default. Landlord's consent to any act by Tenant shall not be
deemed to render unnecessary the obtaining of Landlord's consent to any
subsequent act of Tenant. From and after the occurrence of an Event of Default,
any payments received by Landlord from Tenant may be applied by Landlord to any
rent or other amounts owing by Tenant to Landlord hereunder, at Landlord's sole
discretion.
Section 12.4. In addition to any other remedy provided in this Lease,
from and after the occurrence of an Event of Default and during the continuance
thereof Landlord shall be entitled, to the extent permitted by applicable law,
to injunctive relief or appointment of a receiver, or both without the necessity
of proving the inadequacy of any legal remedy or irreparable harm. The rights
and remedies of Landlord as provided herein shall be enforceable to the maximum
extent not prohibited by applicable law, and the unenforceability of any portion
thereof shall not thereby render unenforceable any other portion. Any injunction
or temporary restraining order issued prior to a final hearing may enjoin
Tenant, its officers, agents and employees and those in active concert or
participation with them, from removing from the Premises any patients, patient
records, equipment, furniture, fixtures, Hospital business records, monies and
other things related in any way to Tenant's business at the Hospital; provided,
however, that the receiver may only apply such monies in accordance with the
order of the court. The receiver shall have all powers and duties necessary and
reasonable to conduct Tenant's business at the Hospital until this Lease is
terminated. Responsibility for the costs associated with the appointment of a
receiver shall be determined by the court.
Section 12.5. The exercise by Landlord of any one or more of the
remedies granted herein or otherwise available at law or in equity shall not be
deemed to be an acceptance of surrender of the Premises, whether by agreement or
by operation of law. Landlord and Tenant agree that a surrender of the Premises
can be effected only by an agreement in writing between Landlord and
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Tenant. No act or omission of Landlord shall be construed as an election by
Landlord to terminate this Lease unless Landlord gives written notice of
termination to Tenant.
Section 13. Landlord's Right to Perform Tenant's Covenants.
Section 13.1 If Tenant defaults in the making of any of the
payments, or the performance of any of the obligations provided for in
this Lease, Landlord may, at its option and on behalf of Tenant, make any such
payments or perform any such obligations.
Section 13. 2. Before exercising that option, however, Landlord must
give Tenant written notice of Tenant's default and of Landlord's intention to
correct that default. If thirty (30) days after such notice, or such shorter
time period as Landlord may specify in the notice if further delay would impair
materially any substantial right, property, or benefit of Landlord, Tenant has
not corrected such default, Landlord may exercise its rights under this Part II,
Section 13.
Section 13.3. In the event Landlord performs any obligation on
Tenant's behalf, Tenant shall reimburse Landlord for any amounts reasonably paid
or expended. This reimbursement shall be due and payable on the next rent
payment date after the expense is incurred that rent is otherwise due. Landlord
shall not be held liable or in any way responsible for any loss, inconvenience,
annoyance or damage resulting to Tenant on account of such performance by
Landlord, unless Landlord is found to have been negligent or engaged in willful
misconduct in its performance. All amounts payable by Tenant to Landlord under
any of the provisions of this Lease, if not paid when the same become due as in
this Lease provided, shall bear interest from the date they become due until
paid, at the prime rate of interest published in the Wall Street Journal, but in
no event at a rate which would be deemed to be usurious under Texas law. In the
event that the Wall Street Journal ceases or fails to publish or announce a
prime rate, the amounts due hereunder shall bear interest at the prime rate
announced by the bank designated by Landlord, provided such a bank is among the
top twenty-five (25) banks in the United States in terms of deposits.
Section 14. Quiet Enjoyment.
Section 14.1. Landlord covenants and agrees that, so long as Tenant
observes and performs all of the covenants, conditions, and stipulations of this
Lease, Tenant may lawfully and quietly hold, occupy and enjoy the Premises
during the Lease Term.
Section 14.2. In the event that an order is entered by a court of
competent jurisdiction ruling that either (a) this Lease or the continued
leasing of the Hospital to Tenant was or would be in violation of applicable law
(other than any matter described in clause (c) on page 6 hereof), or (b)
Landlord lacked the full power and authority, including without limitation the
absence of any necessary approvals, to enter into and perform its obligations
under this Lease, in either case then in addition to the other remedies of
Tenant at law, in equity or pursuant to the provisions of this Lease, the Tenant
may terminate this Lease upon ten (10) days written notice of termination to
Landlord.
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Section 15. Assignment and Subletting.
Section 15.1. Tenant may, without prior approval from Landlord,
sublease the Premises or assign its rights and obligations under this Lease to
any Affiliate of Tenant or the Affiliate of any member of Tenant without
novation of Tenant, unless Landlord specifically consents in writing to such a
novation, which consent shall not be unreasonably withheld. For purposes of
this Lease, an "Affiliate" of a specified entity is an entity which directly, or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with, the specified entity. For purposes of this
definition, "control" means either (i) the ownership, directly or indirectly, of
50% of the ownership interest in the relevant entity, or (ii) the ability,
directly or indirectly, to appoint 50% of the governing board of the relevant
entity by virtue of any ownership interest, a member interest, a membership
interest, by right of contract or any other means. Before any such assignment
shall be valid, the assignee shall assume in writing and agree to be bound by
all of the terms and conditions of this Lease as if named the Tenant herein;
provided, however, that a subsequent sale or other conveyance by Tenant of the
stock or beneficial ownership (direct or indirect) of said Affiliate, other than
to itself or another Affiliate, shall be deemed to be an assignment for which
Landlord's consent is required in accordance with the terms of Part II, Section
15.2, below. A change in the ownership of the stock of Tenant's parent
corporation or a sale by Tenant's parent corporation of its assets, including
its stock in Tenant, shall not be deemed to be an assignment of this Lease.
Section 15.2. Tenant shall give Landlord notice of any assignment or
subletting pursuant to Part II, Section 15.1, and shall give to Landlord,
concurrently with such assignment, an executed original assignment agreement
wherein such assignee agrees to be bound by the terms and conditions of this
Lease.
Section 15.3. Tenant may sublease the Premises or assign its rights
and obligations under this Lease to a person or entity that is not an Affiliate
with the prior written consent of Landlord which consent shall not be
unreasonably withheld if the proposed assignee satisfies any and all conditions
with respect to an assignment by the Lessee which may be set forth in the
documents evidencing the Loan. No such assignment will, however, release Tenant
from its obligations under this Lease, however, before any such assignment shall
be valid, the assignee shall assume in writing and agree to be bound by all of
the terms and conditions of this Lease as if named the Tenant herein.
Notwithstanding the foregoing, Tenant shall have the right, without Landlord's
consent, to assign or mortgage this Lease and its rights and obligations
hereunder, including, but not limited to, its rights with respect to any
accounts receivable generated from its operations at the Hospital, as collateral
for a working capital loan secured by Tenant or its parent corporation, the
proceeds of which are used in whole or in part by Tenant in connection with its
operations at the Hospital.
Section 15.4. Landlord may at any time assign its rights and
obligations under this Lease, provided, however, that Landlord shall furnish to
Tenant a written statement from Landlord's assignee that such assignee
recognizes all of Tenant's rights under this Lease. Notwithstanding the failure
of Landlord to obtain said recognition from Landlord's assignee, any assignment
of Landlord's rights and obligations shall be subject to Tenant's rights under
this Lease.
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<PAGE> 35
Section 15.5. No assignment or subletting that is approved pursuant to
this Part II, Section 15 shall be deemed to remove any subsequent assignment or
subletting from the provisions of this Part II, Section 15, 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.
Section 16. Notices.
Section 16.1. 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
date of mailing, provided that they are sent by United States Registered or
Certified Mail, postage prepaid, in an envelope properly sealed or on the date
of receipt if hand delivered or sent by overnight courier or facsimile
transmission:
To Landlord: Parkview Regional Hospital, Inc.
312 East Glendale Street
Mexia, Texas
Facsimile Number: 817-562-2331
Attn: Chairman of the Board
with copy to: Davis & Wilkerson
600 Congress, Suite 200
Austin, TX 78701
Facsimile Number: 512-482-0342
Attn: Kevin Reed
To Tenant: Brim Hospitals, Inc.
305 NE 102nd Avenue
Portland, OR 97220
Facsimile Number: 503-254-7619
Attn: John Miller
with copy to: The Nathanson Group
1411 Fourth Avenue, Suite 905
Seattle, WA 98101
Facsimile Number: 206-623-1738
Attn: Randi S. Nathanson
Section 16.2. Both Landlord and Tenant 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.
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<PAGE> 36
Section 17. Miscellaneous.
Section 17.1. 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. 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. Subject to the restrictions on transfers set forth
herein, this Lease shall inure to the benefit of and be binding upon Landlord
and Tenant and their respective successors and assigns. The definition of
"Landlord" and "Tenant" herein refer to the Landlord and Tenant at the time in
question.
Section 17.4. This Lease shall be governed, construed, and enforced in
accordance with the laws of the State of Texas and venue of any action arising
under this Agreement shall be proper in Dallas County, Texas.
Section 17.5. This Lease represents the entirety of the agreement
among the parties hereto with respect to the subject matter hereof and shall be
deemed to supersede any prior discussions or agreements among the parties
hereto. This Lease may not be amended or modified except by written instrument
signed by the parties hereto. Landlord and Tenant agree to enter into such
mutually acceptable amendments hereto as may be necessary to incorporate any
covenants or other amendments required by the terms of the documents evidencing
the Loan.
Section 17.6. The failure of either party to insist upon strict
performance of any of the covenants, agreements, terms and conditions of this
Lease in any one or more instances shall not be construed as a waiver or
relinquishment of any such covenant, agreement, terms, or condition and the same
shall remain in full force and effect.
Section 17.7. In the event either party brings an action to enforce
any of the terms hereof or in connection herewith, the prevailing party in such
action shall be entitled to and the losing party agrees to pay the reasonable
attorneys' fees and expenses, including attorneys' fees and expenses of
appellate proceedings, of the prevailing party.
Section 17.8. Landlord and Tenant shall execute a Memorandum of this
Lease in a form acceptable to Landlord and Tenant. The Memorandum shall be
recorded in the public records of Limestone County, Texas. Landlord and Tenant
shall share the cost of recording.
Section 17.9. 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 enforced.
Section 17.10. Landlord and Tenant each represent to the other that
there are no claims for brokerage or other commissions or finder's or other
similar fees in connection with the
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<PAGE> 37
transactions contemplated by this Lease insofar as such claims shall be based on
arrangements or agreements made by or on behalf of the party so representing.
Section 17.11. 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 parties hereto.
Section 17.12. This Lease may be executed in any number of
counterparts, each of which shall be deemed to be an original and all
of which together shall comprise but a single instrument.
Section 17.13 No provision of this Lease shall be construed against or
interpreted to the disadvantage of either Landlord or Tenant by any court or
other governmental or judicial authority by reason of such party's having or
being deemed to have structured, written, drafted or dictated such provisions.
Section 17.14. Time is of the essence of this Lease.
Section 17.15. Nothing in this Lease shall be construed to render or
constitute Landlord in any way or for any purpose a partner, joint venturer or
associate in any relationship with Tenant other than that as Landlord and
Tenant, nor shall this Lease be construed to authorize either party to act as
agent for the other party except as expressly provided to the contrary in this
Lease.
Section 17.16. Throughout the Lease Term, Tenant shall deliver to
Landlord within thirty (30) days following the end of each month accurate copies
of financial statements, including balance sheet and profit/loss statement for
said month and on a year to date basis, reflecting the financial condition of
Tenant and of the Hospital, and within one hundred twenty (120) days following
the end of Tenant's fiscal year, accurate copies of the annual financial
statements for Tenant and the Hospital.
Section 18. Landlord Inspection. Without limiting any other rights
reserved or available to Landlord under this Lease, in law or in equity,
Landlord on behalf of itself and its agents reserves the following rights to be
exercised at Landlord's election:
(a) To inspect the Premises after reasonable notice and to make repairs,
additions or alterations to the Premises, or any part thereof, as permitted
or required under this Lease, whether such repairs are the responsibility
of Landlord or Tenant; and
(b) To enter upon the Premises for any and all of said purposes and may
exercise any and all of the foregoing rights hereby reserved during normal
business hours unless an emergency exists, in which case Landlord shall
have the right of entry upon 24 hours advance notice.
Section 19. Estoppel Statements. The parties hereto shall, at any
time and from time to time upon not less than ten (10) days prior written notice
from the other party, execute, acknowledge and deliver to such other party, in
form reasonably satisfactory to such other party
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<PAGE> 38
or such other party's mortgagee, in the case of a request by Tenant, a written
statement certifying (if true) that this Lease is unmodified and in full force
and effect (or if there have been modifications stating the nature thereof),
that such other party is not in default hereunder (or specifying the nature of
any default), the date to which rental and other charges have been paid and such
other information as may be reasonably required by such other party. It is
intended that any such statement delivered pursuant to this subsection may be
relied upon by any prospective purchaser of the Premises and their respective
successors and assigns.
Section 20. Hazardous Substances. Tenant shall not generate, dispose
of, release, use, handle, possess or store any Hazardous Substances upon the
Premises except in accordance with applicable environmental laws. Tenant shall,
at its sole cost and expense, promptly remove or clean up any Hazardous
Substances introduced onto the Premises by Tenant or with its permission or at
its sufferance. Such removal or cleanup shall be in compliance with all
applicable environmental laws. Tenant hereby agrees to indemnify and hold
Landlord harmless and agrees to defend Landlord from all losses, damages, claims
and liabilities and fines, including costs and reasonable attorneys' fees, of
any nature whatsoever in connection with the actual or alleged presence upon the
Premises of any Hazardous Substance introduced by Tenant or with its permission
or at its sufferance.
Section 21. Subordination. Tenant acknowledges and agrees that this
Lease is and shall be subordinate to any liens created in connection with the
incurrence of the Loan. Tenant further agrees to execute any and all documents
which may be reasonably requested by Landlord's lender to evidence said
subordination provided the same include a provision wherein the lender agrees
not to disturb Tenant's possession of the Premises upon the occurrence of a
default under the Loan unless Tenant is then in default of its obligations
hereunder.
IN WITNESS WHEREOF, the parties hereby execute this Lease Agreement on
the day and year first written above.
LANDLORD: PARKVIEW REGIONAL HOSPITAL, INC.
By: /s/ Randolph Z. Katz
-----------------------------------
Its: Chairman of Board of Trustees
----------------------------------
TENANT: BRIM HOSPITALS, INC.
By: /s/ John L. Miller
----------------------------------
Its: President
----------------------------------
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<PAGE> 39
STATE OF TX )
) ss.
COUNTY OF LIMESTONE)
BEFORE ME, the undersigned authority, on this day personally appeared
Randy Kott, the Chairman of Parkview Regional Hospital, Inc., to me to be the
person and officer whose name is subscribed to the foregoing instrument, and
acknowledged to me that he executed the same for the purposes and
consideration therein expressed, and as the act and deed of said Authority, and
in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 24th day of April, 1996.
LINDA A. SMERGLIA /s/ Linda Smerglia
MY COMMISSION EXPIRES -----------------------------
May 30, 1999 Notary Public
STATE OF Oregon )
) ss.
COUNTY OF Multnomah)
BEFORE ME, the undersigned authority, on this day personally appeared
John R. Miller, the President of Brim Hospitals, Inc., an Oregon corporation,
known to me to be the person and officer whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed, and as the act and deed of said
corporation, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 1st day of May, 1996.
OFFICIAL SEAL /s/ Linda J. Bryant
LINDA J. BRYANT ----------------------------
NOTARY PUBLIC-OREGON Notary Public
COMMISSION NO. 040767
MY COMMISSION EXPIRES JAN. 17, 1999
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<PAGE> 40
FIRST AMENDMENT TO LEASE AGREEMENT AND TO
AMENDED MEMORANDUM OF LEASE
THE FIRST AMENDMENT TO LEASE AGREEMENT AND TO AMENDED MEMORANDUM OF
LEASE is made and entered into effective as of the 3rd day of June, 1997 by and
between Parkview Regional Hospital, Inc., a Texas non-profit corporation
("Landlord"), and Brim Hospitals, Inc., an Oregon corporation ("Tenant").
RECITALS
A. By Lease Agreement dated effective as of April 24, 1996 (the
"Lease"), Landlord leased to Tenant and Tenant leased from Landlord the acute
care facility commonly known as Parkview Regional Hospital, 312 East Glendale
Street, Mexia, Texas, (the "Hospital"). The Lease contemplated that the
property leased to Tenant included the Real Property (as defined in the Lease,
which Real Property is described in Exhibit A hereto (the "Original Real
Property").
B. A Memorandum with respect to the Lease was placed of record by
Memorandum of Lease dated April 24, 1996 and recorded in Volume 948, Page 543
of the Real Estate Records of Limestone County, Texas, which Memorandum was
amended by Amended Memorandum of Lease dated May 15, 1996 and recorded in
Volume 951, Page 512 of the Real Estate Records of Limestone County, Texas
(the "Memorandum").
C. Landlord is interested in entering into a transaction (the
"Exchange Transaction") pursuant to which it would exchange a portion of the
Original Real Property which is described in Exhibit B hereto (the "Old
Parcel") with a third party and would obtain in consideration therefor a new
parcel of land which is described in Exhibit C hereto (the "New Parcel"),
subject to the reservation by such third party of an easement over the New
Parcel, which easement is described in Exhibit D hereto (the "Easement"), which
would be deemed for all purposes of the Lease to be included in the Real
Property (as that term is defined in the Lease).
D. In light of the proposed Exchange Transaction, Landlord has
requested, and Tenant has agreed, that Tenant consent to an amendment of the
Lease to reflect the affect of the Exchange Transaction on the Lease and the
Landlord's and the Tenant's rights and obligations thereunder.
E. The Lease provides that it may only be amended by written
instrument signed by Landlord and Tenant.
F. Landlord and Tenant are interested in documenting the terms and
conditions of such amendment and of amending the Memorandum by placing this
document of record.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants of the parties set forth herein, IT IS HEREBY AGREED AS
FOLLOWS:
1
<PAGE> 41
AGREEMENT
1. Replacement of Exhibit A. Exhibit A to the Lease is hereby deleted
in its entirety and Exhibit E attached hereto is hereby substituted in lieu
thereof. Landlord and Tenant acknowledge and agree that the conveyance of the
New Parcel and rights of Tenant with respect thereto under the terms of the
Lease are subject to the rights reserved by the former owner thereof under the
Easement.
2. Amendment of Part II, Section 4.2. The first sentence of Part II,
Section 4.2 is hereby deleted in its entirety and the following inserted
instead:
After the Commencement Date, Tenant shall neither use nor permit to be
used the Premises, or any part thereof for any purpose or purposes
other than as an acute care facility without the prior written consent
of Landlord, which shall not be unreasonably withheld; provided,
however, that Tenant shall have the right to operate a medical office
building on the New Parcel it being understood and agreed as of the
date hereof that Landlord and Tenant shall, as and when they deem
appropriate, pursue the development on the New Parcel by either
Landlord or Tenant of a medical office building which, upon completion
of the construction thereof, is anticipated to be operated by Tenant
under the terms of either this Lease or an amendment hereto if and to
the extent such an amendment is deemed to be necessary and appropriate
by Landlord and Tenant.
3. Hospital Mortgage. Tenant acknowledges and agrees that the Premises
(as defined in the Lease) are subject to a first lien in favor of Key Bank
("Lender"). Tenant further acknowledges and agrees that the effectiveness of
this Amendment is specifically conditioned on Landlord securing the Agreement
of Lender to release the Old Parcel from such lien and that in connection
therewith Tenant may be required to execute certain documents to confirm the
subordination of its leasehold rights to the lien granted to Lender. By its
signature set forth below, Tenant agrees to execute any and all documents as
may be reasonably requested by Lender to evidence the continued subordination
of its leasehold interest in the Premises provided Lender confirms in such
documents its non-disturbance obligations in favor of Tenant.
4. Counterparts. This Amendment may be executed in counterparts, each
of which shall be deemed to be an original, but all of which taken together
shall constitute but one and the same instrument.
5. No Further Modification. Except as specifically set forth herein,
the Lease shall remain in full force and effect as originally executed by
Landlord and Tenant.
2
<PAGE> 42
IN WITNESS WHEREOF, the parties hereby execute this Agreement as of the
day and year first set forth above.
LANDLORD: PARKVIEW REGIONAL HOSPITAL, INC.
By: /s/ Randolph T. Kott
------------------------------------------
Its: Chairman
------------------------------------------
TENANT: BRIM HOSPITALS, INC.
By: /s/ Taylor
-------------------------------------------
Its: Vice President
-------------------------------------------
3
<PAGE> 43
ACKNOWLEDGMENTS
STATE OF TEXAS )
) ss.
COUNTY OF LIMESTONE )
On this 10 day of June, 1997, before me, a Notary Public in and for the
State of Texas, personally appeared Randolph L. Kott, personally known to me
(or proved to me on the basis of satisfactory evidence) to be the person who
executed this instrument, on oath stated that he was authorized to execute the
instrument as the Chairman of Parkview Regional Hospitals, Inc., a Texas
non-profit corporation, and acknowledged it to be the free and voluntary act
and deed of said corporation for the uses and purposes mentioned in the
instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal the
day and year first above written.
/s/ Martha Clark Lynch
----------------------------------
Notary Public in and for the State
of Texas
Residing at: Mexia, TX
----------------------
My commission expires: 01-29-98
------------
STATE OF OREGON )
) ss.
COUNTY OF MULTNOMAH )
On this 3rd day of June, 1997, before me, a Notary Public in and for
the State of Oregon, personally appeared Steve Taylor personally known to me
(or proved to me on the basis of satisfactory evidence) to be the person who
executed this instrument, on oath stated that he was authorized to execute the
instrument as the Vice President of Brim Healthcare, Inc., an Oregon
corporation, and acknowledged it to be the free and voluntary act and deed of
said corporation for the uses and purposes mentioned in the instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal the
day and year first above written.
/s/ Linda J. Bryant
----------------------------------
Notary Public in and for the State
of Oregon
Residing at: Gresham, OR
----------------------
My commission expires: 1-17-99
------------
[SEAL]
OFFICIAL SEAL
LINDA J. BRYANT
NOTARY PUBLIC-OREGON
COMMISSION NO. 040767
MY COMMISSION EXPIRES JAN. 17, 1999
4
<PAGE> 44
EXHIBIT A
THE ORIGINAL REAL PROPERTY
5
<PAGE> 45
February 18, 1996
Surveyor's Field Note to PARKVIEW REGIONAL HOSPITAL for
ACRES, being a part of SUBDIVISION 8 and SUBDIVISION 9 of DIVISION "L"
of the City of Mexia, Limestone County, Texas, according to the plat of record
in Volume 2, Page 17 of the Plat Records of Limestone County and embracing
those certain tracts described as the SECOND TRACT, THIRD TRACT, FOURTH TRACT
and FIFTH TRACT in a deed to PARKVIEW REGIONAL HOSPITAL, INC. of record in
Volume 865 Page 195 of the Deed Records of Limestone County, Texas, also
embracing that certain tract described in a deed to PARKVIEW REGIONAL HOSPITAL,
of record in Volume 640, Page 183 of the Deed Records of Limestone County,
Texas said 3.339 acre tract being more particularly described by these metes
and bounds as follows:
BEGINNING at a 1/2" iron rod found in the intersection of the south margin of
GLENDALE AVENUE, with the west margin of BONHAM STREET, said streets shown on
the recorded plat of said DIVISION "L", being the northeast corner of said
SUBDIVISION 8, same being the northeast corner of said SECOND TRACT and being
the northeast corner of this tract.
THENCE in a southerly direction, with the west margin of said BONHAM
STREET, same being the east line of said SECOND TRACT also along the east line
of said FOURTH TRACT, also along the east line of said HOSPITAL tract described
in Volume 940, Page 183 (record call of S 04 deg 40 min E. 110.00 feet) SOUTH
04 deg 40 min 41 sec EAST, at a distance of 380.09 feet pass a 1/2" iron rod
found being the southeast corner of said FOURTH TRACT, same being the northeast
corner of said HOSPITAL tract and continuing in all a distance of 489.89 feet
to a 1/2" iron rod found being the eastern most southeast corner of said
HOSPITAL tract, same being the northeast corner of that certain tract
described in a deed to DONALD CORBITT and wife, DE LOU CORBITT, of record in
Volume 938, Page 327 of the Deed Records of Limestone County, Texas and being
the eastern most southeast corner of this tract.
THENCE in a westerly direction, with a southeast line of said HOSPITAL
tract (record call of S 85 deg 20 min W. 100.00 feet) same being the north line
of said CORBITT tract (record call of S 85 deg 20 min 00 sec W. 100.00 feet)
SOUTH 85 deg 16 min 40 sec WEST, a distance of 99.94 feet to a 1/2" iron rod
found being the northwest corner of said CORBITT tract same being an interior
corner of said HOSPITAL tract and being an interior corner of this tract.
THENCE in a southerly direction, with the west line of said CORBITT
tract (record call of S 04 deg 40 min 00 sec E. 100.00 feet) same being a line
of said HOSPITAL tract (record call of S 04 deg 40 min E. 100.00 feet) SOUTH 04
deg 40 min 00 sec EAST, a distance of 99.99 feet to a 60 penny nail found in
the north margin of TYLER STREET, said street shown on the recorded plat of
said DIVISION "L", being the corner of said CORBITT tract, same being the
southern most southeast corner of said HOSPITAL tract and being the southern
most southeast corner of this tract.
THENCE in a westerly direction, with the north margin of said TYLER
STREET, same being south line of said HOSPITAL tract (record call of S 85 deg
20 min W. 140.00 feet) SOUTH 85 deg 27 min 01 sec WEST, a distance of 138.83
feet to a 1/2" iron rod found being the southwest corner of said HOSPITAL
TRACT, same being the southeast corner of that certain tract called TRACT 1,
in a deed to JAMES A. GRAFF and wife, JUNE E. GRAFF of record in Volume 717,
Page 311 of the Deed Records of Limestone County, Texas and being the southern
most southwest corner of this tract.
THENCE in a northerly direction, with the east line of said TRACT 1, same
being the west line of said HOSPITAL tract (record calls of N 04 deg 40 min W.
48.00 feet, N 85 deg 20 min E. 5.00 feet and N 04 deg 40 min W. 150.00 feet)
also along the east line of TRACT 2, as described in said GRAFF deed (record
call of N 04 deg 40 min E. 61 35 feet) for the following THREE (3) courses and
distances:
1). NORTH 04 deg 42 min 37 sec WEST, a distance of 48.00 feet to a
1/2" iron rod set.
2). NORTH 85 deg 21 min 26 sec EAST, a distance of 4.50 feet to a 1/2"
iron rod set and
3). NORTH 04 deg 28 min 47 sec WEST, at a distance of 66.52 feet pass
a 1/2" iron rod found and continuing in all a distance of 161.72
feet to a 1/2" iron rod found and continuing in all a distance
of 161.72 feet to a 1/2" iron rod found being the southeast corner
of said FIFTH TRACT, same being the southwest corner of said
FOURTH TRACT also being the northeast corner of said TRACT 2 and
being an interior corner of this tract.
THENCE in a westerly direction, with the south line of said FIFTH TRACT,
same being the north line of said TRACT 2 (record call of S 85 deg 20 min W.
55.0 feet) SOUTH 85 deg 45 min 41 sec WEST, a distance of 58.74 feet to a 3/8"
iron rod found being the southwest corner of said FIFTH TRACT, same being the
northwest corner of said TRACT 2, also being the northeast corner of that
certain tract described as the SECOND TRACT, in a deed to JOHN SIMS STUBBS, SR.
and wife, EVONNE C. STUBBS, of record in Volume 784 Page 185 of the Deed
Records of Limestone County, Texas same being the southeast corner of the FIRST
TRACT in said STUBBS deed and being the western most southwest corner of this
tract.
THENCE in northerly direction, with the east line of said STUBBS SECOND
TRACT same being the west line of said FIFTH TRACT (record call of northerly
1007 NORTH 04 deg 29 min 36 sec WEST, a distance of 99.25 feet to a 50 penny
nail found in the south line of a tract occupied by BLAIR STUBBS FUNERAL HOME
(No deed was found by this surveyor), being the northwest corner of said FIFTH
TRACT, and being an interior corner of this tract.
THENCE in an easterly direction, with the south line of said FUNERAL HOME
tract, same being the north line of said FIFTH TRACT (record call of easterly
55 feet) NORTH 85 deg 19 min 31 sec EAST, a distance of 14.88 feet to an "X"
found in concrete, being the southwest corner of said THIRD TRACT, same being
the southeast corner of said FUNERAL HOME tract and being an interior corner of
this tract.
THENCE in a northerly direction, with the east line of said FUNERAL HOME
tract, same being the west line of said THIRD TRACT (record call of northerly
280 feet) NORTH 04 deg 42 min 04 sec WEST, a distance of 280.16 feet to a 1/2"
iron rod found in the south margin of said GLENDALE AVENUE, being the northeast
corner of said FUNERAL HOME tract, same being the northwest corner of said
THIRD TRACT, and being the northwest corner of this tract.
THENCE in an easterly direction, with the south margin of said GLENDALE
AVENUE, same being the north line of said THIRD TRACT, also along the north line
of said SECOND TRACT NORTH 95 deg 18 min 14 sec EAST, a distance of 275.02 feet
to the Point of Beginning, Continuing ACRES (145,440 Sq. Ft.) OF LAND.
February 18, 1996
Surveyor's Field Note to PARKVIEW REGIONAL HOSPITAL for
0.687 ACRE, being a part of SUBDIVISION 5, of DIVISION "L", of the City of
Mexia, Limestone County, Texas, according to the plat of record in Volume 2,
Page 17 of the Plat Records of Limestone County and embracing that certain
tract described as the FIRST TRACT in a deed to PARKVIEW REGIONAL HOSPITAL INC.
of record in Volume 865, Page 195 of the Deed Records of Limestone County,
Texas also embracing that certain called 40' x 115' tract described in a
Special Warranty Deed from the CITY OF MEXIA to PARKVIEW REGIONAL HOSPITAL,
Dated October 18, 1995, said 0.687 acre tract being more particularly described
by these metes and bounds as follows:
BEGINNING at a 1/2" iron rod found at the intersection of the west margin of
BONHAM STREET, with the north margin of GLENDALE AVENUE, said streets shown on
the recorded plat of said DIVISION "L", being the southeast corner of said
SUBDIVISION 5, same being the southeast corner of said FIRST TRACT and being
the southeast corner of this tract.
THENCE in a westerly direction, with the north margin of said GLENDALE
AVENUE, same being the south line of said SUBDIVISION 5, also being the south
line of said FIRST TRACT (record call of S 85 deg W. 115 feet) SOUTH 85 deg 18
min 14 sec WEST, a distance of 115.01 feet to a 1/2" iron rod found being the
southwest corner of said FIRST TRACT, same being the southeast corner of the
CALVARY BAPTIST CHURCH (No deed was found by this surveyor) tract and being the
southwest corner of this tract.
THENCE in a northerly direction, with the east line of said CHURCH
tract, same being the west line of said FIRST TRACT (record call of N 05 deg W.
220 feet) NORTH 04 deg 41 min 22 sec WEST, a distance of 220.04 feet to a 1/2"
iron rod found in the south margin EVERGREEN STREET, said street shown on the
recorded plat of said DIVISION "L", being the southwest corner of said 40' x
115' tract, same being the southeast corner of that certain called 18,600 Sq.
Ft. tract described in a deed to CECIL ASHER, GAINOR LINDSEY and EDDIE NEW,
TRUSTEES of record in Volume 821, Page 602 of the Deed Records of Limestone
County, Texas and being an angle point in the west line of this tract.
THENCE continuing in a northerly direction, over and across said EVERGREEN
STREET, with the east line of said 18,600 Sq. Ft. tract (record call of N 04
deg 40 min W. 40.0 feet) same being the west line of said 40' x 115' tract
(record call of N 114 deg 40 min W. 40.00 feet) NORTH 04 deg 37 min 19 sec
WEST, a distance of 39.97 feet to a 1/2" iron rod found being the northeast
corner of said 18,600 Sq. Ft. tract same being the northwest corner of said 40'
x 115' tract and being the northwest corner of this tract.
THENCE in an easterly direction, continuing across said EVERGREEN STREET,
with the north line of said 40' x 115' tract (record call of N 85 deg 20 min E.
115.00 feet) NORTH 85 deg 16 min 35 sec EAST, a distance of 115.00 feet to a
1/2" iron rod found in the west margin of said BONHAM STREET, being the
northeast corner of said 40' x 115' tract and being the northeast corner of
this tract.
THENCE in a southerly direction, with the west margin of said BONHAM
STREET, same being the east line of said 40' x 115' tract (record call of S 04
deg 40 min E. 40.00 feet) SOUTH 04 deg 39 min 38 sec EAST, a distance of 40.05
feet to a 1/2" iron rod found being the southeast corner of said 40' x 115'
tract, same being the northeast corner of said FIRST TRACT and being an
angle point in the east line of this tract.
THENCE continuing in a southerly direction and continuing with the west
margin of said BONHAM STREET, being the east line of said FIRST TRACT (record
call of S 05 deg E. 220 feet) SOUTH 04 deg 41 min 08 sec EAST, a distance of
220.02 feet to the Point of Beginning, Containing 0.687 ACRE (29.908 Sq. Ft) OF
LAND.
<PAGE> 46
0.262 ACRE, being as of LOT 4, in SUBDIVISION "L", and the called south
FORTY-NINE feet of LOT 3, in said SUBDIVISION 1 of the City of Mexia,
Limestone County, Texas, according to the plat of record in Volume 2, Page 17
of the Plat Records of Limestone County and embracing that certain tract
described in a deed to PARKVIEW REGIONAL HOSPITAL, INC., of record in
Volume 937, Page 192 of the Deed Records of Limestone County, Texas said 0.262
acre tract being more particularly described by these metes and bounds as
follows:
BEGINNING at a 1/2" iron rod set in the east margin of McKINNEY STREET, said
street shown on the recorded plant of said DIVISION "L", being the northwest
corner of this tract same being the northwest corner of said PARKVIEW tract,
also being the southwest corner of that certain tract described as the SECOND
TRACT, in a deed to MURVIN STERLING of record in Volume 800, Page 612 of the
Deed of Records of Limestone County, Texas, from which a 1" metal pipe found
being the northwest corner of the FIRST TRACT as described in said STERLING
deed, bears: NORTH 04 deg 37 min 43 sec WEST, a distance of 141.13 feet.
THENCE in an easterly direction, with the north line of said PARKVIEW
tract, same being the south line of said SECOND TRACT (record call of 115 feet)
NORTH 85 deg 22 min 17 sec EAST, a distance of 14.94 feet to a 1/2" iron rod
set in the east line of said LOT 3, same being the west line of LOT 6, in said
SUBDIVISION 1, being a corner of said SECOND tract, same being the northeast
corner of said PARKVIEW tract and being the northeast corner of this tract.
THENCE in a southerly direction, with the east line of said LOT 3,
(record call of 50 feet) same being the west line of said LOT 6 (record call of
150 feet) also along the east line of said LOT 4 (record call of 50 feet) SOUTH
04 deg 38 min 49 sec EAST, a distance of 99.09 feet to a 1/2" iron rod found
being the southeast corner of said PARKVIEW tract and said LOT 3, same being
the northeast corner of LOT 5, in said SUBDIVISION 1, being the southeast
corner of this tract, from which a 1/2" iron rod found being the southeast
corner of said LOT 5, bears: SOUTH 04 deg 39 min 39 sec EAST, a distance of
49.93 feet.
THENCE in a westerly direction, with the common line between said LOT 4
and 5 (record call of 115 feet) SOUTH 85 deg 22 min 17 sec WEST, a distance of
114.98 feet to a 1/2" iron rod set in the east margin of said McKINNEY STREET,
being the southwest corner of said LOT 4, same being the northwest corner of
said LOT 5, being the southwest corner of this tract, from which a 1/2"
iron rod set being the southwest corner of said SUBDIVISION 1, bears: SOUTH 04
deg 37 min 43 sec EAST, a distance of 49.93 feet.
THENCE in a northerly direction, with the east margin of said McKINNEY
STREET, same being the west line of said LOT 4 (record call of 50 feet) also
along the west line of said LOT 3 (record call of 50 feet) NORTH 04 deg 37 min
43 sec WEST, a distance of 99.09 feet to the Point of Beginning. Containing
0.262 ACRE (11,382 Sq. Ft.) OF LAND.
Surveyed February 12 & 13, 1996
<PAGE> 47
EXHIBIT B
THE OLD PARCEL
6
<PAGE> 48
0.262 Acre, being all of Lot 4, in Subdivision 1, of Division "L", and the
called South forty-nine feet of Lot 3, in said Subdivision 1, of the City of
Mexia, Limestone County, Texas, according to the plat of record in Volume 2,
Page 17 of the Plat Records of Limestone County and embracing that certain
tract described in a Deed to Parkview Regional Hospital, Inc. of record in
Volume 937, Page 192 of the Deed Records of Limestone County, Texas, said 0.262
acre tract being more particularly described by these metes and bounds as
follows:
BEGINNING at a 1/2 inch iron rod set in the East margin of McKinney Street,
said street shown on the recorded plat of said Division "L", being the
Northwest corner of this tract, same being the Northwest corner of said
Parkview tract, also being the Southwest corner of that certain tract described
as the Second Tract, in a Deed to Murvin Sterling, of record in Volume 800,
Page 612 of the Deed Records of Limestone County, Texas, from which a 1 inch
metal pipe found being the Northwest corner of the First Tract as described in
said Sterling Deed, bears: North 04 deg. 37 min. 43 sec. West, a distance of
141.13 feet;
THENCE in an Easterly direction, with the North line of said Parkview tract,
same being the South line of said Second Tract (record call of 115 feet) North
85 deg. 22 min. 17 sec. East, a distance of 114.94 feet to a 1/2 inch iron rod
set in the East line of said Lot 3, same being the West line of Lot 6, in said
Subdivision 1, being a corner of said Second Tract, same being the Northeast
corner of said Parkview tract and being the Northeast corner of this tract;
THENCE in a Southerly direction, with the East line of said Lot 3, (record call
of 50 feet) same being the West line of said Lot 6 (record call of 150 feet)
also along the East line of said Lot 4 (record call of 50 feet) South 04 deg.
38 min. 49 sec. East, a distance of 99.09 feet to a 1/2 inch iron rod found
being the Southeast corner of said Parkview tract and said Lot 3, same being
the Northeast corner of Lot 5, in said Subdivision 1, being the Southeast
corner of this tract, from which a 1/2 inch iron rod found being the Southeast
corner of said Lot 5, bears South 04 deg. 39 min. 39 sec. East, a distance of
49.93 feet;
THENCE in a Westerly direction, with the common line between said Lots 4 and 5
(record call of 115 feet) South 85 deg. 22 min. 17 sec. West, a distance of
114.98 feet to a 1/2 inch iron rod set in the East margin of said McKinney
Street, being the Southwest corner of said Lot 4, same being the Northwest
corner of said Lot 5, being the Southwest corner of this tract, from which a
1/2 inch iron rod set being the Southwest corner of said Subdivision 1, bears:
South 04 deg. 37 min. 43 sec. East, a distance of 49.93 feet;
THENCE in a Northerly direction, with the East line of said McKinney Street,
same being the West line of said Lot 4 (record call of 50 feet) also being the
West line of said Lot 3 (record call of 50 feet) North 04 deg. 37 min. 43 sec.
West, a distance of 99.09 feet to the POINT OF BEGINNING, containing 0.262 Acre
(11,392 sq. ft.) of land.
EXHIBIT A
----
<PAGE> 49
EXHIBIT C
THE NEW PARCEL
7
<PAGE> 50
Description of: 1.069 Acres, Part of Subdivisions 5 & 6, Division L, and a
part of Evergreen St. (closed), City of Mexia, Limestone Co.,
Texas, Owner: Calvary Baptist Church, Vol. 442, Pg. 138,
L.C.D.R.
BEING a 1.069 acres tract of land situated in Division L, City of Mexia,
Limestone County, Texas, a part of Subdivisons 5 & 6, and a part of Evergreen
St. (closed) in said Division, said subdivisions being conveyed from the Mexia
Independent School District to Calvary Baptist Church by deed dated May 17,
1957 and recorded in Vol. 442, Pg. 138, Deed Records of Limestone County, Texas
(L.C.D.R.), and said part (40.0 ft. by 465 ft.) of Evergreen St. being conveyed
from the City of Mexia to Calvary Baptist Church by deed dated September 29,
1989 and recorded in Vol. 821, Pg. 602, L.C.D.R., said 1.069 acres being more
particularly described by metes and bounds as follows:
BEGINNING at a found 1/2" iron rod in the center of Evergreen St. and in the
North line of said part of said street conveyed to Calvary Baptist Church for
Northeast corner of this tract, same being the Northwest corner of that tract,
conveyed from Harris Methodist Hospital to Parkview Regional Hospital by deed
of record in Vol. 865, Pg. 195, L.C.D.R.
THENCE S.4 degrees 40'E. with the West line of said hospital tract, at 40.0 ft.
a found 1/2" iron rod in the South line of Evergreen St. (closed), in all,
260.00 ft. to a found 1/2" iron rod in the North line of Glendale St. and in
the South line of Subdivision 5 for Southeast corner of this tract, same being
the Southwest corner of said Hospital tract;
THENCE S.85 degrees 20'W. with the North line of Glendale St. and the South
line of Division L, at 175.0 ft. the Southwest corner of Subdivision 5 and the
Southeast corner of Subdivision 6, in all, 179.54 ft. to a set 1/2" iron rod in
the South line of Subdivision 6 for Southwest corner of this tract;
THENCE N.4 degrees 28'W. at 220.01 ft. the South line of Evergreen St.
(closed), in all, 260.01 ft. to a set 1/2" iron rod in the center of Evergreen
St. (closed), same being the North line of that part of Evergreen St. conveyed
to Calvary Baptist Church, for Northeast corner of this tract;
THENCE N.85 degrees 20'E. at 3.62 ft. the intersection of the extended boundary
line between Subdivisions 5 & 6, in all, 178.62 ft. with the centerline of
Evergreen St. (closed) to the point of BEGINNING, containing 1.069 acres.
The foregoing description was prepared from that plat
dated May 20, 1997 that correctly represents that
actual ground survey made under my supervision.
Dated this 20th day of May, 1997
/s/ Joe L. Haney
- -------------------------------------
Joe L. Haney, P.E., R.P.L.S. No. 3282
Haney Engineering and Surveying
P.O. Box 307
408 N. Kaufman St., Mexia, Texas 76667
817-562-6954
EXHIBIT A PG
----- -----
<PAGE> 51
EXHIBIT D
THE EASEMENT
8
<PAGE> 52
Description of: A Three (3) Ft. Easement, Part of Subdivision 6, Division L,
City of Mexia, Limestone County, Texas, and Part of
Evergreen St. (closed). Owner: Calvary Baptist Church, Vol.
442, Pg. 138, and Vol. 821, Pg. 602, L.C.D.R.
BEING a three (3) ft. wide easement a part of Subdivision 6, Division L. and a
part of Evergreen St. (closed), City of Mexia, Limestone County, Texas, said
subdivision being conveyed from Mexia Independent School District to Calvary
Baptist Church by deed dated May 17, 1957 and recorded in Vol. 442, Pg. 138,
Deed Records of Limestone County, Texas (L.C.D.R.) and said part of Evergreen
St. (closed) being from the City of Mexia to Calvary Baptist church
by deed dated September 29, 1989 and recorded in Vol. 821, Pg. 602, L.C.D.R.,
said easement being part of and adjacent to the Western edge of a 1.069 acres
tract surveyed this date out of Subdivision 5, Division L and said Subdivision
6, and out of said part of Evergreen St. (closed), said easement being more
particularly described by metes and bounds as follows:
BEGINNING at a set 1/2" iron rod in the North line of Glendale St. and in the
South line of Subdivision 6 for Southwest corner of this easement, same being
the Southwest corner of said 1.069 acres tract, said corner bears S.85 degrees
20'W. 4.54 ft. from the Southeast corner of Subdivision 6 and N.85 degrees
20'E. 285.46 ft. from the Southwest corner of Subdivision 6;
THENCE N.4 degrees 28'W. with the West line of said 1.069 acres tract, at
220.01 ft. the South line of Evergreen St. (closed), in all, 260.01 ft. to a
set 1/2" iron rod for Northwest corner of this easement and said 1.069 acres
tract, said corner being in the center of Evergreen St. (closed);
THENCE N.85 degrees 20'E. 3.0 ft. with the centerline of Evergreen St. (closed)
and the North line of said 1.069 acres tract to a point for Northeast corner of
this easement;
THENCE S.4 degrees 28'E., at 40.00 ft., the South line of Evergreen St.
(closed), in all, 260.01 ft. to a point in the North line of Glendale St. and
in the South line of Subdivision 6 and said 1.069 acres tract for Southeast
corner of this easement;
THENCE S.85 degrees 20'W. 3.0 ft. with the North line of Glendale St. and the
South line of Subdivision 6 and said 1.069 acres tract, to the point of
BEGINNING.
The foregoing description was prepared from that plat
dated May 20, 1997 that correctly represents that
actual ground survey made under my supervision.
Dated this 23rd day of May, 1997.
/s/ JOE L. HANEY
- -----------------------------------------------
Joe L. Haney, P.E., R.P.L.S. No. 3282
Haney Engineering and Surveying
P.O. Box 307
408 N. Kaufman St., Mexia, Texas 76667
817-562-6954
[SEAL]
<PAGE> 53
EXHIBIT E
NEW LEGAL DESCRIPTION
9
<PAGE> 54
February 18, 1996
Surveyor a Field Note to PARKVIEW REGIONAL HOSPITAL for:
.39 ACRES being a part of SUBDIVISION 8 of DIVISION "L" of the City of Mexie,
Limestone County, Texas, according to the plat of record in Volume 2, Page 17
of the Plat Records of Limestone County and embracing those certain tracts
described as the SECOND TRACT, THIRD TRACT, FOURTH TRACT and FIFTH TRACT in a
deed to PARKVIEW REGIONAL HOSPITAL INC. of record in Volume 865 Page 195 of the
Deed Records of Limestone County, Texas, also embracing that certain tract
described in a deed to PARKVIEW REGIONAL HOSPITAL of record in Volume 640, Page
183 of the Deed Records of Limestone County, Texas, and 3.339 acre tract being
more particularly described by these metes and bounds as follows:
BEGINNING at a 1/2" iron rod found in the intersection of the south margin of
GLENDALE AVENUE, with the west margin of BONHAM STREET, said streets shown on
the recorded plat of said DIVISION "L", being the northeast corner of said
SUBDIVISION 8, same being the northeast corner of said SECOND TRACT and being
the northeast corner of this tract.
THENCE in a southerly direction, with the west margin of said BONHAM
STREET, same being the east line of said SECOND TRACT also along the east line
of said FOURTH TRACT, also along the east line of said HOSPITAL tract described
in Volume 940, Page 183 (record call of S 04 deg 40 MIN. E. 110.00 feet) SOUTH
04 deg 40 min. 41 sec. EAST, at a distance of 380.09 feet pass a 1/2" iron rod
found being the southeast corner of said FOURTH TRACT, same being the northeast
corner of said HOSPITAL tract and continuing in all a distance of 499.89 feet
to a 1/2" iron rod found being the eastern most southeast corner of said
HOSPITAL tract, same being the northeast corner of that certain tract described
in a deed to DONALD CORBITT and wife, DE LOU CORBITT, of record in Volume 938,
Page 327 of the Deed Records of Limestone County, Texas and being the eastern
most southeast corner of this tract.
THENCE in a westerly direction, with a southeast line of said HOSPITAL tract
(record call of S 85 deg 20 min. W., 100.00 feet) same being the north line of
said CORBITT tract (record call of S 85 deg 20 min. 00 sec. W. 100.00 feet)
SOUTH 85 deg 16 min. 40 sec. WEST, a distance of 99.94 feet to a 1/2" iron rod
found being the northwest corner of said CORBITT tract, same being an interior
corner of said HOSPITAL tract and being an interior corner of this tract.
THENCE in a southerly direction, with the west line of said CORBITT tract
(record call of S 04 deg 40 min 00 sec. E. 100.00 feet) same being a line of
said HOSPITAL tract (record call of S 04 deg 40 min. E. 100.00 feet) SOUTH 04
deg 40 min. 00 sec. EAST, a distance of 99.99 feet to a 60 penny Nail found in
the north margin of TYLER STREET, said street shown on the recorded plat of said
DIVISION "L", being the southwest corner of said CORBITT tract, same being the
southern most southeast corner of said HOSPITAL tract and being the southern
most southeast corner of this tract.
THENCE in a westerly direction, with the north margin of said TYLER STREET,
same being the south line of said HOSPITAL tract (record call of S 85 deg 20
min. W. 140.00 feet) SOUTH 85 deg 27 min. 01 sec. WEST, a distance of 138.83
feet to a 1/2" iron rod found being the southwest corner of said HOSPITAL tract,
same being the southeast corner of that certain tract called TRACT 1, in a deed
to JAMES A. GRAFF and wife, JUNE E. GRAFF of record in Volume 717, Page 311 of
the Deed Records of Limestone County, Texas and being the southern most
southwest corner of this tract.
THENCE in a northerly direction, with the east line of said TRACT 1, same being
the west line of said HOSPITAL tract (record calls of N 04 deg 40 min. W. 48.00
feet N 85 deg 20 min. E. 5.00 feet and N 04 deg 40 min W. 150.00 feet) also
along the east line of TRACT 2, as described in said GRAFF deed (record call of
N 04 deg 40 min E. 61 35 feet) for the following THREE (3) courses and
distances:
1) NORTH 04 deg 42 min. 37 sec. WEST, a distance of 48.00 feet to a 1/2"
iron rod set.
2) NORTH 85 deg 21 min 28 sec. EAST, a distance of 4.50 feet to a 1/2"
iron rod set and
3) NORTH 04 deg 28 min. 47 sec. WEST, at a distance of 66.52 feet pass a
1/2" iron rod found and continuing in all a distance of 181.72 feet
to a 1/2" iron rod found being the southeast corner of said FIFTH
TRACT, same being the southwest corner of said FOURTH TRACT also being
the northeast corner of said TRACT 2 and being an interior corner of
this tract.
THENCE in a westerly direction, with the south line of said FIFTH TRACT, same
being the north line of said TRACT 2 (record call of S 85 deg 20 min. W. 55.0
feet) SOUTH 85 deg 45 min. 41 sec. WEST, a distance of 55.74 feet to a 3/5" iron
rod found being the southwest corner of said FIFTH TRACT, same being the
northwest corner of said TRACT 2, also being the northeast corner of that
certain tract described as the SECOND TRACT, in a deed to JOHN SIMS STUBBS, SR.
and wife, EVONNE C. STUBBS, of record in Volume 784 Page 185 of the Deed Records
of Limestone County, Texas same being the southeast corner of the FIRST TRACT
in said STUBBS deed and being the western most southwest corner of this tract.
THENCE in northerly direction, with the east line of said STUBBS SECOND TRACT
same being the west line of said FIFTH TRACT (record call of northerly 1007
NORTH 04 deg 29 min. 36 sec. WEST, a distance of 99.25 feet to a 50 penny Nail
found in the south line of a tract occupied by BLAIR STUBBS FUNERAL HOME (No
deed was found by this surveyor), being the northwest corner of said FIFTH
TRACT, and being an interior corner of this tract.
THENCE in an easterly direction, with the south line of said FUNERAL HOME
tract, same being the north line of said FIFTH TRACT (record call of easterly
55 feet) NORTH 85 deg 19 min. 31 sec. EAST, a distance of 14.88 feet to an "X"
found in concrete, being the southwest corner of said THIRD TRACT, same being
the southeast corner of said FUNERAL HOME tract and being an interior corner of
this tract.
THENCE in a northerly direction, with the east line of said FUNERAL
HOME tract, same being the west line of said THIRD TRACT (record call of
northerly 280 feet) NORTH 04 deg 42 min. 04 sec. WEST, a distance of 280.16
feet to a 1/2" iron rod found in the south margin of said GLENDALE AVENUE,
being the northeast corner of said FUNERAL HOME tract, same being the northwest
corner of said THIRD TRACT, and being the northwest corner of this tract.
THENCE in an easterly direction, with the south margin of said GLENDALE
AVENUE, same being the north line of said THIRD TRACT, also along the north
line of said SECOND TRACT NORTH 85 deg 18 min. 14 sec. EAST, a distance of
273.02 feet to the Point of Beginning, Continuing ACRES (145.440 Sq. Ft.)
OF LAND.
February 18, 1996
Surveyors Field Note to PARKVIEW REGIONAL HOSPITAL for:
0.887 ACRE, being a part of SUBDIVISION 5, of DIVISION "L", of the City of
Mexia, Limestone County, Texas, according to the plat of record in Volume 2,
Page 17 of the Plat Records of Limestone County and embracing that certain
tract described as the FIRST TRACT in a deed to PARKVIEW REGIONAL HOSPITAL,
INC. of record in Volume 865, Page 195 of the Deed Records of Limestone County,
Texas also embracing that certain called 40' x 115' tract described in a
Special Warranty Deed from the CITY OF MEXIA TO PARKVIEW REGIONAL HOSPITAL,
Dated October 18, 1995, said 0.667 acre tract being more particularly described
by these metes and bounds as follows:
BEGINNING at a 1/2" iron rod found at the intersection of the west margin of
BONHAM STREET, with the north margin of GLENDALE AVENUE, said streets shown on
the recorded plan of said DIVISION "L", being the southeast corner of said
SUBDIVISION 5, same being the southeast corner of said FIRST TRACT and being
the southeast corner of this tract.
THENCE in a westerly direction, with the north margin of said GLENDALE AVENUE,
same being the south line of said SUBDIVISION 5, also being the south line of
said FIRST TRACT (record call of S 85 deg W. 115 feet) SOUTH 85 deg 18 min. 14
sec. WEST, a distance of 115.01 feet to a 1/2" iron rod found being the
southwest corner of said FIRST TRACT, same being the southeast corner of the
CALVARY BAPTIST CHURCH (No deed was found by this surveyor) tract and being the
southwest corner of this tract.
THENCE in a northerly direction, with the east line of said CHURCH tract, same
being the west line of said FIRST TRACT (record call of N 05 deg W. 220 feet)
NORTH 04 deg 41 min. 22 sec. WEST, a distance of 220.04 feet to a 1/2" iron rod
found in the south margin EVERGREEN STREET, said street shown on the recorded
plat of said DIVISION "L", being the southwest corner of said 40' x 115' tract,
same being the southeast corner of that certain called 18.600 Sq. Ft. tract
described in a deed to CECIL ASHER, GAINOR LINDSEY and EDDIE NEW, TRUSTEES, of
record in Volume 821, Page 602 of the Deed Records of Limestone County, Texas
and being an angle point in the west line of this tract.
THENCE continuing in a northerly direction, over and across and
EVERGREEN STREET, with the east line of said 18.800 Sq. Ft. tract (record call
of N 04 deg 40 min. W. 40.0 feet) same being the west line of said 40' x 115'
tract (record call of N 14 deg 40 min. W. 40.00 feet) NORTH 04 deg 37 min. 19
sec. WEST, a distance of 39.97 feet to a 1/2" iron rod found being the
northeast corner of said 18,600 Sq. Ft. tract, same being the northwest corner
of said 40' x 115' tract and being the northwest corner of this tract.
THENCE in an easterly direction continuing across said EVERGREEN STREET, with
the north line of said 40' x 115' tract (record call of N 85 deg 20 min. E.
115.00 feet) NORTH 85 deg 15 min. 35 sec EAST, a distance of 115.00 feet to a
1/2' iron rod found in the west margin of said BONHAM STREET, being the
northeast corner of said 40' x 115' tract and being the northeast corner of
this tract.
THENCE in a southerly direction, with the west margin of said BONHAM
STREET, same being the east line of said 40' x 115' tract (record call of S 04
deg 40 min. E. 40.00 feet) SOUTH 04 deg 39 min. 38 sec EAST, a distance of
40.05 feet to a 1/2" iron rod found being the southeast corner of said 40' x
115' tract, same being the northeast corner of said FIRST TRACT and being an
angle point in the east line of this tract.
THENCE continuing in a southerly direction and continuing with the west margin
of said BONHAM STREET, being the east line of said FIRST TRACT (record call of
S 05 deg E. 220 feet) SOUTH 04 deg 41 min. 08 sec EAST, a distance of 220.02
feet to the Point of Beginning, Containing 0.687 ACRE (29.908 Sq. Ft.) OF LAND.
<PAGE> 55
Description of: 1.069 Acres, Part of Subdivisions 5 & 6, Division L, and a
part of Evergreen St. (closed), City of Mexia, Limestone Co.,
Texas, Owner: Calvary Baptist Church, Vol. 442, Pg. 138,
L.C.D.R.
BEING a 1.069 acres tract of land situated in Division L, City of Mexia,
Limestone County, Texas, a part of Subdivisions 5 & 6, and a part of Evergreen
St. (closed) in said Division, said subdivisions being conveyed from the Mexia
Independent School District to Calvary Baptist Church by deed dated May 17,
1957 and recorded in Vol. 442, Pg. 138, Deed Records of Limestone County, Texas
(L.C.D.R.), and said part (40.0 ft. by 465 ft.) of Evergreen St. being conveyed
from the City of Mexia to Calvary Baptist Church by deed dated September 29,
1989 and recorded in Vol. 821, Pg. 602, L.C.D.R., said 1.069 acres being more
particularly described by metes and bounds as follows:
BEGINNING at a found 1/2" iron rod in the center of Evergreen St. and in the
North line of said part of said street conveyed to Calvary Baptist Church for
Northeast corner of this tract, same being the Northwest corner of that tract,
conveyed from Harris Methodist Hospital to Parkview Regional Hospital by deed
of record in Vol. 865, Pg. 195, L.C.D.R.
THENCE S.4 degrees 40'E. with the West line of said hospital tract, at 40.0 ft.
a found 1/2" iron rod in the South line of Evergreen St. (closed), in all,
260.00 ft. to a found 1/2" iron rod in the North line of Glendale St. and in
the South line of Subdivision 5 for Southeast corner of this tract, same being
the South-west corner of said Hospital tract;
THENCE S.85 degrees 20'W. with the North line of Glendale St. and the South
line of Division L, at 175.0 ft. the Southwest corner of Subdivision 5 and the
South-east corner of Subdivision 6, in all, 179.54 ft. to a set 1/2" iron rod
in the South line of Subdivision 6 for Southwest corner of this tract;
THENCE N.4 degrees 28'W. at 220.01 ft. the South line of Evergreen St.
(closed), in all, 260.01 ft. to a set 1/2" iron rod in the center of Evergreen
St. (closed), same being the North line of that part of Evergreen St. conveyed
to Calvary Baptist Church, for Northeast corner of this tract;
THENCE N.85 degrees 20'E. at 3.62 ft. the intersection of the extended boundary
line between Subdivisions 5 & 6, in all, 178.62 ft. with the centerline of
Evergreen St. (closed) to the point of BEGINNING, containing 1.069 acres.
The foregoing description was prepared from that plat
dated May 20, 1997 that correctly represents that
actual ground survey made under my supervision.
Dated this 20th day of May, 1997
/s/ JOE L. HANEY
- --------------------------------------
Joe L. Haney, P.E., R.P.L.S. No. 3282
Haney Engineering and Surveying
P.O. Box 307
408 N. Kaufman St., Mexia, Texas 76667
817-562-6954
<PAGE> 56
Description of: A Three (3) Ft. Easement, Part of Subdivision 6, Division L,
City of Mexia, Limestone County, Texas, and Part of Evergreen
St. (closed). Owner: Calvary Baptist Church, Vol. 442,
Pg. 138, and Vol. 821, Pg. 602, L.C.D.R.
BEING a three (3) ft. wide easement a part of Subdivision 6, Division L. and a
part of Evergreen St. (closed), City of Mexia, Limestone County, Texas, said
subdivision being conveyed from Mexia Independent School District to Calvary
Baptist Church by deed dated May 17, 1957 and recorded in Vol. 442, Pg. 138,
Deed Records of Limestone County, Texas (L.C.D.R.) and said part of Evergreen
St. (closed) being from the City of Mexia to Calvary Baptist church by
deed dated September 29, 1989 and recorded in Vol. 821, Pg. 602, L.C.D.R., said
easement being part of and adjacent to the Western edge of a 1.069 acres tract
surveyed this date out of Subdivision 5, Division L and said Subdivision 6, and
out of said part of Evergreen St. (closed), said easement being more
particularly described by metes and bounds as follows:
BEGINNING at a set 1/2" iron rod in the North line of Glendale St. and in the
South line of Subdivision 6 for Southwest corner of this easement, same being
the Southwest corner of said 1.069 acres tract, said corner bears S.85 degrees
20'W. 4.54 ft. from the Southeast corner of Subdivision 6 and N. 85 degrees
20'E. 285.46 ft. from the Southwest corner of Subdivision 6;
THENCE N.4 degrees 28'W. with the West line of said 1.069 acres tract, at
220.01 ft. the South line of Evergreen St. (closed), in all, 260.01 ft. to a
set 1/2" iron rod for Northwest corner of this easement and said 1.069 acres
tract, said corner being in the center of Evergreen St. (closed);
THENCE N.85 degrees 20'E. 3.0 ft. with the centerline of Evergreen St. (closed)
and the North line of said 1.069 acres tract to a point for Northeast corner of
this easement;
THENCE S.4 degrees 28'E., at 40.00 ft., the South line of Evergreen St.
(closed), in all, 260.01 ft. to a point in the North line of Glendale St. and
in the South line of Subdivision 6 and said 1.069 acres tract for Southeast
corner of this easement;
THENCE S.85 degrees 20'W. 3.0 ft. with the North line of Glendale St. and the
South line of Subdivision 6 and said 1.069 acres tract, to the point of
BEGINNING.
The foregoing description was prepared from that plat
dated May 20, 1997 that correctly represents that
actual ground survey made under my supervision.
Dated this 23rd day of May, 1997.
/s/ JOE L. HANEY
- -----------------------------
Joe L. Haney, P.E., R.P.L.S. No. 3282
Haney Engineering and Surveying
P.O. Box 307
408 N. Kaufman St., Mexia, Texas 76667
817-562-6954
<PAGE> 57
FIRST AMENDMENT TO LEASE AGREEMENT
THIS FIRST AMENDMENT TO LEASE AGREEMENT (this "Amendment") is made and
entered into by and between Parkview Regional Hospital, Inc., a Texas nonprofit
corporation ("Landlord"), and Brim Hospitals, Inc., an Oregon corporation
("Tenant"), with respect to that certain Lease Agreement dated as of April 24,
1996, by and between Landlord and Tenant (such agreement, as amended from time
to time, being the "Lease").
RECITALS
Landlord and Tenant have previously entered into the Lease. Landlord
desires to obtain financing for the purpose of completing certain improvements
to the real property and improvements which are subject to the Lease (the
"Premises"). Key Bank of Oregon, a national banking association ("Lender") has
indicated its willingness to extend a loan for such purpose (the "Loan"),
subject to certain terms and conditions set forth in a financing proposal dated
March 18, 1996, and more fully set forth in a Construction and Term Loan
Agreement of approximate even date herewith by and between Lender and Landlord
(the "Loan Agreement") and the ancillary documents contemplated thereby or
executed in conjunction therewith (such documents, together with the Loan
Agreement, being the "Loan Documents"). It is a condition of Lender's
willingness to proceed with the Loan that Landlord and Tenant enter into this
Amendment, which is intended for the benefit of the Lender, as well as the
parties hereto, but which evidences or incorporates no obligation on the part of
Lender.
TERMS AND CONDITIONS
NOW THEREFORE THE PARTIES AGREE AS FOLLOWS:
ARTICLE I
DEFINITIONS
SECTION 1.1. GENERAL. Any accounting term used herein but not defined
herein shall be construed in accordance with the definition of such term under
generally accepted accounting principles ("GAAP"); provided, that capitalized
terms (including accounting terms) not otherwise defined herein, but defined in
the Lease or the Loan Documents, shall be given the meaning indicated in those
respective documents.
<PAGE> 58
Section 1.2. Defined terms. As used in this Amendment:
ADJUSTED TANGIBLE NET WORTH means Total (excluding intercompany
receivables) Assets plus Subordinated Debt less (a) Total (including
intercompany payables) Liabilities and (b) intangible assets including but not
limited to long term prepayments, prepaid consulting fees, goodwill,
organizational costs, patents, trademarks, franchise rights, licenses, permits
and all other deferred assets according to GAAP.
DEBT AND RENTAL EXPENSE means all payments due under leases of real or
personal property, whether denominated as rent or otherwise, all interest
expense in respect of money borrowed, and all payments of principal falling due
during the relevant accounting period under any lease of real or personal
property or obligation for money borrowed.
BRIM means Brim, Inc., an Oregon corporation which is the parent
corporation of Tenant.
EBIT means net income after taxes plus interest expense plus income tax
expense less extraordinary gain.
EBITDAR means an amount determined by adding to EBIT all Rental
Payments, Depreciation and Amortization, computed quarterly on the basis of the
four most recent fiscal quarters.
EQUIPMENT RENT means rent payable under equipment leases.
FUNDED DEBT means the amount of Loans plus all other items of debt for
money borrowed, reimbursement obligations in respect to bonds, letters of credit
(but excepting letters of credit securing obligations which are themselves
included in the computation of Funded Debt or Rent Leverage Equivalent) and
acceptances, obligations to pay the deferred purchase price of property or
services (other than trade payables), obligations secured by a lien on property,
capital lease obligations, conditional sale agreements and obligations to
redeem, defease or otherwise make any payments in respect to capital stock.
GENERAL HOSPITAL DEBT means the total amount of debt secured by the
General Hospital Facility (which debt has been incurred by lessor under the
General Hospital Lease, but which is, by the terms of such lease passed through
to the Company's Subsidiary as rent payable by the lessee under such lease).
GENERAL HOSPITAL FACILITY means the Facility subject to the General
Hospital Lease.
-2-
<PAGE> 59
GENERAL HOSPITAL LEASE means that certain Lease Agreement dated December
16, 1985 by and between Union Labor Hospital Association and Brim Hospitals,
Inc., as amended from time to time.
GUARANTIES means any contingent obligation of Tenant with respect to
borrowed money or leases of real or personal property to the extent not already
included in the computation of Total Leverage (but specifically excluding
guaranties related to physician contracts.
LETTER OF CREDIT means a Letter of Credit as defined in the Revolving
Credit Agreement.
LOANS means long term debt and current portion of long term debt.
NON-RECOURSE INDEBTEDNESS means Indebtedness that is non-recourse to the
Company and/or any Guarantor.
NON-RECOURSE OPERATING LEASES means operating leases that are
nonrecourse to the Company and/or any Guarantor.
NON-RECOURSE RENT means all rent (including contingent rent) payable
under Non-Recourse Operating Leases.
RECOURSE RENT means all rent (including contingent rent) other than
Non-Recourse Rent, rent payable under the General Hospital Lease, and Equipment
Rent.
RENT LEVERAGE EQUIVALENT means an amount equal to the sum of (i) General
Hospital Debt plus (ii) the annual amount of each of Non-Recourse Rent, Recourse
Rent and Equipment Rent, each element being first multiplied by the applicable
conversion factor. The applicable conversion factors are: NonRecourse Rent = 6x,
Recourse Rent = 8x, Equipment Rent = 3x.
REVOLVING CREDIT AGREEMENT means that certain Revolving Credit Agreement
by and among Brim, Lender, Key Bank of Washington, and Lender as Agent for the
Banks (as defined therein) dated January 17, 1995.
SUBORDINATED DEBT means Funded Debt of a Person which is subordinated,
in a manner satisfactory to the Agent, to all Funded Debt owing to the Bank.
TOTAL LEVERAGE means Funded Debt plus Rent Leverage Equivalent and the
amount of any Guaranties.
-3-
<PAGE> 60
TOTAL ASSETS means all assets appearing on Lessee's balance sheet
prepared in accordance with GAAP (except for divergences from GAAP customary as
to quarterly unaudited statements).
TOTAL LIABILITIES means all liabilities appearing on Lessee's balance
sheet prepared in accordance with GAAP (except for divergences from GAAP
customary as to quarterly unaudited statements).
The foregoing definitions shall be applied with reference to the
Financial Statements of Tenant, without consolidation with the Financial
Statements of Tenant's parent corporation, Brim.
SECTION 1.3. REFERENCES INCLUSIVE OF AMENDMENTS. Any reference in this
Amendment to the Lease or any Loan Document shall refer, inclusively, to such
document as it may from time to time be amended, modified or restated.
SECTION 1.4. GENDER AND NUMBER IN CONTEXT. In this Agreement as the
context may require the singular shall include the plural and the plural the
singular, and each gender may include another.
ARTICLE II
TENANT'S FINANCIAL COVENANTS
SECTION 2.1 CASH FLOW COVERAGE RATIO. Tenant will not permit at any time
the ratio of EBITDAR to Debt and Rental Expense to be less than 1.75, which
shall be calculated at the end of each fiscal quarter with respect to the four
preceding quarters then ending.
SECTION 2.2 MINIMUM ADJUSTED TANGIBLE NET WORTH. Tenant will not permit
its Adjusted Tangible Net Worth to be at any time less than the Six Million
Dollars ($6,000,000).
SECTION 2.3 TOTAL LEVERAGE TO EBITDAR RATIO. Tenant will not permit at
any time the ratio of Total Leverage to EBITDAR to be greater than 2.75, which
shall be calculated at the end of each fiscal quarter with respect to the four
preceding quarters then ending.
SECTION 2.4 MEASUREMENT OF FINANCIAL COVENANTS. Compliance with the
foregoing financial covenants shall be demonstrated with reference to the
Tenant's financial statements prepared for each fiscal quarter as indicated
above.
SECTION 2.5 BREACH OF COVENANT CONSTITUTES LEASE DEFAULT. Tenant's
breach of any covenant hereunder shall constitute an Event of Default under the
Lease, and Landlord shall thereupon be entitled to all remedies provided for
under the Lease.
-4-
<PAGE> 61
ARTICLE III
ACKNOWLEDGEMENT OF SECURITY
SECTION 3.1 ACKNOWLEDGMENT OF SECURITY. Tenant acknowledges that Lender
is entering into the Loan Agreement and extending the Loan to Landlord in
reliance upon the value provided by the Lease, and has taken an assignment for
security of such Lease pursuant to the Loan Documents. Subject to the provisions
of the Subordination Nondisturbance and Attornment Agreement, Tenant agrees to
take no action to impair such security, or to frustrate or hinder Lender in its
enjoyment or exercise of the rights afforded by the Loan Documents.
SECTION 3.2 NO SETOFF AGAINST LENDER. Tenant agrees that in any action
brought by Lender following an Event of Default under the Loan Documents to
enforce rights under the Lease, Tenant will neither make nor assert any setoff
or right to setoff against the rent payable under the Lease any sum asserted to
be due to Tenant by Landlord under the terms of the Lease or otherwise. Without
the consent of the Lender, Tenant will not make any payment of rent in advance
of one month of when such rent is due and payable; any rent paid in violation of
this section shall be directly recoverable from the Tenant by the Lender.
SECTION 3.3 NO AMENDMENT OR TERMINATION. Without Lender's prior written
consent, Landlord and Tenant shall not enter into any amendment of the Lease, or
terminate the Lease, including any termination for breach by the Landlord (but
excluding a lawful termination for breach by the Tenant), and any attempted
termination of the Lease in violation of this Section shall be void and of no
effect.
ARTICLE IV
MISCELLANEOUS
SECTION 4.1 GOVERNING LAW. This Amendment, and the Lease as amended
hereby, shall be governed, with respect to the interest in creates in the Real
Property, by the laws of the State of Texas, but all other obligations created
hereunder shall, to the extent permissible, be governed by the laws of the State
of Oregon, and an action may be brought in any court of competent jurisdiction
to enforce the provisions hereof; Landlord and Tenant specifically consent to
the jurisdiction of any court of competent jurisdiction of the State of Oregon
to hear and determine any action brought by Lender to enforce its rights
hereunder or with respect hereto.
SECTION 4.2 COUNTERPARTS. This Amendment may be executed in any number
of counterparts,
SECTION 4.3 SEVERABILITY. If any provision of this Agreement or the
Note, or any action taken hereunder, or any application thereof, is for any
reason held to be illegal or invalid, such illegality or invalidity shall not
affect any other provision of this
-5-
<PAGE> 62
Agreement or the Note, each of which shall be construed and enforced without
reference to such illegal or invalid portion and shall be deemed to be effective
or taken in the manner and to the full extent permitted by law.
SECTION 4.4 ENTIRE AGREEMENT. This Agreement, the Note and any other
Loan Document integrate all the terms and conditions mentioned herein or
incidental hereto and supersede all oral representations and negotiations and
prior writings with respect to the subject matter hereof. In the event of any
express conflict or express inconsistency between the provisions of this
Agreement and the provisions of any of the other Loan Documents, the terms and
conditions of this Agreement shall govern and control the rights and obligations
of the parties.
SECTION 4.5 JURY TRIAL WAIVER. COMPANY, AGENT AND EACH BANK EACH WAIVE
ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING
IN CONTRACT, TORT OR OTHERWISE, ARISING OUT OF, IN CONNECTION WITH, RELATED TO,
OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH
THIS AGREEMENT OR ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED
OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED THERETO.
SECTION 4.6 COUNTERPARTS. This First Amendment may be executed in any
number of counterparts, each of which shall be enforceable against the parties
actually executing such counterparts, and all of which together shall constitute
one (1) document.
IN WITNESS WHEREOF, THE PARTIES hereto have executed this First
Amendment to Lease Agreement as of May 16, 1996.
Landlord:
PARKVIEW REGIONAL HOSPITAL, INC.,
a Texas nonprofit corporation
By:
-------------------------------------
-------------------------------------
Its:
-------------------------------------
-6-
<PAGE> 63
Tenant:
BRIM HOSPITALS, INC.,
an Oregon corporation
By: /s/ JOHN R. MILLER
-----------------------
Its: President
-----------------------
STATE OF TEXAS )
) ss.
COUNTY OF _____________ )
This instrument was acknowledge before me on the 16th day of May, 1996,
by _____________________, ____________________________ of Parkview Regional
Hospital, Inc., a non-profit Corporation, on behalf of the corporation.
______________________________
Notary Public
State of Texas
STATE OF OREGON )
) ss.
COUNTY OF Multnomah )
On this 16th day of May, 1996, before me personally appeared John
Miller, to me known to be the President of Brim Hospitals, Inc., an Oregon
corporation, the corporation that executed the within and foregoing instrument,
and acknowledged said instrument to be the free and voluntary act and deed of
said corporation, for the uses and purposes therein mentioned, and on oath
stated that he was authorized to execute said instrument and that the seal
affixed is the corporate seal of said corporation.
GIVEN under my hand and official seal the day and year first above
written.
OFFICIAL SEAL /s/ LINDA J. BRYANT
[SEAL] LINDA J. BRYANT -----------------------------------
NOTARY PUBLIC-OREGON Notary Public in and for the State
COMMISSION NO.040767 of Oregon, residing at Salem, Oregon
MY COMMISSION EXPIRES JAN. 17, 1999 My appointment expires: 1-17-99
--------
-7-
<PAGE> 64
FIRST AMENDMENT TO LEASE AGREEMENT
THIS FIRST AMENDMENT TO LEASE AGREEMENT (this "Amendment") is made and
entered into by and between Parkview Regional Hospital, Inc., a Texas nonprofit
corporation ("Landlord"), and Brim Hospitals, Inc., an Oregon corporation
("Tenant"), with respect to that certain Lease Agreement dated as of April 24,
1996, by and between Landlord and Tenant (such agreement, as amended from time
to time, being the "Lease").
RECITALS
Landlord and Tenant have previously entered into the Lease. Landlord
desires to obtain financing for the purpose of completing certain improvements
to the real property and improvements which are subject to the Lease (the
"Premises"). Key Bank of Oregon, a national banking association ("Lender") has
indicated its willingness to extend a loan for such purpose (the "Loan"),
subject to certain terms and conditions set forth in a financing proposal dated
March 18, 1996, and more fully set forth in a Construction and Term Loan
Agreement of approximate even date herewith by and between Lender and Landlord
(the "Loan Agreement") and the ancillary documents contemplated thereby or
executed in conjunction therewith (such documents, together with the Loan
Agreement, being the "Loan Documents"). It is a condition of Lender's
willingness to proceed with the Loan that Landlord and Tenant enter into this
Amendment, which is intended for the benefit of the Lender, as well as the
parties hereto, but which evidences or incorporates no obligation on the part of
Lender.
TERMS AND CONDITIONS
NOW THEREFORE THE PARTIES AGREE AS FOLLOWS:
ARTICLE I
DEFINITIONS
Section 1.1. General. Any accounting term used herein but not defined
herein shall be construed in accordance with the definition of such term under
generally accepted accounting principles ("GAAP") provided, that capitalized
terms (including accounting terms) not otherwise defined herein, but defined in
the Lease or the Loan Documents, shall be given the meaning indicated in those
respective documents.
<PAGE> 65
Section 1.2. Defined terms. As used in this Amendment:
ADJUSTED TANGIBLE NET WORTH means Total (excluding intercompany
receivables) Assets plus Subordinated Debt less (a) Total (including
intercompany payables) Liabilities and (b) intangible assets including but not
limited to long term prepayments, prepaid consulting fees, goodwill,
organizational costs, patents, trademarks, franchise rights, licenses, permits
and all other deferred assets according to GAAP.
DEBT AND RENTAL EXPENSE means all payments due under leases of real or
personal property, whether denominated as rent or otherwise, all interest
expense in respect of money borrowed, and all payments of principal falling due
during the relevant accounting period under any lease of real or personal
property or obligation for money borrowed.
BRIM means Brim, Inc., an Oregon corporation which is the parent
corporation of Tenant.
EBIT means net income after taxes plus interest expense plus income tax
expense less extraordinary gain.
EBITDAR means an amount determined by adding to EBIT all Rental
Payments, Depreciation and Amortization, computed quarterly on the basis of the
four most recent fiscal quarters.
EQUIPMENT RENT means rent payable under equipment leases.
FUNDED DEBT means the amount of Loans plus all other items of debt for
money borrowed, reimbursement obligations in respect to bonds, letters of credit
(but excepting letters of credit securing obligations which are themselves
included in the computation of Funded Debt or Rent Leverage Equivalent) and
acceptances, obligations to pay the deferred purchase price of property or
services (other than trade payables), obligations secured by a lien on property,
capital lease obligations, conditional sale agreements and obligations to
redeem, defease or otherwise make any payments in respect to capital stock.
GENERAL HOSPITAL DEBT means the total amount of debt secured by the
General Hospital Facility (which debt has been incurred by lessor under the
General Hospital Lease, but which is, by the terms of such lease passed through
to the Company's Subsidiary as rent payable by the lessee under such lease).
GENERAL HOSPITAL FACILITY means the Facility subject to the General
Hospital Lease.
-2-
<PAGE> 66
GENERAL HOSPITAL LEASE means that certain Lease Agreement dated
December 16, 1985 by and between Union Labor Hospital Association and Brim
Hospitals, Inc., as amended from time to time.
GUARANTIES means any contingent obligation of Tenant with respect to
borrowed money or leases of real or personal property to the extent not already
included in the computation of Total Leverage (but specifically excluding
guaranties related to physician contracts.
LETTER OF CREDIT means a Letter of Credit as defined in the Revolving
Credit Agreement.
LOANS means long term debt and current portion of long term debt.
NON-RECOURSE INDEBTEDNESS means Indebtedness that is non-recourse to
the Company and/or any Guarantor.
NON-RECOURSE OPERATING LEASES means operating leases that are
nonrecourse to the Company and/or any Guarantor.
NON-RECOURSE RENT means all rent (including contingent rent) payable
under Non-Recourse Operating Leases.
RECOURSE RENT means all rent (including contingent rent) other than
Non-Recourse Rent, rent payable under the General Hospital Lease, and Equipment
Rent.
RENT LEVERAGE EQUIVALENT means an amount equal to the sum of (i)
General Hospital Debt plus (ii) the annual amount of each of Non-Recourse Rent,
Recourse Rent and Equipment Rent, each element being first multiplied by the
applicable conversion factor. The applicable conversion factors are:
NonRecourse Rent = 6x, Recourse Rent = 8x, Equipment Rent = 3x.
REVOLVING CREDIT AGREEMENT means that certain Revolving Credit
Agreement by and among Brim, Lender, Key Bank of Washington, and Lender as Agent
for the Banks (as defined therein) dated January 17, 1995.
SUBORDINATED DEBT means Funded Debt of a Person which is subordinated,
in a manner satisfactory to the Agent, to all Funded Debt owing to the Bank.
TOTAL LEVERAGE means Funded Debt plus Rent Leverage Equivalent and the
amount of any Guaranties.
-3-
<PAGE> 67
TOTAL ASSETS means all assets appearing on Lessee's balance sheet
prepared in accordance with GAAP (except for divergences from GAAP customary as
to quarterly unaudited statements).
TOTAL LIABILITIES means all liabilities appearing on Lessee's balance
sheet prepared in accordance with GAAP (except for divergences from GAAP
customary as to quarterly unaudited statements).
The foregoing definitions shall be applied with reference to the
Financial Statements of Tenant, without consolidation with the Financial
Statements of Tenant's parent corporation, Brim.
SECTION 1.3. REFERENCES INCLUSIVE OF AMENDMENTS. Any reference in this
Amendment to the Lease or any Loan Document shall refer, inclusively, to such
document as it may from time to time be amended, modified or restated.
SECTION 1.4. GENDER AND NUMBER IN CONTEXT. In this Agreement as the
context may require the singular shall include the plural and the plural the
singular, and each gender may include another.
ARTICLE II
TENANT'S FINANCIAL COVENANTS
SECTION 2.1 CASH FLOW COVERAGE RATIO. Tenant will not permit at any
time the ratio of EBITDAR to Debt and Rental Expense to be less than 1.75, which
shall be calculated at the end of each fiscal quarter with respect to the four
preceding quarters then ending.
SECTION 2.2 MINIMUM ADJUSTED TANGIBLE NET WORTH. Tenant will not permit
its Adjusted Tangible Net Worth to be at any time less than the Six Million
Dollars ($6,000,000).
SECTION 2.3 TOTAL LEVERAGE TO EBITDAR RATIO. Tenant will not permit at
any time the ratio of Total Leverage to EBITDAR to be greater than 2.75, which
shall be calculated at the end of each fiscal quarter with respect to the four
preceding quarters then ending.
SECTION 2.4 MEASUREMENT OF FINANCIAL COVENANTS. Compliance with the
foregoing financial covenants shall be demonstrated with reference to the
Tenant's financial statements prepared for each fiscal quarter as indicated
above.
SECTION 2.5 BREACH OF COVENANT CONSTITUTES LEASE DEFAULT. Tenant's
breach of any covenant hereunder shall constitute an Event of Default under the
Lease, and Landlord shall thereupon be entitled to all remedies provided for
under the Lease.
-4-
<PAGE> 68
ARTICLE III
ACKNOWLEDGMENT OF SECURITY
SECTION 3.1 ACKNOWLEDGMENT OF SECURITY. Tenant acknowledges that Lender
is entering into the Loan Agreement and extending the Loan to Landlord in
reliance upon the value provided by the Lease, and has taken an assignment for
security of such Lease pursuant to the Loan Documents. Subject to the provisions
of the Subordination Nondisturbance and Attornment Agreement, Tenant agrees to
take no action to impair such security, or to frustrate or hinder Lender in its
enjoyment or exercise of the rights afforded by the Loan Documents.
SECTION 3.2 NO SETOFF AGAINST LENDER. Tenant agrees that in any action
brought by Lender following an Event of Default under the Loan Documents to
enforce rights under the Lease, Tenant will neither make nor assert any setoff
or right to setoff against the rent payable under the Lease any sum asserted to
be due to Tenant by Landlord under the terms of the Lease or otherwise. Without
the consent of the Lender, Tenant will not make any payment of rent in advance
of one month of when such rent is due and payable; any rent paid in violation
of this section shall be directly recoverable from the Tenant by the Lender.
SECTION 3.3 NO AMENDMENT OR TERMINATION. Without Lender's prior written
consent, Landlord and Tenant shall not enter into any amendment of the Lease, or
terminate the Lease, including any termination for breach by the Landlord (but
excluding a lawful termination for breach by the Tenant), and any attempted
termination of the Lease in violation of this Section shall be void and of no
effect.
ARTICLE IV
MISCELLANEOUS
SECTION 4.1 GOVERNING LAW. This Amendment, and the Lease as amended
hereby, shall be governed, with respect to the interest in creates in the Real
Property, by the laws of the State of Texas, but all other obligations created
hereunder shall, to the extent permissible, be governed by the laws of the State
of Oregon, and an action may be brought in any court of competent jurisdiction
to enforce the provisions hereof; Landlord and Tenant specifically consent to
the jurisdiction of any court of competent jurisdiction of the State of Oregon
to hear and determine any action brought by Lender to enforce its rights
hereunder or with respect hereto.
SECTION 4.2 COUNTERPARTS This Amendment may be executed in any number
of counterparts,
SECTION 4.3 SEVERABILITY. If any provision of this Agreement or the
Note, or any action taken hereunder, or any application thereof, is for any
reason held to be illegal or invalid, such illegality or invalidity shall not
affect any other provision of this
-5-
<PAGE> 69
Agreement or the Note, each of which shall be construed and enforced without
reference to such illegal or invalid portion and shall be deemed to be effective
or taken in the manner and to the full extent permitted by law.
SECTION 4.4 ENTIRE AGREEMENT. This Agreement, the Note and any other
Loan Document integrate all the terms and conditions mentioned herein or
incidental hereto and supersede all oral representations and negotiations and
prior writings with respect to the subject matter hereof. In the event of any
express conflict or express inconsistency between the provisions of this
Agreement and the provisions of any of the other Loan Documents, the terms and
conditions of this Agreement shall govern and control the rights and obligations
of the parties.
SECTION 4.5 JURY TRIAL WAIVER. COMPANY, AGENT AND EACH BANK EACH WAIVE
ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING
IN CONTRACT, TORT OR OTHERWISE, ARISING OUT OF, IN CONNECTION WITH, RELATED TO,
OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH
THIS AGREEMENT OR ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED
OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED THERETO.
SECTION 4.6 COUNTERPARTS. This First Amendment may be executed in any
number of counterparts, each of which shall be enforceable against the parties
actually executing such counterparts, and all of which together shall constitute
one (1) document.
IN WITNESS WHEREOF, THE PARTIES hereto have executed this First
Amendment to Lease Agreement as of May 16, 1996.
Landlord:
PARKVIEW REGIONAL HOSPITAL, INC.,
a Texas nonprofit corporation
By:
------------------------------
------------------------------
Its:
--------------------------
-6-
<PAGE> 70
Tenant:
BRIM HOSPITALS, INC.,
an Oregon corporation
By: /s/ JOHN R. MILLER
-----------------------
Its: President
-----------------------
STATE OF TEXAS )
) ss.
COUNTY OF _____________ )
This instrument was acknowledge before me on the 16th day of May, 1996,
by _____________________, ____________________________ of Parkview Regional
Hospital, Inc., a non-profit Corporation, on behalf of the corporation.
______________________________
Notary Public
State of Texas
STATE OF OREGON )
) ss.
COUNTY OF Multnomah )
On this 16th day of May, 1996, before me personally appeared John
Miller, to me known to be the President of Brim Hospitals, Inc., an Oregon
corporation, the corporation that executed the within and foregoing instrument,
and acknowledged said instrument to be the free and voluntary act and deed of
said corporation, for the uses and purposes therein mentioned, and on oath
stated that he was authorized to execute said instrument and that the seal
affixed is the corporate seal of said corporation.
GIVEN under my hand and official seal the day and year first above
written.
OFFICIAL SEAL /s/ LINDA J. BRYANT
[SEAL] LINDA J. BRYANT -----------------------------------
NOTARY PUBLIC-OREGON Notary Public in and for the State
COMMISSION NO.040767 of Oregon, residing at Salem, Oregon
MY COMMISSION EXPIRES JAN. 17, 1999 My appointment expires: 1-17-99
--------
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EXHIBIT 10.22
STOCK PURCHASE AND SALE AGREEMENT
This Stock Purchase and Sale Agreement is made and entered into as of
this 27th day of November, 1996, by and among BRIM, INC., an Oregon corporation
(the "Company"), CC-LANTANA, INC., a Delaware corporation ("Purchaser"), and Lee
Zinsli, as agent (the "Agent").
RECITALS
A. By Investment Agreement dated November 21, 1996 among the Company,
Golda, Thoma, Cressey, Rauner Fund IV, L.P. and Principal Hospital Company (the
"Investment Agreement"), the Company has agreed to cause a redemption of its
preferred stock and certain shares of its common stock (the "Healthcare
Transaction").
B. By Purchase and Sale Agreement dated November 25, 1996, the Company
has agreed to sell to Plaza Enterprises, LLC, a newly formed limited liability
company comprised of certain officers and employees of the Company, certain
medical office buildings in Oregon, Arizona and California and certain assets
and liabilities of the Company and certain of its subsidiaries relating thereto
("the "Excluded Assets Transaction").
C. In conjunction with the consummation of the Healthcare Transaction,
the Company has agreed with the prospective purchaser thereunder that at the
closing of said transaction the assets and liabilities of the Company will
exclude those related to its senior living operations and the continuing care
retirement community located in Palm Beach County, Florida and known as Freedom
Village Lakeside (the "Facility"), which is operated by a limited partnership
known as Meridian Park Village Limited Partnership, a Florida limited
partnership (the "Partnership"), whose partners are Meridian (as hereinafter
defined) and the Company.
D. By Merger Agreement of even date herewith (the "BSL Merger
Agreement"), the Company has agreed to sell its senior living business to a
newly formed limited liability company known as Encore Senior Living, LLC
("Encore") through (i) a sale of capital stock of Brim Senior Living, Inc., the
Company's wholly owned subsidiary ("BSL"), to Encore, and a merger of BSL into
Encore (the "Merger"), with Encore as the surviving entity (the "Surviving
Entity") and (ii) the purchase by Encore of certain assets and the assumption by
Encore of certain liabilities related to the senior living business of the
Company (the "Related Assets and Liabilities Transaction" and, together with the
Merger, the "BSL Transaction").
E. The Company owns (i) all of the issued and outstanding capital
stock of Meridian Senior Living, Inc. ("Meridian"), the sole general managing
partner of the Partnership, and (ii) the sole limited partnership interest in
the Partnership.
F. By Purchase and Sale Agreement of even date herewith (the "LP
Agreement"), the Company has agreed to sell to James Williams and David
McAllister the Company's limited partnership interest in the Partnership (the
"Limited Partnership Interest Transaction").
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G. The Company desires to sell and the Purchaser desires to buy the
issued and outstanding capital stock of Meridian on the terms and conditions set
forth herein.
ARTICLE I
DEFINITIONS
As used in this Agreement the following terms shall have the following
meanings:
"Actions" -- as defined in Paragraph 4.09(a) hereof.
"Additional Intercompany Debt"-- that portion of the Intercompany Debt in excess
of the Contributed Intercompany Debt, the amount of which shall not exceed
$1,950,000.
"Agent" -- Lee Zinsli, on behalf of the Former Holders.
"Agent/Legal Fees Expense Account"-- as defined in Paragraph 2.02(c) hereof.
"Agreement"-- this Stock Purchase and Sale Agreement, including all exhibits and
schedules hereto, as the same may be amended, modified or supplemented from time
to time.
"Anticipated Completion Date" -- in the case of the Housing Units shall mean
December 16, 1996, and in the case of the Health Center shall mean May 1, 1997.
"Architects" -- The Robinson Green Beretta Corporation.
"Architects Agreements" -- That certain Agreement dated as of February 10, 1995,
between the Partnership and The Robinson Green Beretta Corporation.
"Benefit Arrangement" -- any written or oral employment, consulting, severance
or other similar contract, arrangement or policy and each plan, arrangement,
program, agreement or commitment providing for insurance coverage (including any
self-insured arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits, retirement benefits,
life, health, disability or accident benefits (including, without limitation,
any voluntary employees' beneficiary association" as defined in Section
501(c)(9) of the Code providing for the same or other benefits) or for deferred
compensation profit-sharing bonuses, stock options, stock appreciation rights,
stock purchases or other forms of incentive compensation or benefits other than
salary, which:
(i) is not a Welfare Plan, Pension Plan or Multiemployer Plan,
(ii) is entered into, maintained, contributed to or required to be
contributed to by the Company or any of its Subsidiaries or under which the
Company or any of its Subsidiaries may incur any liability, and
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(iii) covers any employee or former employee of the Company or any of
its Subsidiaries (with respect to their relationship with such entities).
"BNP" -- Banque Nationale de Paris, as agent for the Lenders, as defined in the
BNP Loan Documents.
"BNP Loan Amendment Commitment" -- that letter dated October 25, 1996, executed
by BNP in favor of the Partnership.
"BNP Loan Amendment Documents" -- as defined in Paragraph 7.01(l).
"BNP Loan Documents" -- the First Mortgage Credit Agreement dated as of August
1, 1995, between BNP and the Partnership, concerning the Facility, together with
the documents, agreements and instruments evidencing or securing the loans made
by BNP to the Partnership in connection with the development of the Facility, as
more particularly described in Schedule 1.1 attached hereto.
"BSL Escrow Account" -- the Brim Senior Living Escrow Account established with
the Escrow Agent in accordance with the Escrow Agreement and the BSL Merger
Agreement.
"BSL" -- as defined in the preamble hereof.
"Budgets" -- the budgets for the development and operation of the Facility, as
amended to date and as approved by BNP, a copy of which is attached as Schedule
1.2 hereto.
"Business" -- the development, construction, marketing and operation of the
Project.
"CCI" -- Capital Consultants, Inc.
"CCI Loan Amendment Commitment" -- that certain letter dated October 21, 1996,
from James Williams to Jeffery L. Grayson, as acknowledged and accepted by that
certain letter dated October 25, 1996 from Jeffery L. Grayson to James Williams.
"CCI Loan Amendment Documents" -- as defined in Paragraph 7.01(m).
"CCI Loan Documents" -- that certain Consolidated, Amended and Restructured
Promissory Note dated as of August 1, 1995, of the Partnership, payable to CCI,
together with the documents, agreements, and instruments evidencing or securing
or relating to the loans made by CCI to the Partnership in connection with the
development of the Facility, as more particularly described in the CCI Loan
Documents.
"Change Orders" -- those change orders under the Contractor Agreement or
amending or modifying the Plans and Specifications that have occurred as of the
date hereof with aspect to the construction of the Facility, all of which have
been provided to the Purchaser.
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"Closing" -- the consummation of the purchase and sale of the Common Stock as
contemplated by this Agreement.
"Closing Date" -- the date that the Closing occurs as determined in accordance
with Article 3 hereof.
"Code" -- the Internal Revenue Code of 1986, as amended.
"Common Stock" -- as defined in Paragraph 4.02(a) hereof.
"Company Financial Statements" -- as defined in Paragraph 4.05 hereof.
"Confidentiality Agreements" -- as defined in Paragraph 10.02 hereof.
"Contractor" -- Walbridge Contracting Company, Inc.
"Contractor Agreements" -- those Agreements dated as of July 13, 1995 and July
14, 1995 between the Partnership and the Contractor with respect to (i) the
Housing Units and Phase Ib Housing Units and (ii) the Health Center,
respectively.
"Contributed Intercompany Debt" -- the amount of Five Million One Hundred
Fifty-five Thousand Two Hundred Sixty-four and no/100 Dollars ($5,155,264.00) of
the Intercompany Debt, which will be contributed to Meridian by the Company at
the Closing.
"Debt" -- indebtedness or obligations for borrowed money, financing or
capitalized lease obligations, obligations in respect of letters of credit,
surety or other bonds, sale and leaseback transactions, all indebtedness secured
by a lien on any asset, and any other liabilities generally regarded as
indebtedness for borrowed money in accordance with GAAP, or any guarantees
thereof or similar undertakings regarding the indebtedness or obligations of
another.
"Development Budget" -- the budget developed by the Partnership and approved by
BNP with respect to the construction, equipping and marketing of the Facility, a
copy of which is included within the Budgets.
"Dispute Notice" -- as defined in Paragraph 11.03 hereof.
"Employee Plans" -- all Benefit Arrangements, Multiemployer Plans, Pension
Plans and Welfare Plans.
"Environmental Claims" -- all notices of violations, liens, claims, demands,
suits, or causes of action for any damage, including, without limitation,
personal injury, property damage (including, without limitation, any
depreciation or diminution of property values), lost use of property or
consequential
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damages, arising directly or indirectly out of Environmental Conditions or
Environmental Laws. By way of example only (and not by way of limitation),
Environmental Claims include:
(i) violations of or obligations under any contract related to
Environmental Laws or Environmental Conditions between the Company (or Meridian
or the Partnership) and any other person,
(ii) actual or threatened damages to natural resources,
(iii) claims for nuisance or its statutory equivalent,
(iv) claims for the recovery of response costs, or administrative or
judicial orders directing the performance of investigations, responses or
remedial actions under any Environmental Laws,
(v) requirements to implement "corrective action" pursuant to any order
or permit issued pursuant to the Resource Conservation and Recovery Act as
amended, or similar provisions of applicable state law,
(vi) claims related to Environmental Laws or Environmental Conditions
for restitution, contribution, or indemnity,
(vii) fines, penalties or liens of any kind against property related
to Environmental Laws or Environmental Conditions
(viii) claims related to Environmental Laws Or Environmental Conditions
for injunctive relief or other orders or notices of violation from federal,
state or local agencies or courts, and
(ix) with regard to any present or former employers, claims relating to
exposure to or injury from Environmental Conditions.
"Environmental Conditions" -- the state of the environment, including natural
resources (e.g., flora and fauna), soil, surface water, ground water, any
present or potential drinking water supply, subsurface strata or ambient air,
relating to or arising out of the use, handling, storage, treatment, recycling,
generation, transportation, release, spilling, leaking, pumping, pouring,
emptying, discharging, injecting, escaping, leaching, disposal, dumping or
threatened release of Hazardous Substances by the Company, Meridian or the
Partnership or its or their predecessors in interest, or by its or their agents,
representatives, employees or independent contractors when acting in such
capacity on behalf of any one or more of the Company, Meridian or the
Partnership. With respect to environmental Claims by third parties.
Environmental Conditions also include the exposure of persons to Hazardous
Substances at the work place or the exposure of persons or property to Hazardous
Substances migrating from or otherwise emanating from or located on the
Facility.
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"Environmental Laws" -- all applicable federal, state, district, local and
foreign laws, all rules or regulations promulgated thereunder, and all orders,
consent orders, judgments, notices, permits or demand letters issued,
promulgated or entered pursuant thereto, relating to pollution or protection of
the environment (including, without limitation, ambient air, surface water,
ground water, land surface, or subsurface strata), including, without
limitation,
(i) laws relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants, chemicals, industrial
materials, wastes or other substances into the environment and
(ii) laws relating to the identification, generation,
manufacture, processing, distribution, use, treatment, storage, disposal,
recovery, transport or other handling of pollutants, contaminants, chemicals,
industrial materials, wastes or other substances.
Environmental Laws shall include, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended ("CERCLA"). the Toxic Substances Control Act, as amended ("TSCA"), the
Hazardous Materials Transportation Act as amended, the Resource Conservation and
Recovery Act as amended ("RCRA"), the Clean Water Act, as amended, the Safe
Drinking Water Act, as amended, the Clean Air Act, as amended, the Atomic Energy
Act of 1954, as amended, the Occupational safety and Health Act, as amended
("OSHA"). the Hazardous Substance Account Act, Section 501.061 et. seq. of the
Florida Statutes, as well as all local, municipal and county ordinances relating
to environmental protection, and other environmental conservation or protection
laws, and all analogous laws promulgated or issued by any state or other
governmental authority.
"Environmental Reports" -- any and all written analyses, summaries or
explanations, in the possession or control of the Company, Meridian or the
Partnership of (a) any Environmental Conditions in, on or about the Facility or
(b) the compliance by the Company, Meridian or the Partnership with
Environmental Laws.
"ERISA" -- the Employee Retirement Income Security Ad of 1974, as amended.
"ERISA Affiliate" -- any entity which is (or at any relevant time was) a member
of a "controlled group of corporations" with or under "common control," as
defined in Section 414(b), (c), (m), (n) or (o) of the Code, with the Company or
any of its Subsidiaries.
"Escrow Account" -- the FV Escrow Account and the BSL Escrow Account.
"Escrow Agreement" -- an agreement in the form of Exhibit A hereto.
"Escrow Agent" -- Key Bank of Oregon.
"Facility" -- the Housing Units and the Health Center.
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"Florida ADA" -- as defined in Paragraph 4.21 hereof.
"Florida CCRC Law" -- Chapter 651 of the Florida Statutes, Chapter 4.F.A.C.
4-193 of the Florida Administrative Code, and, if and to the extent applicable,
the provisions of any other Florida Statutes incorporated therein by reference,
and the rules and regulations promulgated under each, as well as all local,
municipal and county ordinances relating to continuing care contracts or places
where continuing care is furnished.
"Former Holders" -- the Former Shareholders of the Company and the former
holders of the Accelerated Options and/or Purchased Options (as such terms are
defined in the Investment Agreement).
"Former Holders of the Redeemed Stock" -- the shareholders of the Company whose
junior preferred stock is redeemed at the Closing of the Healthcare Transaction.
"Former Shareholders of the Company" -- the Former Holders of the Redeemed Stock
and GECC, collectively.
"FV Escrow Account " -- the interest-bearing account referred to in Paragraph
2.02(b) hereof and established under the Escrow Agreement.
"GAAP" -- generally accepted accounting principles in effect as of the date
hereof or, in the case of any Company Financial Statement, in effect as of the
date thereof.
"GECC" -- General Electric Capital Corporation.
"Governmental Authority" -- any court, tribunal, arbitrator, authority, agency,
department, commission, office, official or other federal, state, county, city
or other governmental instrumentality or any state, county, city or other
political subdivision.
"Gross Up Account" -- that account established at the closing of the BNP Loan
transaction in an amount equal to the difference between the deposits received
and the deposits due with respect to the marketing of the Housing Units as
security for the obligations of the Partnership under the BNP Loan Documents.
"Hazardous Substance(s)" -- all pollutants, contaminants, chemicals, wastes, and
any other carcinogenic, ignitable, corrosive, reactive, toxic or otherwise
hazardous substances or materials (whether solids, liquids or gases) subject to
regulation, control or remediation under Environmental Laws. By way of example
only, the term Hazardous Substances includes: petroleum; urea formaldehyde;
flammable, explosive and radioactive materials, as defined in any of the
Environmental Laws; PCBs; pesticides; herbicides; asbestos; and sludge, slag,
acids, metals, solvents and waste waters listed or otherwise defined as
hazardous under any of the Environmental Laws.
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"Health Center" -- that 60 bed long term care and 60 unit assisted living
facility comprising a portion of the Facility and other related improvements and
fixtures, as more particularly described in the Plans and Specifications and the
Loan Documents.
"Health Center Amendment" -- as defined in Paragraph 7.01(k)(ii).
"Health Center Management Agreement" -- that certain Amended and Restated
Management Agreement dated as of August 1, 1995, between the Partnership and
BSL.
"Healthcare Transaction" -- as defined in Recital A hereof.
"Housing Management Agreement" -- that certain Amended and Restated Management
Agreement dated as of August 1, 1995, between the Partnership and BSL.
"Housing Occupancy Documents" -- The Lifecare Residency and Care Agreement, the
Joinder Agreement, the Upgrade Letter (if and to the extent a prospective
resident elects to request a unit upgrade) and the Reservation Agreement entered
into by each resident or prospective resident of the Facility.
"Housing Units" -- the 204 units of independent living retirement housing
included in the Facility and other related improvements and fixtures, as more
particularly described in the Plans and Specifications and the Loan Documents.
"Income Taxes" -- any and all foreign, federal, state and local taxes, levies,
duties and other assessments or charges of a similar nature (whether imposed
directly or through with building), to the extent based upon or measured by
income, including any interest, penalties or other additions to tax applicable
thereto.
"Indemnified Party" -- as defined in Paragraph 11.03 hereof.
"Independent Accountants" -- the Portland Oregon, office of KPMG Peat Marwick
LLP.
"Interim Financial Statements" -- as defined in Paragraph 4.05 hereof.
"Intercompany Debt" -- all of the Debt evidencing the loans from the Company to
Meridian, which shall not exceed $7,005,264.
"Joinder Agreement" -- the Joinder in Master Trust Agreement to be executed by
each resident and by First Union National Bank of Florida, as Master Truster, at
the time of his/her occupancy of a Housing Unit and pursuant to which such
resident is designated as a "Grantor" under the Master Trust Agreement.
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"Key Employee" -- all officers, managers and other employees of the Company or
any of its Subsidiaries involved as of the date hereof and anticipated to be
involved from and after the Closing Date in the day-to-day operations of the
Facility's Business, whose current annual salary or rate of compensation
(including bonus and other incentive compensation) is $100,000 or more.
"Laws" -- any constitution, statute, law, rule, regulation or ordinance.
"Leases" -- those leases to which the Company (with respect to the Facility),
Meridian or the Partnership is a party. The Leases are described in Schedule
4.10(b)(i) attached hereto.
"Liens" -- any liens, security interests, deeds of trust, pledges, charges,
conditional sales contracts, mortgages or encumbrances.
"Limitation Period" -- as defined in Paragraph 11.05(c) hereof.
"Limited Partnership Interest Transaction" -- as defined in Recital F.
"Loan Documents" -- the BNP Loan Documents and the CCI Loan Documents.
"Loss Notice" -- as defined in Paragraph 11.03 hereof.
"Losses" -- any and all claims, damages, losses, expenses, deficiencies,
penalties, interest, fines, costs (including reasonable attorneys' fees and
court costs), obligations or liabilities of any kind suffered or incurred
because of a breach of one or more of the representations, warranties and
covenants set forth in this Agreement or because of one or more Third Party
Claims.
"Loss Threshold" -- as defined in Paragraph 11.O5(a) hereof.
"LP Agreement" -- as defined in Recital F, as the same may be amended, modified
or supplemented from time to time.
"Management Contract(s)" -- collectively, the Health Center Management Agreement
and the Housing Management Agreement. The Management Contracts as described in
Schedule 1.3 attached hereto.
"Marketing Expenses" -- out-of-pocket third party costs and expenses incurred
and paid by the Partnership consistent with the Budgets in connection with the
marketing of the Project, and funded by the proceeds of a loan from the Company
and not by proceeds of the BNP Loan.
"Master Trust Agreement" -- the Master Trust Agreement dated as of August 1,
1995 among First Union National Bank of Florida, as Trustee, and the residents
executing the Joinder Agreements, as "Grantors".
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"Master Trust Documents" -- the Master Trust Agreement, the Master Trust Loan
Agreement dated as of August 1, 1995 between the Master Trustee and the
Partnership, the Master Trust Note, the Joinder Agreement, and the Agreement to
Pay Expenses and Indemnification Agreement dated as of August 1, 1995 between
First Union National Bank of Florida as Master Trustee and the Partnership.
"Master Trust Note" -- the Master Trust Note dated as of August 1, 1995 executed
by the Partnership in favor of the Master Trustee.
"Material Adverse Effect" -- any event or events materially and adversely
affecting (i) the Business, the Meridian Assets, the Project, the Partnership
Assets, the business operations or affairs of the Partnership or (ii) the
ability of the Company to perform its obligations hereunder.
"Merger" -- the Merger as defined in Recital D hereof.
"Meridian Assets" -- the Partnership Interest.
"MLR Escrow Requirement" -- the requirement imposed by the Florida CCRC Law with
respect to the establishment and maintenance of a minimum liquid reserve to meet
the operating needs of the Facility.
"Multi employer Plan" -- any "multi employer plan" as defined in Sections 3(37)
or 4001(a)(3) of ERISA:
(i) which any of the Company and its Subsidiaries, or any ERISA
Affiliate maintains, administers, contributes to or is required to contribute
to, or, within the six years prior to the Closing Date maintained, administered,
contributed to or was required to contribute to, or under which any of the
Company and its Subsidiaries or any ERISA Affiliate may incur any liability; and
(ii) which covers any employee or former employee of any of the Company
and its Subsidiaries or any ERISA Affiliate (with respect to their relationship
with such entities).
"New Partnership Agreement" -- that Amended and Restated Certificate and
Agreement of Limited Partnership of Meridian Park Village Limited Partnership,
to be effective as of the Closing Date, among Meridian Senior Living, Inc., as
general partner and James Williams, David McAllister, Rick McDaniel, Bruce
Schoen, Craig Rhea, Steve Fraser, Vern Reed and A.E. Brim, as limited partners,
to be executed in the form attached hereto as Exhibit C upon the Closing.
"Operating Budget" -- the budget with respect to the operation of the Facility
developed by the Partnership and approved by BNP and included within the
Budgets.
"Occupancy Agreement"-- the Lifecare Residency and Care Agreement executed by
each resident of the Housing Units.
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"Orders" -- any injunction, judgment, decree, order, or writ.
"Other Construction Contracts" -- those contracts described in Schedule
4.l0(b)(ii) attached hereto.
"Other Required Agreements" -- as defined in Paragraph 7.01(k) hereof.
"Outside Closing Date" -- as defined in Paragraph 3.03 hereof.
"Partnership" -- as defined in Recital C.
"Partnership Agreement(s)" -- that Amended and Restated Certificate and
Agreement of Limited Partnership of Meridian Park Village Limited Partnership
dated as of November 22, 1994 by and between Meridian Senior Living, Inc., as
general partner, and the Company, as limited partner, which agreement is to be
amended and restated, upon the Closing, by the New Partnership Agreement.
"Partnership Assets" -- all right, title, interest and estate of the Partnership
in the Project and other assets, if any, as described more fully in Schedule
4.02(c) attached hereto
"Partnership Debt" -- the Debt evidencing the loans made by Meridian to the
Partnership prior to the Closing, all of which loans are to be canceled and
forgiven by Meridian immediately prior to the Closing.
"Partnership Interest" -- the general partnership interest of Meridian, as the
sole managing general partner of the Partnership.
"Pension Plan" -- any "employee pension benefit plan" as defined in Section 3(2)
of ERISA (other than a Multi employer Plan):
(i) which any of the Company and its Subsidiaries or any ERISA
Affiliate maintains, administers, contributes to or is required to contribute
to, or within the five years prior to the Closing Date, maintained,
administered, contributed to or was required to contribute to, or under which
any of the Company and its Subsidiaries or any ERISA Affiliate may incur any
liability; and
(ii) which covers any Employee or former employee of any of the Company
and its Subsidiaries or any ERISA Affiliate (with respect to their relationship
with such entities).
"Permitted Exceptions" --
(i) any liens for taxes and assessments not yet due and payable;
(ii) inchoate liens in favor of vendors, carriers, warehousemen,
repairmen, mechanics, workmen, materialmen, construction or similar liens
arising by operation of law in respect of obligations that are not yet due or
that, after the date hereof, are contested in good faith and in
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accordance with the terms of the Loan Documents and for which adequate reserves
have been provided for on the Company Financial Statements or the Meridian
Financial Statements;
(iii) liens secured or evidenced by the Loan Documents; and
(iv) easements, reservations, rights-of-way, restrictions, covenants,
conditions and other similar encumbrances disclosed in the Title Report, which
individually and in the aggregate do not materially and adversely affect the
present and presently intended use or the marketability or insurability under
the Title Policy of the Facility.
"Personal Property" -- all tangible and intangible personal property, including
furniture, equipment, supplies, inventory, and other personalty owned or
acquired prior to Closing by the Partnership in connection with the Business, as
described in or required by the Plans and Specifications and the Loan Documents,
including all right, title, and interest now owned or acquired prior to Closing
by the Partnership in and to the Reservation Agreements, Housing Occupancy
Documents, bank and reserve accounts, and any licenses, permits and entitlements
issued by Governmental Authorities.
"Phase Ib Housing Units" -- the 46 independent living units to be constructed by
the Partnership in accordance with and subject to the terms of the BNP Loan
Documents, after completing and marketing the Housing Units.
"Plans and Specifications" -- the plans and specifications and all addenda,
modifications, supplements and change orders applicable thereto, previously
provided to Purchaser and approved by BNP in accordance with the terms of the
BNP Loan Documents.
"Pre-Opening Expenses" -- out-of-pocket third party costs and expenses incurred
and paid by the partnership consistent with the Budgets in connection with
opening activities and funded by proceeds of a loan from the Company and not by
proceeds of the BNP Loan.
"Project" -- the Facility, Real Property, and the Personal Property, together
with improvements and Personal Property that may be developed or acquired by the
Partnership prior to Closing as described in the Plans and Specifications and
the Loan Documents.
"Project Permits" -- as defined in Paragraph 4.09 hereof.
"Real Property" -- the real property located in Palm Beach County, Florida on
which the Facility is, or upon completion of construction will be, located and
more fully described in Exhibit B hereto.
"Reimbursable Marketing Expenses" -- the lesser of(i) Marketing Expenses paid
after July 31 1996 and on or prior to the Closing Date and (ii) the difference
between $525,000 and any Marketing Expenses paid after the Closing Date and on
or prior to December 31, 1996.
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"Reimbursable Pre-Opening Expenses" -- the lesser of (i) Pre-Opening Expenses
paid after July 31, 1996 and on or prior to the Closing Date and (ii) the
difference between $630,000 and any Pre-Opening Expenses paid after the Closing
Date and on or prior to December 31, 1996.
"Reservation Agreement" -- the Agreement signed by each prospective resident of
a Housing Unit in order to reserve his/her unit for future occupancy.
"Reservation Deposit Escrow" -- the escrow account established by the
Partnership with First Union National Bank of Florida into which all payments
made under the Reservation Agreements are deposited in accordance with the
requirements of the Florida CCRC Law.
"Rights" -- as defined in Paragraph 4.02(a) hereof.
"Subsidiary" -- a corporation, partnership or other entity (including the
Partnership) 20% or more of the voting power or value of which is owned by the
referenced corporation, partnership or other entity.
"Survey" -- the Survey dated March 20, 1995, as updated on June 30, l996. July
10, 1996 and September 30, 1996 and prepared by Nick Miller, lnc.
"Taxes" -- any and all foreign, federal, state and local taxes, levies, duties
and other assessments or charges of a similar nature (whether imposed directly
or through withholding), including any interest, penalties or additions to tax
applicable thereto.
"Third Party Consents" -- as defined in Paragraph 6.03(e) hereof.
"Third Party Claim" -- as defined in Paragraph 11.03 hereof.
"Title Commitment" -- that preliminary Title Report dated October 30, 1996
issued by the Title Insurer in favor of the Partnership.
"Title Insurer" -- Flagler Title Insurance Company as agent for Chicago Title
Insurance Company.
"Title Policy" -- the existing owners's title insurance policy insuring the
Partnership's title to the Facility and the Real Property, which as of the
Closing Date, shall be endorsed to the reasonable satisfaction of Purchaser to
make coverage effective as of the Closing Date, and to acknowledge the new
partners of the Partnership.
"UCC Search Report" -- the UCC Search Reports conducted by CSC in the name of
the Company, the Partnership and Meridian in the States of Florida and Oregon
and the Counties of West Palm Beach, Florida and Multnomah, Oregon, which
reports art dated November ____, 1996.
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"Upgrade Letters" -- that letter agreement pursuant to which a prospective
resident, in consideration for the payment of a non-refundable deposit equal to
the cost of construction of any requested upgrades, may request that certain
upgrades be made to his/her reserved unit at his/her sole cost and expense
during the course of the construction thereof.
"Welfare Plan" -- any "employee welfare benefit plan" as defined in Section 3(1)
of ERISA:
(i) which any of the Company and any of its Subsidiaries or any ERISA
Affiliate maintains, administers, contributes to or is required to contribute
to, or under which any of the Company and any of its Subsidiaries or any ERISA
Affiliate may incur any liability; and
(ii) which covers any employee or former employee of any of the Company
and any of its Subsidiaries or any ERISA Affiliate (with respect to their
relationship with such entities).
Other References. References to articles, sections (or any subsections),
schedules or exhibits are to those of this Agreement unless otherwise indicated.
ARTICLE II
PURCHASE AND SALE
2.01. On the terms and subject to the conditions set forth herein, the
Company shall sell, convey, assign and deliver to Purchaser and Purchaser shall
acquire from the Company all of the Common Stock (as defined below) of Meridian
Senior Living, Inc. ("Meridian").
2.02. On the terms and subject to the conditions set forth herein,
Purchaser shall purchase the Common Stock and pay the purchase price by
delivering:
(a) One Million Nine Hundred Fifty Thousand and no/10 Dollars
($1,950,000), less the amount paid pursuant to paragraph 2.02(e) below, by wire
transfer, in immediately available funds, to a bank account designated by the
Company;
(b) One Million and no/10 Dollars ($1,000,000), by wire transfer, in
immediately available funds, to BNP in accordance with the BNP Loan Amendment
Documents, which amount (or portion(s) thereof) when released by BNP shall be
deposited to an interest bearing account established with the Escrow Agent (the
"FV Escrow Account") to be held and applied by the Escrow Agent in accordance
with the terms of the agreement applicable to such account;
(c) Fifty Thousand and no/100 Dollars ($50,000) in immediately
available funds to an interest bearing escrow account established with the
Escrow Agent and designated as the "Agent/Legal Fees Escrow Account" to be held
and applied by the Escrow Agent in accordance with the terms of the agreement
applicable to such account;
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(d) Four Hundred Thousand and no/100 Dollars ($400,000) in immediately
available funds to a bank account designated by the Company, as partial
repayment of the Additional Intercompany Debt; and
(e) The difference between the Additional Intercompany Debt and Four
Hundred Thousand Dollars ($400,000) in immediately available funds to a bank
account designated by the Company, in payment in full of the remaining amount of
the Additional Intercompany Debt.
ARTICLE III
CLOSING
3.01 Deliveries by the Company at Closing. In the event all of the
conditions to Closing set forth in Article VIII have been satisfied or waived,
the Company shall deliver the stock certificates representing all of the Common
Stock, together with duly executed stock powers and all certificates, documents,
exhibits, schedules, and other instruments and agreements required to be
delivered by the Company or its counsel pursuant to Article VII of this
Agreement, each of which shall be fully executed and completed, as appropriate.
3.02 Deliveries by Purchaser at Closing. In the event all of the
conditions to Closing set forth in Article VII have been satisfied or waived,
Purchaser shall deliver and/or cause its designees to deliver all of the
certificates, documents, exhibits, schedules, and other instruments and
agreements required to be delivered by Purchaser and/or its designees or its or
their counsel, pursuant to Article VIII of this Agreement, each of which shall
be fully executed and completed, as appropriate, and shall remit or cause to be
remitted to the Company the consideration described in Paragraph 2.02.
3.03 Time and Place. The Closing shall occur at the Chicago office of
Latham & Watkins at 10:00 am, local time, on December 13, 1996, provided that as
of said date all of the conditions to Closing set forth in Articles VII and VIII
have been satisfied by the responsible party or waived by the party entitled to
waive the same (the "Closing Date"), or at such other time or on such other
place as the Company and Purchaser may mutually agree, but in no event later
than December 17, 1996 (the "Outside Closing Date"). In the event all of the
conditions to Closing have not been satisfied or waived as of the Outside
Closing Date, either party shall thereafter have the right to terminate this
Agreement in accordance with the terms of Article X hereof.
ARTICLE IV
THE COMPANY'S REPRESENTATIONS AND WARRANTIES
The Company does hereby represent and warrant to Purchaser as follows:
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4.01. Organization and Qualification.
(a) The Company is a corporation duly organized and validly existing
under the laws of the State of Oregon.
(b) Meridian is a corporation duly organized and validly existing under
the laws of the State of Oregon. Meridian has all corporate power and authority
necessary to conduct its business as and to the extent now conducted and to own,
use and lease its assets and properties.
(c) Meridian is duly qualified, licensed or admitted to do business and
is in good standing under the laws of the State of Florida. Meridian is not
engaged in any business other than acting as the general partner of the
Partnership and has no liabilities other than those incurred in its capacity as
the general partner in the Partnership.
(d) Meridian does not directly or indirectly own any equity or similar
interest in, or any interest convertible into or exchangeable or exercisable
for, any equity or similar interest in, any corporation, partnership, limited
liability company, joint venture or other business association or entity, other
than its interest as the general partner in the Partnership.
(e) The Partnership is a limited partnership duly formed, validly
existing and in good standing under the laws of the State of Florida. The
Partnership has all partnership power and authority necessary to conduct the
Business as now conducted and as currently proposed to be conducted and to own,
use and lease its assets and properties. The Business is the only business in
which the Partnership is currently engaged or has ever in the past been engaged.
4.02. Capital Stock/Partnership Interest.
(a) The authorized capital stock of Meridian consists solely of
1,000,000 shares of common stock, without par value, 80,000 of which are issued
and outstanding (the "Common Stock"). The Company owns all of the Common Stock
beneficially and of record free and clear of all Liens, claims and encumbrances
and with full right, power and authority to transfer such shares to the
Purchaser. There are no outstanding subscriptions, options, warrants, rights
(including "phantom" stock rights), preemptive rights or other contracts,
commitments, understandings or arrangements, including any right of conversion
or exchange under any outstanding security instrument or agreement (together,
"Rights"), obligating Meridian to issue or sell any shares of its capital stock
or to grant, extend or enter into any Right with respect thereto or any voting
trusts, proxies or other commitments, understandings, restrictions or
arrangements in favor of any person with respect to the voting of or the right
to participate in dividends or other earnings on any capital stock or other
equity security of or interest in Meridian.
(b) The Common Stock has been duly authorized, and is validly issued,
fully paid and nonassessable.
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(c) The Partnership Interest is the sole general partnership interest
in the Partnership. Meridian owns the Partnership Interest beneficially and of
record, free and clear of all Liens, claims and encumbrances and with full
right, power and authority to transfer the Partnership Interest to the
Purchaser. By its execution of this Agreement, the Company, as sole limited
partner in the Partnership, hereby consents to the transactions contemplated
herein. Except as contemplated by the New Partnership Agreement, there are no
outstanding Rights obligating the Partnership to issue or sell any additional
partnership interests or to grant, extend or enter into any Right with respect
thereto nor any voting trusts, proxies or other commitments, understandings,
restrictions or arrangements in favor of any person with respect to the voting
of or the right to participate in any distributions or other equity security of
or interest in the Partnership.
(d) There are no outstanding obligations by Meridian or the Partnership
to provide funds to, or make any investment (in the form of a loan, capital
contribution or otherwise) in, any person, except that Meridian has funded and
until the Closing may continue to fund Pre-Opening Expenses and Marketing
Expenses.
(e) Neither Meridian nor the Partnership owns an interest, directly or
indirectly, in any other corporation, company, business trust, partnership,
limited partnership, joint venture, or other entity or association, other than
the Partnership Interest owned by Meridian.
4.03. Authority Relative to this Agreement. The Company has full
corporate power and authority to enter into this Agreement and each other
instrument, document and agreement contemplated hereby and to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance of this
Agreement and of such other instruments, documents and agreements contemplated
hereby by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby have been duly and validly approved by the Board
of Directors of the Company and no other corporate proceedings on the part of
the Company are necessary to authorize the execution, delivery and performance
of this Agreement and such other instruments, documents and agreements by the
Company and the consummation by the Company of the transactions contemplated
hereby and thereby, other than securing the approval of the shareholders of the
Company for this and certain related transactions occurring concurrently
herewith, which the Company shall use its best efforts to secure in accordance
with the provisions of Paragraph 6.01(j). This Agreement and each other
instrument, document and agreement contemplated hereby have been, or upon the
execution and delivery thereof in accordance with the terms hereof will be, duly
and validly executed and delivered by the Company and subject to securing the
Regulatory Approvals and the Third Party Consents (as each such term is defined
in Paragraph 6.03(e)) and the shareholder approval contemplated by Paragraph
6.01(j), constitute or, at the time of the execution and delivery thereof, will
constitute a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally and by
general equitable principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
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4.04. Approvals and Consents. The execution and delivery of this
Agreement by the Company does not, and except for the consents to be obtained
pursuant to the BNP Loan Amendment Documents and the CCI Loan Amendment
Documents and the consent of the Department of Insurance of the State of Florida
under the Florida CCRC Law to the transactions contemplated hereby and by the
Limited Partnership Interest Transaction, the performance by the Company of its
obligations hereunder and the consummation of the transactions contemplated
hereby will not:
(a) conflict with, result in a violation or breach of, constitute (with
or without notice or lapse of time or both) a default under, result in or give
to any person any right of payment or reimbursement, termination, cancellation,
modification or acceleration of or of notice under any agreement, contract,
lease, license, permit, note, instrument or other document to which the Company,
Meridian or the Partnership is a party or by which any of them is bound or to
which any asset or property of any of them is subject, or
(b) violate any Laws or Orders of a Governmental Authority, applicable
to the Company, Meridian or the Partnership or any of its or their respective
assets or properties, or the articles of incorporation or bylaws (or other
comparable charter or organizational documents, including the Partnership's
Partnership Agreement) of the Company, Meridian or the partnership, or
(c) require any consent, approval or action of, or permit from, or
filing, or registration with or notice to any Governmental Authority or other
public or private third party.
4.05. Financial Statements.
(a) On or before the date hereof, the Company has delivered to
Purchaser the following (collectively, the "Company Financial Statements"):
(i) a true and complete copy of the audited consolidated
balance sheet of the Company and its consolidated Subsidiaries, including
Meridian, and a true and correct copy of the audited balance sheet of the
Partnership, each as of December 31, 1995 and the related statements of
operations, stockholders' equity, and cash flows and the reports thereon by the
Independent Accountants;
(ii) a true and complete copy of the unaudited consolidated
balance sheet of the Company and its consolidated Subsidiaries, including
Meridian, and a true and correct copy of the unaudited balance sheet of the
Partnership, each as of October 31, 1996 and the related statements of
operations, stockholders' equity and cash flow for the fiscal period ended on
such date (the "Interim Financial Statements"); and
(iii) an unaudited balance sheet of Meridian, as of the ten
months ended October 31, 1996 and the related statements of operations,
stockholders' equity, and cash flows for the fiscal period ended as of such date
(the "Meridian Financial Statements").
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Except for the treatment of installment interest payments required
under the CCI Loan Documents, the Company Financial Statements were prepared in
accordance with GAAP applied on a consistent basis during the periods involved
(except as may be indicated therein or in the notes thereto), are in conformity
with the books and records of the Company, and fairly present the consolidated
financial position of the Company and its consolidated Subsidiaries, including
Meridian and the Partnership) or Meridian, in the case of the Meridian Financial
Statements, as at the respective dates thereof and the consolidated or combined,
as applicable, results of their operations, stockholders' equity and cash flows
for the respective periods then ended.
4.06. Absence of Certain Changes or Events. Except as set forth in
Schedule 4.06 attached hereto, or as permitted by Article 6, since October 31,
1996 there has not been any:
(a) change, event or development having, or that would be reasonably
expected to have, an adverse effect on the Company with respect to the Business
and/or on Meridian or the Partnership, except in the ordinary course of business
consistent with past practice and involving not more than $50,000 in the
aggregate. Nothing herein shall be construed as requiring the Company to
disclose to Purchaser generally known changes in the congregate care/life care
business which may, could or would have an effect on the Company, Meridian, the
Partnership, the Business or Purchaser either prior to or after the Closing, it
being understood and agreed that Purchaser and its shareholder are sophisticated
investors in and purchasers of companies in the congregate care/life care
business and can and will keep themselves advised as to any such general
developments;
(b) (i) person employed by Meridian or the Partnership and neither
Meridian nor the Partnership has incurred any obligation to compensate or
otherwise pay any of their respective officers or partners;
(ii) adoption, creation or amendment of any Employee Plan of
Meridian or the Partnership;
(iii) amendment or modification to or execution of any
employment agreement (written or verbal) made by the Company (with respect to
the Business), Meridian or the Partnership or to which any of them is a party.
(c) sale, lease, assignment or transfer of the Project, or any portion
thereof, or any asset used in connection with the Business including, but not
limited to, any development rights, air rights, utility rights, availability or
capacity rights, easements or license rights or other similar rights, privileges
or attributes with respect to the Project, or any portion thereof, including
those arising under any zoning or land use ordinance or other Governmental
Authority but specifically excluding the sale or leasing of the Housing Units to
prospective residents of the Facility;
(d) cancellation, compromise, waiver or release of any right or claim
(or series of related rights or claims) of Meridian or the Partnership or
related to the Project, except in the ordinary
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course of business consistent with past practice and involving not more than
$50,000 in the aggregate;
(e) amendment, cancellation or termination of any agreement, contract,
permit, license, note, instrument or other document of Meridian or the
Partnership or related to the Project, except forgiveness of the Partnership's
debt to Meridian and except in the ordinary course of business consistent with
past practice and involving not more than $50,000 in the aggregate;
(f) capital expenditure or the execution of any lease, contract,
license, sublease or sublicense (or series of related contracts, leases,
subleases, licenses and sublicenses) or any incurring of liability therefor by
the Company and its Subsidiaries (with respect to the Business), Meridian or the
Partnership, except in the connection with (i) the development of the Project in
accordance with the Development Budget or (ii) the marketing of the Project in
accordance with the Development Budget or (iii) the operation of the Project in
accordance with the Operating Budget or (iv) any amounts expended in excess of
or for items not reflected in the Budgets in the ordinary course of business
consistent with past practice and involving not more than $50,000 in the
aggregate;
(g) failure to develop and market the Project in the ordinary course
consistent with past practice, which failure has adversely affected (i) the
Business, or (ii) the preservation for Purchaser of the goodwill of suppliers,
customers, distributors and others having business relations with the Company
with respect to the Business or with Meridian or the Partnership;
(h) change in accounting methods or practices by the Company (with
respect to the Project), Meridian or the Partnership;
(i) grant of a Lien on any of the Project, the Meridian Assets, or the
other Partnership Assets, or any interest therein, other than the Permitted
Exceptions;
(j) declaration, setting aside for payment or payment of any dividend
or distribution in respect of any capital stock of Meridian or interest in the
Partnership or any redemption, purchase, or other acquisition of any of
Meridian's or the Partnership's equity securities or interests;
(k) Debt, or any loan or guarantee incurred, entered into, made or
agreed to be made by the Company (with respect to the Business) or by Meridian
or the Partnership, except for Contributed Intercompany Debt, the amount of
which shall be contributed to Meridian at Closing, the Additional Intercompany
Debt, the amount of which shall be repaid at Closing as provided in Paragraph
2.02 of this Agreement, and the Partnership Debt, the amount of which is to be
cancelled and forgiven immediately prior to the Closing;
(l) liabilities incurred (other than for Debt) except with respect to
(i) the development of the Project in accordance with the Development Budget or
(ii) the marketing of the Project in accordance with the Development Budget or
(iii) the operation of the Project in accordance with the Operating Budget or
(iv) any amounts expended in excess of or for items not reflected in the Budgets
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in the ordinary course of business consistent with past practice and involving
not more than $50,000 in the aggregate;
(m) acceleration, termination, material modification, cancellation or
threatened acceleration, termination, material modification or cancellation of
any contract involving more than $50,000 in the aggregate to which the Company
(with respect to the Business), Meridian or the Partnership is a party or by
which any of them is bound or to which any of the assets or properties of any of
them is subject;
(n) grant of any license or sublicense of any rights under or with
respect to any intellectual property rights of the Company (which relate to the
Business) or of Meridian or the Partnership;
(o) written agreement or, to the knowledge of the Company, oral
agreement by the Company, Meridian or the Partnership or any Personnel to do any
of the foregoing; or
(p) other event or condition of any character (other than events or
conditions affecting the economy generally or the congregate care/life care
business generally and other than events in the ordinary course of business)
known to the Company that individually or in the aggregate would reasonably be
expected to have an effect that is materially adverse on the Business, Meridian
or the Partnership.
Any activity permitted under this Paragraph 4.06 subject to a $50,000 in the
aggregate limitation shall be permitted only to the extent that the aggregate
amounts involved in all actions taken hereunder subject to such limitation does
not exceed $50,000.
4.07. Legal Proceedings.
(a) Except as described in Schedule 4.07(a) attached hereto, there is
no charge, complaint, action, order, writ, injunction, judgment or decree
outstanding or claim, suit, litigation, investigation, audit, proceeding, labor
dispute or arbitration proceeding (collectively, "Actions") pending or, to the
knowledge of the Company, threatened or anticipated before any court, arbitrator
or other public or private tribunal or before or by any federal, state,
municipal or other governmental department, commission board, bureau, agency or
instrumentality, domestic or foreign, relating to or affecting:
(i) Meridian or the Partnership, the Meridian Assets or the
Partnership Assets, or the Business,
(ii) any Employee Plan of the Company with respect to the
Facility or of Meridian or the Partnership or any trust or other funding
instrument, fiduciary or administrator thereof, or
(iii) the transactions contemplated by this Agreement.
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(b) Neither the Company nor its subsidiaries (with respect to the
Business) nor Meridian nor the Partnership is in default and there are no
unsatisfied uninsured judgments against the Company (with respect to the
Business), Meridian or the Partnership.
4.08. Information Supplied. Each document filed by the Company,
Meridian or the Partnership or by the Company or Meridian on behalf of the
Partnership with any Governmental Authority in connection with the Business or
this Agreement and the other transactions contemplated hereby does not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading, except that no representation is made by the Company with respect to
information supplied in writing by or on behalf of Purchaser expressly for
inclusion therein.
4.09. Compliance with Laws and Orders.
(a) Meridian and the Partnership hold all permits, licenses, variances,
exemptions, orders and approvals of all Governmental Authorities necessary for
the Business (the "Project Permits") to the extent the same can, in light of the
Project's current state of development, be lawfully secured as of the date
hereof and, to the extent the same cannot, in light of the Project's current
state of development, be lawfully secured as of the date hereof, the Company has
no reason to believe that the same should not be secured as and when necessary
and appropriate and without unusual effort or expense, in the ordinary course of
the Project's development; provided, however, that nothing herein shall be
construed as a representation or warranty by the Company with respect to
Purchaser's ability to secure any Project Permit the issuance of which depends
on matters related to Purchaser and its affiliates, including, but not limited
to, their financial condition and operational expertise. Each of the Project
Permits issued to date is valid, has not expired or been revoked, and to the
extent assignable will be assigned as necessary at Closing.
(b) Except for a fine not to exceed $10,000 for past violations, each
of Meridian and the Partnership is in compliance in all material respects with
the terms of the Project Permits held by it, and none of Meridian, the
Partnership or the Company (with respect to the Business) is in violation of or
default under any Law or Order of any Governmental Authority applicable to it.
4.10. Compliance with Agreements; Certain Agreements.
(a) Except for the contracts described in Schedule 4.10(a) or 4.10(b)
attached hereto, none of the Company (with respect to contracts that relate to
the business, assets, prospects or operation of Meridian, the Partnership or the
Business) or Meridian or the Partnership is a party to, or bound by, any
contract of any kind to be performed after the Closing Date pursuant to which it
is obligated to spend more than $25,000 in any twelve month period and which is
not subject to cancellation by it on thirty (30) or fewer days' notice.
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(b) Schedule 4.10(b) attached hereto lists the following contracts and
amendments to which the Company (with respect to contracts and amendments that
relate to the Business) or Meridian or the Partnership is a party:
(i) each Management Contract;
(ii) each Lease;
(iii) each Partnership Agreement;
(iv) each agreement, contract or arrangement with any
consultant, not terminable on 30 days' or less notice involving the payment of
more than $25,000;
(v) each Architects Agreement Contractor's Agreement and
Other Construction Contracts entered into by the Company, Meridian or the
Partnership for the development of the Facility;
(vi) each union or collective bargaining agreement;
(vii) each agreement, contract, arrangement, commitment or
obligation with any employee the benefits of which are contingent or vest, or
the terms of which are materially altered, upon the occurrence any of the
transactions contemplated by this Agreement;
(viii) each agreement, contract, arrangement, commitment or
obligation with respect to any Key Employee involved in the Business other than
salaries and benefits paid in the ordinary course of business;
(ix) each agreement or plan, including any bonus, incentive
compensation, stock option, stock appreciation right, restricted stock or stock
purchase agreement or plan relevant to the Business, any of the benefits of
which will be increased by, vested on an accelerated basis, or as a result of
calculated or valued based on the occurrence of any of the transactions
contemplated by this Agreement;
(x) each agreement, contract, arrangement, commitment or
obligation to which it is a party limiting in any material respect its freedom
or the freedom of any Key Employee to compete in any line of business with any
person;
(xi) each agreement, contract, arrangement, commitment or
obligation evidencing, securing or otherwise executed in connection with any
liability for Debt in excess of $50,000;
(xii) each agreement, contract, arrangement, commitment,
understanding or obligation relating to it, its present or prospective business,
operations, properties or assets in
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<PAGE> 24
which any Key Employee has any interest, direct or indirect, including a
description of any transactions between it and any Key Employee or any entity in
which any Key Employee has any interest (other than transactions between any
corporation and a publicly held corporation in which the Key Employee holds less
than five percent (5%) of the issued and outstanding shares of capital stock);
and
(xiii) each oral contract or agreement with respect to any of the
matters referred to in the foregoing clauses (i) through (xii) and any oral or
written proposal to enter into any contract, agreement or other arrangement
with respect to any of the matters referred to in the foregoing clauses (i)
through (xii).
(c) The Company has delivered or made available to Purchaser a correct
and complete copy of each contract or agreement listed in Schedule 4.10(b)
attached hereto. With respect to each written agreement listed, to the Company's
knowledge (based on a review of the files of the Company related to the
Facility, of the files of Meridian and the Partnership, all as maintained at the
corporate offices of the Company, inquiries of employees located at the
corporate offices of the Company and involved in the Business, and inquiries of
the onsite administrator at the Facility), (A) the written agreement is legal,
valid, binding, enforceable (except as such enforceability may be limited by (i)
bankruptcy, insolvency, moratorium, reorganization and other similar laws
affecting creditors' rights generally and (ii) the general principles of equity,
regardless of whether asserted in a proceeding in equity or at law) and in full
force and effect; (B) no party is in material breach or default, and no event
has occurred which with notice or lapse of time or both could constitute a
material breach or default or permit termination, modification or acceleration,
under the written agreement and (C) no party has repudiated any term of the
written agreement, and there are no pending renegotiations of or outstanding
rights to renegotiate any material amounts paid or payable by or to the Company
(with respect to the Business) or Meridian or the Partnership thereunder and no
such person has made written demand for such renegotiation.
4.11 Employees and Employee Benefit Plans
(a) Employees. Attached as Schedule 4.11 hereto is a complete and
accurate list of the name and hire date of the Key Employees. Except as provided
by applicable law, the employment of all persons presently employed or retained
by the Company (in connection with the Business) is terminable at will, at any
time and without advance notice.
(b) Employee Plans. Schedule 4.11(b) attached hereto contains a
complete list of all Employee Plans. True and complete copies of each of the
following documents for the Employee Plans will he delivered to Purchaser by the
Company subsequent to the date of this agreement but prior to the Closing Date:
(i) each Welfare Plan and Pension Plan (and, if applicable,
related trust agreements and summary plan descriptions, all amendments thereto,
and all annuity contracts or other funding instruments),
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(ii) each Benefit Arrangement and a complete description of
any such Benefit Arrangement which is not in writing, and
(iii) for the three most recent plan years, Annual Reports on
Form 5500 Series required to be filed with any governmental agency for each
Welfare Plan and Pension Plan.
(c) Pension Plans. No Pension Plan is subject to the minimum funding
requirements of Title I of ERISA or Section 412 of the Code or Title IV of
ERISA. Each Pension Plan and each related trust agreement, annuity contract or
other funding instrument is qualified and tax-exempt under the provisions of
Code Section 401(a) and 501(a) and has been so qualified during the period from
its adoption to date.
(d) Multi employer Plans. None of the Company, Meridian or the
Partnership nor any ERISA Affiliate contributes to, or has been obligated to
contribute to, any Multiemployer Plan.
(e) Welfare Plans. None of the Company, Meridian, the Partnership nor
any ERISA Affiliate has any present or future obligation to make any payment to
or with respect to any present or former employee of the Company involved in the
Business or of Meridian or the Partnership pursuant to any retiree medical
benefit plan, other than as may be required by federal or state law. None of the
Company (with respect to the Business), Meridian, the Partnership or any ERISA
Affiliate involved in the Business has ever maintained, contributed to or been
required to contribute to any "welfare benefit fund" as defined in Section
419(e) of the Code. Each Welfare Plan employed by the Company in connection with
the Business, or by Meridian or the Partnership which is a "group health plan,"
as defined in Section 607(a) of ERISA, has been operated in compliance with
provisions of Part 6 of Title I of ERISA and Sections 162(i) and 4980B of the
Code at all times.
(f) Compliance with Law. Each Welfare Plan, Pension Plan and Benefit
Arrangement which covers or has covered employees of the Company involved in the
Business or the employees of Meridian, the Partnership or any ERISA Affiliate
involved in the Business has been maintained in compliance with its terms and
with the requirements prescribed by any and all statutes, orders, rules and
regulations which are applicable to such Welfare Plan, Pension Plan or Benefit
Arrangement, including but not limited to, ERISA and the Code.
(g) Deductibility of Payments. Then is no contract, agreement, plan or
arrangement covering any employee or former employee of the Company involved in
the Business that, individually or collectively, provides for the payment by the
Company, Meridian or the Partnership of any amount:
(i) that is not deductible under Section 162 or 404 of the Code;
or
(ii) that is an "excess parachute payment" under Section 280G of
the Code.
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(h) No Amendments. Except as may be necessary or appropriate in
connection with closing the transaction contemplated by this Agreement, none of
the Company (with respect to the Business) nor Meridian or the Partnership nor
any ERISA Affiliate (involved in the Business) has any announced plan or any
legally binding commitment to create any additional Facility Employee Plans or
to amend or modify any existing Facility Employee Plan in effect.
(i) No Acceleration of Rights or Benefits. Except for the vesting of
existing stock options, neither the execution and delivery of this agreement nor
the consummation of the transactions contemplated hereby will result in the
acceleration of the exercisability of any stock options, the acceleration of the
vesting of any restricted stock or any interest in any Pension Plan or Welfare
Plan or the creation of rights under any severance, parachute or change of
control agreement.
(j) No Other Material Liability. No event has occurred in connection
with any Facility Employee Plan which would have a Material Adverse Effect on
any of the Company, Meridian or the Partnership or any ERISA Affiliate or any
such Employee Plan, directly or indirectly under any statute, regulation or
governmental order relating to any such Employee Plans.
4.12 Taxes. Each of the Company, Meridian and/or the Partnership has
filed all Tax returns which are required as of the date hereof to have been
filed by it in any jurisdiction with respect to the Business, the Project, the
Common Stock, the Meridian Assets and the Partnership Assets and each has paid,
before they have become delinquent, all Taxes shown to be due and payable on
such returns and, to the knowledge of the Company, all other Taxes and
assessments payable by the Company and by Meridian and/or the Partnership, to
the extent the same have become due and payable, except for any Taxes and
assessments the amount, applicability or validity of which is currently being
contested in good faith by appropriate proceedings and with respect to which the
Company has set aside on its books, or has caused Meridian or the Partnership to
set aside on its books, reserves to the extent required by, and segregated in
accordance with, GAAP. The Company has no knowledge of any proposed material Tax
assessment against the Company, Meridian or the Partnership. To the knowledge of
the Company, all Tax liabilities of the Company, of Meridian and of the
Partnership are adequately provided for on the books of the Company, Meridian or
the Partnership, respectively. All of the Tax returns previously filed by the
Company, Meridian or the Partnership and which, as of the date hereof, have not
been audited by the applicable Governmental Authority having jurisdiction
thereof, were true and correct in all material respects at the time filed by the
Company, Meridian and/or the Partnership. None of the Company, Meridian or the
Partnership has received any notice of any past due or unpaid Tax or assessment
which as of the date hereof has not been paid or, is being contested in good
faith by appropriate proceedings and is evidenced by an appropriate reserve on
the books of the Company, Meridian or the Partnership, as applicable.
4.13. Labor Matters. No complaint for sex, age, race or other
discrimination claim or any unfair labor practice claim has been brought against
the Company (with respect to the Business), Meridian or the Partnership which is
unresolved as of the date hereof. To the Company's knowledge, the Company (with
respect to the Business), Meridian and the Partnership have complied
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with all applicable state and federal labor Laws and Orders. None of the Company
(with respect to the Business), Meridian or the Partnership is a party to any
collective bargaining agreement or other labor union contract applicable to
persons employed by any of them. There are and have been no strikes, slowdowns,
work stoppages, or lockouts at the Facility by any of the employees of the
Company, Meridian or the Partnership.
4.14. Environmental Matters.
Except as disclosed in the Environmental Reports given to Purchaser by
the Company as described in Schedule 4.14 attached hereto:
(i) The Company (with respect to the Project), Meridian and
the Partnership are, and at all times during their ownership or operation of the
Project have been, in compliance in all material respects with all Environmental
Laws.
(ii) There are no existing Environmental Claims against the
Company (with respect to the Project), Meridian or the Partnership, and none of
the Company (with respect to the Project), Meridian or the Partnership has
received any notification of any allegation of any actual, or potential
responsibility for, or any inquiry or investigation regarding, any disposal,
release or threatened release at any location of any Hazardous Substance
generated or transported by any of them at or from the Project.
(iii) There are no underground tanks or other underground
storage receptacles for Hazardous Substances currently located on or under the
Project.
(iv) There have been no releases (i.e., any past or present
releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, disposing, or dumping) of Hazardous Substances in
quantities exceeding the reportable quantities as defined under federal or
applicable state law by the Company (with respect to the Facility), Meridian or
the Partnership on, upon or into the Project except as allowed by Environmental
Laws. In addition, the Company is not aware (without independent investigation)
that there have been any such releases by the Company's or the Partnership's
predecessors in title to the Real Property, and no releases in quantities
exceeding the reportable quantities as defined under federal or state law on,
upon, or into any real property in the vicinity of the Project other than those
authorized by Environmental Laws which, through soil or ground water
contamination, may have come to be located on the Real Property.
(v) The Company is not aware of any PCBs located at the
Project.
(vi) There are no consent decrees, consent orders, judgments,
judicial or administrative orders, agreements with (other than permits) or liens
by, any governmental authority or quasi governmental entity relating to any
Environmental Law which regulate, or bind the Company (with respect to the
Project), Meridian or the Partnership.
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(vii) True and correct copies of all existing Environmental
Reports, as well as all other written environmental reports, audits or
assessments which have been conducted, either by the Company (with respect to
the Project), Meridian or the Partnership or any person engaged by any of them
for such purpose which are in the possession of the Company, Meridian or the
Partnership have been made available to the Purchaser.
4.15. Brokers or Finders. No agent, broker, investment banker,
financial advisor or other firm or person is or will be entitled to any broker's
or finder's fee or any other commission or similar fee in connection with any of
the transactions contemplated by this Agreement, other than Smith Barney, which
has acted as a financial advisor to the Company and which shall be compensated
by the Company for its services rendered in connection therewith.
4.16. Insurance. Schedule 4.16 attached hereto sets forth the insurance
policies maintained by the Company, Meridian or the Partnership covering the
Business and the Project in effect as of the date hereof, including the policy
numbers, terms, identity of the insurers and amounts and nature of coverage. All
such policies (or replacements thereof) are now and will be until Closing in
full force and effect, with no premium arrearages. True and correct copies of
all such policies and any endorsements thereto have been or will be made
available to Purchaser for its review prior to Closing. None of the Company,
Meridian or the Partnership has received any written notice of any actual or
proposed cancellation or limitation of coverage or non-coverage under any such
policies and the Company, Meridian and the Partnership are in compliance (or are
in the process of complying) with all underwriter requirements and
recommendations of which any of them has been notified with respect to such
policies.
4.17. Intellectual Property. None of the Company, Meridian or the
Partnership has received protection under federal or state law of any
trademarks, trade names, logos, service marks, patents, patent rights, assumed
names, trade secrets or copyright used, or anticipated to be used, by them in
the Business.
4.18. Certain Assets.
(a) The Partnership has good and marketable title to, or valid fee
simple title to the Real Property and all other real estate, if any, included in
the Partnership Assets and good and marketable title to all of the Personal
Property and other non-real estate assets included within the Partnership Assets
(except that with respect to any improvements or Personal Property to be
developed or acquired by the Partnership after the date hereof the Partnership
will have good and marketable title only upon development or acquisition
thereof). The Personal Property includes all the tangible assets reasonably
necessary to the Business as it is currently conducted. The Development Budget
includes the cost of such additional Personal Property as may be necessary in
the reasonable opinion of the Company to conduct the Business as it is currently
contemplated to be conducted.
(b) The title of the Partnership to the o Project any part thereof is
free and clear of all Liens other than (i) the Permitted Exceptions and (ii) any
Lien which shall he satisfied and released
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of record as of the Closing Date. The Facility and the Personal Property are in
good working order, condition and repair and adequate and suitable for the
purposes for which they are presently intended to be used.
(c) Meridian has good and marketable title to the Partnership Interest
free and clear of all Liens, claims and encumbrances.
(d) None of the Company, Meridian or the Partnership has received
notice of any pending or threatened condemnation or taking by power of eminent
domain or otherwise of all or any portion of the Project or any of the other
assets described in clauses (a) or (b) or any notice of any tax or special Lien
or assessment which would not be paid in full by the Closing Date and for which
Meridian or the Partnership would be liable.
(e) None of the Company, Meridian or the Partnership has received
notice of noncompliance of the Project, any portion thereof, or any of the other
assets described in clauses (a) or (b) with applicable building or zoning codes
and ordinances.
4.19. No Other Agreements to Sell the Assets of the Partnership or
Capital Stock of Meridian. Neither the Company, Meridian nor the Partnership has
any legal obligation, absolute or contingent, to any other person or firm to
sell or effect a sale of the Stock, the Meridian Assets, the Partnership Assets
or the Partnership Interest.
4.20. Books and Records. The Company, Meridian and the Partnership have
made and kept (and given the Purchaser access to) books and records and
accounts, which, in reasonable detail, accurately and fairly reflect the
activities of the Company (with respect to the Business), Meridian and the
Partnership, including but not limited the books and records related to the
Reservation List, the Reservation Deposit Escrow and the Gross Up Account. None
of the Company (with respect to the Business), Meridian nor the Partnership has
engaged in any material transaction, maintained any bank account or used any
corporate funds except for transactions, bank accounts and funds which have been
and are reflected in their normally maintained books and records.
4.21. Florida Americans With Disabilities Act Compliance. The Facility
has been and is being constructed in full compliance with the Florida Americans
with Disabilities Accessibility Implementation Act, Florida Statutes, Section
553.501, et seq and the rules and regulations issued pursuant thereto (the
"Florida ADA"). None of the Company, Meridian or the Partnership has received
any notice to the effect that, or has otherwise been advised that, the Facility
is not in compliance with the Florida ADA. The Company believes that compliance
with the Florida ADA constitutes compliance with the federal Americans with
Disabilities Act.
4.22. Undisclosed Liabilities. The Company has not failed to disclose
to the Purchaser any liabilities--whether fixed or contingent--actually known to
the Company as of the date hereof with respect to the Business and not
otherwise disclosed or taken into account in the Company Financial Statements or
in the schedules or exhibits hereto.
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4.23. The Real Property/The Facility. The Facility is located on the
Real Property. The Housing Units, including their roofs and all major mechanical
systems, such as air conditioning, electrical and heating and ventilating
systems and other items of tangible Personal Property are, to the extent the
same have been installed and at Closing shall be, to the extent the same have
then been installed, in good operating condition and repair.
4.24. Master Trust and Occupancy Documents. The Company has furnished
to the Purchaser true and correct copies of the Master Trust Documents and the
Housing Occupancy Documents, together with the Reservation Agreements and/or
Upgrade Letters, if applicable, executed by each prospective resident of the
Housing Units who has not as of the date hereof elected to terminate such
Reservation Agreement. Schedule 4.24 contains a form of a Joinder Agreement and
a form of an Occupancy Agreement. The Joinder Agreement and the Occupancy
Agreement between the Partnership and each Facility resident is not executed
until the date occupancy of a reserved unit is accepted and accordingly no such
agreements have been executed as of the date hereof. Each of the Reservation
Agreements and the Master Trust Documents which has been executed as of the date
hereof is in full force and effect and none has been modified or amended except
as set forth in Schedule 4.24 attached hereto. The Housing Occupancy Documents
constitute all written or oral agreements of any kind for the reservation,
leasing, rental or occupancy of any portion of the Facility. Except as set forth
in Schedule 4.24, no obligation under any of the Housing Occupancy Document has
been collected in advance and there are no concessions, bonuses, rebates or
other matters affecting the obligations of any prospective resident. None of the
Company, Meridian or the Partnership is in default of any of its obligations
under the Master Trust Documents or the Housing Occupancy Documents and there
exists no fact or circumstance that, with the passage of time or the giving of
notice or both, would constitute a default by the Company, Meridian or the
Partnership or entitle any prospective resident to any counterclaim, offset or
defense against such resident's obligation under his or her Housing Occupancy
Documents. The Company is not aware of any default or any action which, with the
passage or time or the giving of notice or both would constitute a default,
under the Housing Occupancy Documents executed as of the date hereof by any of
the prospective residents who are parties thereto. The Company represents and
warrants that, as required by Florida law, under the terms of the Housing
Occupancy Documents each prospective resident has the right to terminate the
same within seven days after his/her entrance fee is paid and occupancy is
accepted and that, although the Company has no knowledge that any prospective
resident will exercise such rights, there can be no assurances that any or all
of the prospective residents will not exercise said recision right.
4.25. Reservation List. Set forth in Schedule 4.25 is a true and
correct reservation list as of November 1, 1996, which identifies each of the
prospective residents of the Housing Units, the type of unit reserved by such
resident, the monthly rent or occupancy fee attributable to each such unit, the
amount of the deposit paid as of said date by each such resident, the amount of
deposit remaining to be paid by such resident, and any price or other concession
given to such resident (the "Reservation List"). All of the funds received by
the Partnership from the residents on the Reservation List have been deposited
in the Reservation Escrow Account, as required by the Florida
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CCRC Law, and released therefrom and utilized by the Partnership in connection
with the Business to the extent permitted by the Florida CCRC Law.
4.26. Operating Contracts. Set forth in Schedule 4.26 attached hereto
are true and correct copies of all operating contracts to which the Company,
Meridian or the Partnership is a party in connection with the Business (the
"Operating Contracts"). Each of the Operating Contracts is in full force and
effect and none of the Operating Contracts has been modified or amended except
as set forth in Schedule 4.26. None of the Company, Meridian or the Partnership
is in default of any obligations under the Operating Contracts nor is the
Company aware of any default or any action which, with the passage or time or
the giving of notice or both would constitute a default, under the Operating
Contracts by any other party thereto.
4.27 Bank and Escrow Accounts. Schedule 4.27 hereto sets forth a
correct and complete list of each bank account and escrow account maintained by
the Company (with respect to the Facility), by Meridian or by the Partnership
whether required by law, by the terms of the BNP Loan Documents or otherwise.
4.28. The Loan Documents. Neither the Company, Meridian nor the
Partnership is in default of any of its obligations under the Loan Documents,
nor is any of the Company, Meridian or the Partnership aware of or in receipt of
notice from any lender thereunder of any event or circumstance which, with the
giving of notice or the passage of time, or both would constitute an event of
default thereunder. Each of the Loan Documents was duly authorized, executed and
delivered by the Company, Meridian and/or the Partnership, as applicable, and
each such document is the valid, binding and enforceable obligation of the
Company, Meridian or the Partnership, as applicable, except as enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally and by
general equitable principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law). The Company has provided to
Purchaser true and correct copies of the Loan Documents and all amendments,
modifications or changes thereto other than those amendments, modifications and
changes contemplated by the terms of the CCI Loan Amendment Commitment and the
BNP Loan Amendment Commitment, which amendments, modifications and changes shall
not be effective unless and until the Closing occurs.
As of October 31, 1996, the principal amounts owing to BNP and CCI
under the Loan Documents were $26,286,219.14 (plus accrued interest for October,
1996) and $9,329,995 (plus accrued interest on that amount through October 31,
1996 and plus unpaid interest in the escrow account with BNP of approximately
$400,000 (the Gross-Up Account), plus approximately $400,000 of the Gross-Up
Account), respectively.
4.29. Construction of the Facility.
(a) The Company has provided Purchaser prior to the execution of this
Agreement with a true and correct copy of the Plans and Specifications. The
Plans and Specifications have not been
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amended or modified except pursuant to the Change Orders referred to therein,
which have been provided by the Company to Purchaser. The Project has been
constructed to date in accordance and compliance with the Plans and
Specifications, as amended or modified by such Change Orders. All changes orders
have been approved as and when necessary under the terms of the Loan Documents.
To the Company's knowledge, there are no latent or patent structural, mechanical
or other defects in the Project.
(b) The Real Property has available to its boundaries adequate
utilities, including, without limitation, adequate water supply, storm and
sanitary sewage facilities, telephone, gas, electricity and fire protection, as
is required for the construction and operation of the Project.
(c) The funds allocable to Phase I (as defined in the BNP Loan
Documents) under the BNP Loan Documents, are sufficient to pay for the costs of
construction of each of the Housing Units and the Health Center and other
improvements necessary to the use and occupancy thereof cannot be completed and
available for occupancy on or before the applicable Anticipated Completion Date
in a good, workmanlike and substantial manner, free from material defects and in
accordance with the Loan Documents, the Plans and Specifications, the Housing
Occupancy Documents, and all applicable laws. To Seller's knowledge, all
construction to date has been performed in a good and workmanlike manner, free
from material defects and in accordance with all applicable laws. The Company
represents and warrants that, as of the date hereof, it is anticipated that
occupancy of 44 of the Housing Units will be accepted by prospective residents
during the first week after the opening of the Housing Units. The Company
believes that the prospective residents of Housing Units will move into such
units on or about the move-in date ascribed to each in the Reservation List. The
funds held back for Phase 1b Housing Units under the BNP Loan Documents are
sufficient to pay for the costs of completion thereof in a good and workmanlike
manner, free from material defects in accordance with all applicable laws.
(d) Neither the zoning nor any other right to construct upon or to use
the Facility is or when granted will be to any extent dependent upon or related
to any real estate other than the Real Property, the improvement of such other
real estate or the payment of any fees for the improvement of such other real
estate. The Real Property is not part of a larger tract of land owned by either
the Company, Meridian or the Partnership and is not otherwise included under any
unity of title or similar covenant with other lands not owned by the Company,
Meridian or the Partnership. The Project complies with all subdivision and
platting requirements.
(e) There are no soil conditions adversely affecting the Project,
except, those if, any, as reflected in that Subsurface Exploration and
Foundation Evaluation Report dated June 15, 1987, performed by Professional
Service Industries, Inc. and that Report of Preliminary Subsurface
Investigation dated August, 1993 performed by Nutting Engineers, copies of
which have been delivered to the Purchaser.
(f) The Project is fully zoned for its intended use.
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(g) Neither the Company, Meridian nor the Partnership has received any
notice that and, the Company has no knowledge as of the date hereof that, (i)
any Governmental Authority or any employee or official thereof considers that
the construction operation or use of the Project for its intended use will fail
to comply in any, material respect with any legal requirements, (ii) any
investigation has been commenced or is contemplated respecting any such possible
use of the Project, and (iii) there are any unsatisfied requests for repairs,
restorations or alterations with regard to the Project from any person,
including, but not limited to, any lender, insurance carrier or Governmental
Authority.
(h) Except as set forth in Schedule 4.29(h) attached hereto, the
Company has no reason to believe that the license or any other approvals,
entitlements and other governmental and quasi-governmental authorizations,
necessary for the operation or use of the Health Center for its intended use,
will not be issued in the ordinary course of business after construction is
complete.
(i) Except as set forth in Schedule 4.29(i) attached hereto, no portion
of the Real Property or the Facility is located in a designated flood zone.
(j) Except as set forth in Schedule 4.29(j) attached hereto, none of
the Company, Meridian nor the Partnership has paid or is obligated to pay any
commissions in connection with the marketing of the Facility.
(k) There is no obligation to satisfy the MLR Reserve Requirement under
the Florida CCRC Law until the first resident is admitted to the Project at
which time the obligation under the Florida CCRC Law with respect to the MLR
Reserve Requirement will be satisfied by the amounts contained in the
Reservation Deposit Escrow as reflected in the MLR Reserve Requirement
calculation set forth in Schedule 4.29(k) attached hereto. At such time when 70%
of the Housing Units are occupied, which is not currently contemplated to occur
prior to January, 1998, the Partnership would be entitled in accordance with the
provisions of the Florida CCRC Law to request a release of the funds in the
Reservation Deposit Escrow, at which time the Partnership would be required to
post cash and/or an acceptable letter of credit in satisfaction of the MLR
Reserve Requirement. The Company has furnished to Purchaser a true and correct
copy of the correspondence between the Partnership and the Department of
Insurance with respect to the present calculation of the anticipated amount of
the MLR Reserve Requirement.
4.30 Gross Up Account. The portion of the Gross Up Account attributable
to the Purchaser (and not to CCI) exceeds $400,000.
4.31 Reimbursable Expenses. The sum of the Marketing Expenses and
Pre-Opening Expenses exceeds $400,000.
4.32. Material Misstatements Or Omissions. No representations or
warranties by the Company in this Agreement, nor any document, exhibit,
statement, certificate or schedule or other injunction furnished or to be
furnished to Purchaser (or its members) pursuant hereto, or in
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connection with the transactions contemplated hereby, contains or will contain
any untrue statement of a material fact, or omits or will omit to state any
material fact necessary to make the statements or facts contained therein not
misleading.
ARTICLE V
PURCHASER'S REPRESENTATIONS AND WARRANTIES
Purchaser does hereby represent and warrant to the Company as follows:
5.01. Organization and Qualification.
(a) Purchaser is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Purchaser has, or as of
Closing will have, full corporate power and authority to conduct its business as
and to the extent now conducted and to own, use and lease its assets and
properties, including the assets and properties to be acquired by it pursuant to
the terms of this Agreement.
(b) Purchaser is or prior to the Closing Date will be duly qualified to
do business in, and validly existing and/or in good standing under the laws of,
the State of Florida if and to the extent necessary for it to acquire the Common
Stock and to be the owner of the Partnership Interest.
5.02. Authority Relative to this Agreement. Purchaser has full
corporate power and authority to enter into this Agreement and each other
instrument, document and agreement contemplated hereby and to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution, delivery and performance of this Agreement and of each other
instrument, document and agreement contemplated hereby by Purchaser and the
consummation by Purchaser of the transactions contemplated hereby and thereby
have been duly and validly approved by the Board of Directors of Purchaser and
no other corporate proceedings on the part of Purchaser or its shareholders are
necessary to authorize the execution, delivery and performance of this Agreement
or such other instruments, documents and agreements by Purchaser and the
consummation by Purchaser of the transactions contemplated hereby and thereby.
This Agreement has been, and such other instruments, documents and agreements
contemplated hereby when executed and delivered by Purchaser in accordance with
the terms hereof will be, duly and validly executed and delivered by Purchaser
and each such document constitutes or, upon the execution and delivery thereof
will constitute, a legal, valid and binding obligation of Purchaser enforceable
against Purchaser in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors' rights generally and by general
equitable principles (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
5.03. Approvals and Consents. Subject to obtaining such consents or
making such filings as are required to obtain the approval of the transactions
contemplated herein by the Department of Insurance of the State of Florida under
the Florida CCRC Law, the execution and delivery of this
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Agreement by Purchaser does not and the performance by Purchaser of its
obligations hereunder and the consummation of the transactions contemplated
hereby will not:
(a) conflict with, result in a violation or breach of, constitute (with
or without notice or lapse of time or both) a default under, result in or give
to any person any right of payment or reimbursement, termination, cancellation,
modification or acceleration of, or of notice under any agreement, contract,
lease, license, permit, note, instrument or other document to which Purchaser is
a party or by which it is bound or to which any of the assets or properties of
Purchaser are subject; or
(b) violate any Laws or Orders of any Governmental Authority applicable
to Purchaser or any of its assets or properties, or the Articles of
Incorporation or Bylaws of Purchaser; or
(c) require any consent, approval or action of, or permit from, or
filing or registration with or notice to any Governmental Authority or other
public or private third party.
5.04. Legal Proceedings. There are no actions, suits, arbitrations or
proceedings pending or, to the knowledge of Purchaser, threatened against
relating to or affecting, nor to the knowledge of Purchaser are there any
investigations or audits by Governmental Authorities pending or threatened
against, relating to or affecting Purchaser or any of its assets and properties
which would adversely affect the Purchaser's ability to perform its obligations
hereunder or to consummate the transactions contemplated hereby.
5.05. Information Supplied. Each document filed by Purchaser with any
Governmental Authority in connection with this Agreement and the other
transactions contemplated hereby, solely to the extent based on information
provided by Purchaser, does not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading.
5.06. Brokers or Finders. No agent, broker, investment banker,
financial advisor or other firm or person has been engaged by it and is or will
be entitled to any broker's or finder's fee or any other commission or similar
fee from it in connection with any of the transactions contemplated by this
Agreement.
5.07. Investment Representations. Purchaser is acquiring the Common
Stock for its own account and not with a view to their distribution, within the
meaning of Section 2(11) of the Securities Act of 1933, as amended. Purchaser is
a sophisticated investor regularly engaged in buying companies and interests
therein.
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ARTICLE VI
COVENANTS
6.01. Company. The Company covenants, between the date hereof and the
Closing, that:
(a) The Company, Meridian and the Partnership shall conduct the
Business in the ordinary course consistent with past practices and with the
terms of the Budgets and shall preserve intact their business organization, keep
available the services of the officers and employees involved in the Business in
the ordinary course of business and use their commercially reasonable best
efforts to maintain satisfactory relationships with suppliers, distributors,
customers and others having business relationships with them with respect to the
Business.
(b) None of the Company, Meridian or the Partnership shall commit or
omit to do any act that would cause a breach of any agreement, commitment or
covenant of any of them contained in this Agreement or cause the representations
and warranties as set forth in this Agreement to become untrue in any material
respect as of the Closing Date.
(c) Except with respect to the Limited Partnership Interest
Transaction, none of the Company, Meridian or the Partnership shall make any
material change in the Business or sell or agree to sell all or any portion of
the Project, the Meridian Assets of the Partnership Assets or otherwise enter
into, terminate, modify or amend any Housing Occupancy Documents, or any other
agreements materially affecting the Project or the Business, without the prior
written consent of Purchaser which consent, in the case of terminations,
modifications to or amendments of any such agreements, shall not be unreasonably
withheld.
(d) Each of the Company (with respect to the Project), Meridian and the
Partnership shall maintain its assets in the same condition as they are in at
the date hereof, ordinary wear and tear, insured casualty loss and taking by
eminent domain excepted.
(e) None of the Company (with respect to the Facility), Meridian or the
Partnership shall purchase an equity interest in, or the assets of, any
corporation, partnership or any other entity, or create or permit any Lien on
any asset, except for the Permitted Exceptions, or create, assume, incur or
guarantee any Debt (other than the Contributed Intercompany Debt, the amount of
which is to be contributed to Meridian at Closing, the Additional Intercompany
Debt, the amount of which is to be repaid upon Closing as provided herein, and
the Partnership Debt, the amount of which is to be canceled and forgiven
immediately prior to the Closing as provided herein).
(f) Except in the ordinary course of business and consistent with past
practice, there shall be no increase in the compensation of any of the personnel
or be, any consultant associated with the Business, nor shall there be any new
employment, severance or other agreement with any of the personnel or any
consultant associated with the Business (other than any such agreements executed
by the Purchaser).
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(g) During normal business hours, the Company will provide Purchaser,
its agents and employees (or cause them to be provided), with access on
twenty-four (24) hours notice to the books and records of the Company (with
respect to the Facility). Meridian and the Partnership, provided they do not
unreasonably interfere with the operations of the Company, Meridian or the
Partnership.
(h) Neither the Company nor any of the officers, directors, advisors
nor others authorized to act on its behalf shall directly initiate or solicit
discussions relating to any alternative acquisition proposal or similar
transaction including, without limitation a merger or other business combination
involving, to any extent, the Project, Meridian or the Partnership or offer to
acquire or convey in any manner, directly or indirectly, all or substantially
all of the equity interests in, or the voting securities of Meridian or the
Partnership or the assets of either of them; provided, however, that public
announcements of the transaction contemplated by this Agreement and responses to
inquiries received thereafter shall not be prohibited hereby and that the
Company shall not be deemed to be in breach of its obligations hereunder in the
event the Board of Directors determines, prior to the approval of the
transactions provided for herein and of the Excluded Assets Transaction, the BSL
Transaction and the Healthcare Transaction by the shareholders of the Company,
in the exercise of its fiduciary duties that the Company is required to provide
information in response to any acquisition or merger proposals or discussions
which are initiated by a third party; and provided, further, that nothing herein
shall be construed as prohibiting the Company from pursuing the pending
negotiations with respect to the Healthcare Transaction, the BSL Transaction or
the Excluded Assets Transaction.
(i) Neither the Articles of Incorporation nor the Bylaws of Meridian
nor the Partnership Agreement of the Partnership shall be amended without the
prior consent of the Purchaser, which consent shall not be unreasonably
withheld.
(j) The Company shall promptly submit this Agreement and the
transactions contemplated herein, including the Healthcare Transaction, the BSL
Transaction, the Limited Partnership Interest Transaction and the Excluded
Assets Transaction, for the approval by its shareholders. Subject to its
fiduciary duties under applicable law, the Board of Directors of the Company has
agreed to recommend to its shareholders approval of the transaction contemplated
herein, the BSL Transaction, the Healthcare Transaction, the Limited Partnership
Interest Transaction and Excluded Assets Transaction. Subject to the fiduciary
duties of the Board of Directors of the Company under applicable law, the
Company shall use its reasonable efforts to obtain its shareholders' approval
and adoption of this Agreement and the transactions contemplated hereby. Subject
to the notice requirements of applicable state law, such meeting shall be held
as soon as practicable following the execution of this Agreement.
(k) Neither Meridian nor the Partnership shall declare or pay any
dividend or other distribution to the Company or any other person.
(1) During the continued construction of the Facility, the Company
shall maintain or cause to be maintained the following insurance coverages:
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(1) builder's risk (or equivalent coverage) insurance upon any
work done or materials furnished under the Contractors Contracts and Other
Contractors Contracts, except excavations, foundations and any other structures
not customarily covered by such insurance, such policies to be written in
completed value form for 100% of the insurable value of the improvements
therefor;
(2) workers' compensation and employer's liability insurance
covering all Personnel and employees of contractors and subcontractors in
amounts required by law;
(3) automobile liability insurance covering owned, non-owned
and hired automobiles of contractors and subcontractors in an amount not less
than $1,000,000 combined single limit; and
(4) commercial general liability insurance, including umbrella
coverage, with combined coverage in amounts not less than $1,000,000 liability
for personal injury for each occurrence and $2,000,000 in the aggregate and
$1,000,000 for property damages for each occurrence and $2,000,000 in the
aggregate.
(m) The Company shall provide and continuously maintain or cause to be
provided and maintained by the partnership or Meridian insurance coverages for
the Business in such amounts and types as are currently maintained by it or
them.
(n) The Company shall promptly pay or cause the Partnership to pay all
costs, expenses and obligations as and when due in respect of the continued
development of the Project. Further, the Company shall not amend or modify or
permit the Partnership or Meridian to amend or modify the Budgets without the
prior approval of Purchaser.
(o) No construction of the Project shall be undertaken except as shown
in and in accordance with the construction Plans and Specifications, as amended
by change orders approved by purchaser and by BNP in accordance with the terms
of the BNP Loan Documents.
(p) The Company, Meridian and the Partnership shall diligently pursue
completion of the Project and shall use their commercially reasonable efforts to
construct and market the Facility on the schedule set forth in the Development
Budget and in accordance with the Plans and Specifications as amended by change
orders approved by Purchaser and by BNP in accordance with the terms of the BNP
Loan Documents. No marketing of the Facility shall be undertaken except in
accordance with the terms, concessions and methods described in Schedules 4.24
and 6.01(p) attached hereto. The Partnership shall not enter into any Housing
Occupancy Documents except those that are executed on the terms described in
Schedules 4.24 and 6.01(p) and the forms of Housing Occupancy Documents provided
to the Purchaser.
(q) The Company shall deliver to Purchaser promptly upon request the
names of all persons with whom the Company has contracted or intends to contract
for any material work on the
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Project. No change orders for the Project from and after the date hereof shall
be effective without the prior written approval of Purchaser, except any change
order that (i) does not extend the completion date, (ii) does not involve an
increase in the approved construction cost of more than $5,000 for any one item
or $10,000 in the aggregate,(iii) does not violate the terms of the Loan
Documents and (iv) does not adversely affect the exterior of the Project or
otherwise adversely affect any aspect of the aesthetics of the improvements. The
Company shall not suffer or permit any breach or default to occur in any of the
obligations of the Company, Meridian or the Partnership under any of the
Architects Agreements, the Contractors Agreements, or the Other Construction
Contracts necessary for the continued full ownership, construction, operation,
maintenance and enjoyment of the Facility, nor shall the Company suffer or
permit the same to terminate by reason of any failure of the Company, Meridian
or the Partnership to meet any requirements thereof whatsoever.
(r) The Company shall promptly notify Purchaser of the occurrence or
existence of any event or circumstance which is or could reasonably be expected
to be a breach of the representations, warranties and covenants of the Company
relating to the construction of the Project.
(s) The Company, Meridian and the Partnership shall perform their
obligations under and comply with the applicable terms of the Loan Documents,
the Housing Occupancy Documents, the Occupancy Agreements, the Contractors
Agreement, the Other Contractors Agreements and the Architects Agreements.
(t) The Company shall prepare and file all returns for Taxes of the
Company and its Subsidiaries for all taxable years and other periods ending on
or prior to or including the Closing Date.
6.02. Purchaser. Purchaser covenants that without the prior written
consent of the Company, between the date hereof and the Closing, it shall not
commit or omit to do any act that would cause a breach of any agreement,
commitment or covenant contained in this Agreement or cause the Purchaser's
representations and warranties as set forth in this Agreement to become untrue
in any material respect as of the Closing Date.
6.03. Mutual Covenants. Following the execution of this Agreement and
until the Closing Date:
(a) The Company and Purchaser shall cooperate with each other and use
their commercially reasonable efforts to procure all necessary and appropriate
consents and approvals, complete and file all necessary and appropriate
applications, notifications, filings and certifications, satisfy all
requirements prescribed by law for, and all conditions set forth in this
Agreement to, the consummation of the transactions contemplated hereby (without
conditions adverse to any of the Purchaser, the Company, Meridian or the
Partnership).
(b) The Company and Purchaser shall deliver such other instruments of
title, certificates, consents, endorsements, assignments, assumptions and other
documents or instruments, in form
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\
reasonably acceptable to the party requesting the same and its counsel, as may
be reasonably necessary to carry out and/or to comply with the terms of this
Agreement and the transactions contemplated herein.
(c) The Company and purchaser shall confer with each other on a regular
basis, report on material operational matters and promptly advise the other
orally and in writing of any change or event having, or which, insofar as can
reasonably be foreseen would have, a material adverse effect on the Company
(with respect to the Project). Purchaser, Meridian, the Project or the
Partnership, or which would cause or constitute a material breach of any of the
representations, warranties or covenants of such party contained herein.
(d) The Company and purchaser shall promptly provide each other (or its
counsel) with copies of all filings made by such party with any state or federal
governmental entity in connection with this Agreement or the transactions
contemplated hereby.
(e) Each of the Company and Purchaser will use its reasonable efforts
to obtain prior to the Closing Date the consents, approvals, authorizations,
licenses and other orders (and make such filings with any third party or
Governmental Authority that each such party is required to obtain in order to
permit (without conditions adverse to either of them or to Meridian or the
Partnership) the consummation of the transactions contemplated by this
Agreement. As used herein, "Third Party Consents" means the consents required of
(a) BNP under the BNP Loan Documents, to be obtained in connection with the BNP
Loan Amendment Documents, (b) CCI under the CCI Loan Documents, to be obtained
in connection with the CCI Loan Amendment Documents and (c) the Department of
Insurance of the State of Florida under the Florida CCRC Law. Each of the
Company and Purchaser shall reasonably cooperate with the other party (which
shall not include incurring any substantial additional liabilities or
obligations other than costs and expenses which another party has agreed to
reimburse) in connection with a party's efforts to obtain Third Party Consents
which it is required to obtain; provided, however, nothing herein shall be
construed as requiring Purchaser or any shareholder thereof to provide a
guaranty or other security in order to obtain said Third Party Consents.
(f) The parties shall consult with each other prior to the issuance by
either party of any press release or any written statement with respect to this
Agreement or the transaction contemplated hereby.
ARTICLE VII
PURCHASER CONDITIONS
7.01. Conditions Precedent to Purchaser's Obligations. The obligation
of Purchaser to consummate the transactions provided for herein is subject to
the fulfillment, or to the Purchaser's written waiver thereof, prior to or at
the Closing Date, of each of the following conditions:
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<PAGE> 41
(a) The representations and warranties of the Company contained in this
Agreement or in any certificate or document delivered in connection with this
Agreement or the transactions contemplated herein shall be true and correct at
and as of the Closing Date as though such representations and warranties were
then again made, except for any breaches thereof or inaccuracies therein as
would not, individually or in the aggregate, have a Material Adverse Effect.
(b) The Company shall have performed and complied in all material
respects with all covenants, conditions and agreements contained herein required
to be performed or complied with by the Company prior to or at the Closing.
(c) Except for such licenses to be issued or transferred by
Governmental Authorities as may be required in connection with the operation of
the Facility, but which cannot be obtained until completion of the Project
occurs as a result of the applicable rules, procedures and practices governing
the operation of facilities such as the Facility, either (i) no permits,
consents, approvals, authorizations, waivers or other orders or filings with any
third party or any Governmental Authority shall be necessary in connection with
the authorization, execution, delivery and performance by the Company of all
documents in connection with the transaction contemplated herein or (ii) the
Company, Meridian, the Purchaser and the Partnership, as applicable, shall have
obtained all such permits, consents, approvals, authorizations, waivers or other
orders (without conditions which would materially adversely affect the Company,
Meridian, the Partnership or Purchaser), including, but not limited to, all
requisite approvals and consents from the Department of Insurance of the State
of Florida under the Florida CCRC Law to the transaction contemplated herein.
(d) The Company shall have delivered (i) a certificate of legal
existence, as of a date within ten (10) days of the Closing Date, of each of
Meridian and the Company by the Secretary of State of Oregon and (ii) a
certificate of legal existence or good standing and authorization to transact
business issued by the Secretary of State of the State of Florida for each of
the Partnership and Meridian.
(e) (i) The Company shall have delivered to Purchaser evidence of the
consent of BNP and CCI to the transactions provided for herein and (ii) the
Company shall have delivered to the purchaser a copy of the Partnership's
November 1996 application for Advance under the BNP Loan Documents.
(f) The Company shall have delivered to Purchaser a certificate
updating to within no more than twenty (20) days prior to the Closing Date, the
Reservation List and Schedules 4.24 and 4.25 attached hereto.
(g) The Company shall have delivered to Purchaser an opinion of
counsel to the Company, dated as of the Closing Date, in form and substance
satisfactory to the Purchaser, as to customary matters. In rendering such
opinion, counsel may rely as they deem advisable as to factual matters, upon
certificates and assurances of public officials and officers of the Company,
Meridian and the Partnership.
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(h) The Company shall furnish the Purchaser with certificates
evidencing compliance with the conditions set forth in this Article 7 as may be
reasonably requested by Purchaser.
(i) Each of the Company and Meridian, on its own behalf and in its
capacity as the general partner of the Partnership, shall have delivered to the
Purchaser a secretary's certificate certifying the truth and completeness of (i)
director and stockholder corporate resolutions, fully and properly executed,
evidencing authorization of the Company, Meridian and the Partnership, as the
case may be, to execute, deliver and perform under the terms of this Agreement,
including the Other Required Documents and including the exhibits hereto, which
resolutions shall be attached to said certificate, and (ii) Meridian's articles
of incorporation and bylaws, copies of which shall also be attached to said
certificate and (iii) the Partnership's Partnership Agreement, a copy of which
shall also be attached to said certificate.
(j) No order shall be in effect restraining, enjoining or otherwise
preventing the Closing.
(k) The following documents and agreements shall be entered into prior
to or at the Closing (the "Other Required Agreements"):
(i) The Escrow Agreement.
(ii) An Amendment, in form and substance reasonably acceptable to
Purchaser, with respect to the Health Center Management Agreement which shall
grant the Partnership the right to terminate the Health Center Management
Agreement on thirty (30) days notice with or without cause (the "Health Center
Amendment").
(iii) An Amendment to the Housing Management Agreement, in form and
substance reasonably acceptable to Purchaser, the effect of which will be to
permit the Partnership to terminate the same with or without cause at any time
on no less than thirty (30) days notice to the manager (the "Housing
Amendment").
(iv) An amendment to the Development Agreement, in form and substance
reasonably acceptable to Purchaser, pursuant to which the fee due thereunder
shall be reduced to $275,000 and shall be payable in full on the date on which a
Certificate of Occupancy for the complete Facility is issued to the Partnership
(the "Development Agreement Amendment").
(l) Any and all documents necessary to amend or modify the BNP Loan
Documents shall have been executed and delivered by the parties thereto or the
only condition to their delivery shall be the confirmation that the transaction
which is the subject of this Agreement has been consummated or the parties
hereto are prepared to consummate the same, there being no other terms or
conditions to which consummation of the same are subject by all of the parties
thereto and shall be in full force and effect and all such amendments or
modifications shall be in form and substance acceptable to Purchaser (the "BNP
Loan Amendment Documents").
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(m) Documents substantially in the form attached hereto as Exhibit D
and any other documents deemed by Purchaser to be necessary thereto (the "CCI
Loan Amendment Documents") shall have been executed and delivered by the parties
thereto or the only condition to their delivery shall be the confirmation that
the transaction which is the subject of this Agreement has been consummated or
the parties hereto are prepared to consummate the same, there being no other
terms or conditions to which consummation of the same are subject by all of the
parties thereto and shall be in full force and effect.
(n) There shall not have occurred any event or events constituting or
having after June 30, 1996, either individually or in the aggregate, a Material
Adverse Effect.
(o) The Title Insurer shall have issued to the Partnership, or shall be
irrevocably committed to issue to the Partnership, as of the date of Closing,
endorsements (i) making the title insurance coverage effective as of the date of
the Closing, and (ii) acknowledging the change in partners of the Partnership,
which endorsements (the "Title Policy Endorsements") shall be in form and
substance reasonably acceptable to Purchaser.
(p) Purchaser shall be satisfied with the results of an update to the
UCC Search, which update shall be dated no earlier than five (5) business days
prior to the Closing Date.
(q) The BSL Transaction shall be consummated or all of the documents
and consideration necessary for the consummation thereof shall have been
executed by the Company and delivered into escrow by the Company and the only
condition for the release of said documents and consideration from escrow shall
be the confirmation that the transaction which is the subject of this Agreement
has been consummated or the parties hereto are prepared to consummate the same,
there being no other terms or conditions to which consummation of the same are
subject.
(r) The Limited Partnership Interest Transaction shall be consummated
or all of the documents and consideration necessary for the consummation thereof
shall have been executed by the Company and delivered into escrow by the
Company, the New Partnership Agreement shall have been signed by the limited
partners thereunder and delivered into escrow and the only condition for the
release of said documents and consideration from escrow shall be the
confirmation that the transaction which is the subject of this Agreement has
been consummated or the parties hereto are prepared to consummate the same,
there being no other terms or conditions to which consummation of the same are
subject.
(s) The Company shall have delivered an estoppel certificates in
substantially the forms attached hereto as Exhibit C from each of the Architects
and the Contractor, as applicable.
(t) The Company shall have delivered from First Union National Bank
of Florida, as Master Trustee, estoppel certificate in form and substance
satisfactory to Purchaser, confirming certain matters with respect to the Master
Trust Documents.
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ARTICLE VIII
COMPANY CONDITIONS
8.01. Conditions Precedent to Company's Obligations. The obligation of
the Company to consummate the transactions provided for herein is subject to the
fulfillment, or to the Company's written waiver thereof, prior to or at the
Closing, of each of the following conditions:
(a) The representations and warranties of the purchaser contained in
this Agreement or in any certificate or document delivered in connection with
this Agreement or the transactions contemplated herein shall be true in all
material respects at and as of the Closing Date as though such representations
and warranties were then again made.
(b) The Purchaser shall have performed and complied in all material
respects with all covenants, conditions and agreements contained herein required
to be performed or complied with by the Purchaser prior to or at the Closing.
(c) Except for such licenses to be issued or transferred by
Governmental Authorities as may be required in connection with the operation of
the Facility but which cannot be obtained until after Closing occurs as a result
of the applicable rules, procedures and practices governing the transfer of
facilities such as the Facility and the re-licensure thereof in the name of the
new owner or operator thereof, either no permits, consents, approvals,
authorizations, or other orders or filings with any third party or any
Governmental Authority shall be necessary in connection with the authorization,
execution, delivery and performance by the Company, Meridian or the Partnership
of all documents in connection with the transactions contemplated herein, or,
except to the extent failure to do so would not have a Material Adverse Effect,
the Company, Meridian or the Partnership, as applicable, shall have obtained all
such permits, consents, approvals, authorizations, licenses and other orders
(without conditions which would be materially adverse to the Partnership or
Meridian) or made such filings with such third parties or Governmental
Authorities as are necessary to obtain all such permits, consents, approvals,
authorizations or other orders (without conditions which would be materially
adverse to the partnership or Meridian) provided, however, that the ongoing
shall not be a condition to the Company's obligation to close in the event the
Purchaser waives the Company's inability to secure the same and from and after
the Closing indemnifies, defends and holds harmless the Company from and against
any Losses which it may incur as a result thereof.
(e) Purchaser shall have delivered a certificate of legal existence
and/or of good standing as of a date within ten (1O) days of the Closing Date
issued by the Secretary of State of Delaware and of Florida if and to the extent
Purchaser is required to be qualified to do business in Florida in order to
purchase the Common Stock and to own the Partnership Interest.
(f) Purchaser shall have delivered to the Company an opinion of counsel
to Purchaser, dated as of the Closing Date, in form and substance satisfactory
to the Company, as to customary
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matters. In rendering such opinion, counsel may rely as they deem advisable as
to factual matters, upon certificates and assurances of the Purchaser and public
officials.
(h) The Purchaser shall furnish the Company with certificates
evidencing compliance with the conditions set forth in this Article VIII as may
be reasonably requested by the Company.
(i) The Purchaser shall have delivered to the Company an officer's
certificate certifying the truth and completeness of (i) resolutions, fully and
properly executed evidencing authorization of the Purchaser to execute, deliver
and perform under the terms of this Agreement, including the Other Required
Agreements, including the exhibits hereto, which Resolutions shall be attached
to said certificate, and (ii) Purchaser's Articles of Incorporation and Bylaws,
copies of which shall also be attached to said certificate.
(j) No order shall be in effect restraining, enjoining or otherwise
preventing the Closing.
(k) The Purchaser shall have executed and delivered to the Company the
Other Required Agreements.
(l) The BSL Transaction shall be consummated or all of the documents
and consideration necessary for the consummation thereof shall have been
executed and delivered into escrow and the only condition for the release of
said documents and consideration from escrow shall be the confirmation that the
transaction which is the subject of this Agreement has been consummated or the
parties hereto are prepared to consummate the same, there being no other terms
or conditions to which consummation of the same are subject (provided that the
Company's failure to execute and deliver any documents that it is required to
execute and deliver pursuant to the agreements relating to the BSL Transaction
shall not excuse the Company's performance hereunder).
(m) The Healthcare Transaction shall be consummated or all of the
documents and consideration necessary for the consummation thereof shall have
been executed and delivered into escrow and the only condition for the release
of said documents and consideration from escrow shall be the confirmation that
the transaction which is the subject of this Agreement has been consummated or
the parties hereto are prepared to consummate the same, there being no other
terms or conditions to which consummation of the same are subject (provided that
the Company's failure to execute and deliver any documents that it is required
to execute and deliver pursuant to the agreements relating to the Healthcare
Transaction shall not excuse the Company's performance hereunder).
(n) The New Partnership Agreement shall have been signed by the
Purchaser and delivered into escrow and the only condition for the release of
said document from escrow shall be the confirmation that the transaction which
is the subject of this Agreement has been consummated or the parties hereto are
prepared to consummate the same, there being no other terms or conditions to
which consummation of the same are subject.
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<PAGE> 46
(o) The BNP Loan Amendment documents shall have been executed and
delivered or the only condition to their delivery shall be the confirmation that
the transaction which is the subject of this Agreement has been consummated or
the parties hereto are prepared to consummate the same, there being no other
terms or conditions to which consummation of the same are subject.
ARTICLE X
TERMINATION
10.01. Termination. This Agreement may be terminated by the parties
hereto upon the following conditions:
(a) By mutual written consent of the parties;
(b) By Purchaser, if the conditions to Closing set forth in Paragraph
7.01 have not been satisfied or waived by the Outside Closing Date.
(c) By the Company, if the conditions to Closing set forth in Paragraph
8.01 have not been satisfied or waived by the Outside Closing Date.
10.02. Rights on Termination. Each party's right of termination under
Paragraph 10.01 of this Agreement is in addition to any other rights it may have
under this Agreement or otherwise and the exercise of a right of termination
will not be an election of remedies. If this Agreement is terminated pursuant to
Paragraph 10.01, all further obligations of the parties under this Agreement
will terminate, except that the obligations under the Confidentiality Agreement
dated May 8, 1996 (the "Confidentiality Agreement") will survive; provided,
however, that if this Agreement is terminated by a party because of a breach of
this Agreement by the other party then except as provided in Paragraph 10.03
hereof the terminating party's right to pursue all legal remedies will survive
such termination unimpaired.
10.03. Default Fee. As security for the obligations of Purchaser
hereunder and under the BSL Merger Agreement, Rockwood Living, Inc. has
deposited with Key Bank of Oregon concurrently with the execution of this
Agreement and the BSL Merger Agreement, cash or a single irrevocable letter of
credit in the face amount of $250,000 issued by Bank of America (Illinois),
N.A.. In the event this Agreement is terminated by the Company as a result of a
breach by Purchaser of its obligations under this Agreement, the Company's sale
remedy in the event of such breach shall be to draw against the Letter of Credit
and the amount drawn shall constitute liquidated damages. Purchaser and the
Company acknowledge and agree that this Paragraph 10.03 shall be the Company's
exclusive remedy with respect to the Merger, the Related Assets and Liability
Transaction described in the BSL Merger Agreement and all other transactions
contemplated by this Agreement, including, but not limited to, the sale of the
Common Stock.
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ARTICLE XI
INDEMNIFICATION
11.01. By Purchaser. In the event the Closing occurs, then from and
after the Closing Purchaser shall defend, indemnify and hold harmless the
Company from any Losses arising from or attributable to (i) claims made by third
parties against the Company for payment or satisfaction of liabilities or
obligations related to the assets, liabilities, operations and business of
Meridian, the Partnership or the Project, including claims related to the
completion of the construction of the Project and the working capital needs of
the Project (except to the extent such liabilities or obligations are by the
express provisions of Paragraphs 11.02(a)(i), (b) or (c) of this Agreement the
liability or responsibility of Company), and (ii) the ownership and operation of
Meridian, the Partnership and the Facility from and after the Closing Date.
11.02. By Company. In the event the Closing occurs, then from and
after the Closing.
(a) The Company shall indemnify and hold harmless the Purchaser and
Meridian against all Losses incurred by either or both of them arising from:
(i) liabilities and obligations of the Company and its Subsidiaries,
including liabilities and obligations related to the assets, operations,
liabilities and business that are retained by, or the liability or
responsibility of the Company pursuant to the Healthcare Transaction but
specifically excluding liabilities, obligations and Losses (x) which are the
responsibility of Purchaser under Paragraph 11.01 hereof; or (y) which relate to
the assets or liabilities which are the subject of the Excluded Assets
Transaction (except to the extent such liabilities and obligations are by the
express terms of the agreement relating to the Excluded Asset Transaction the
liability or responsibility of the Company), and
(ii) subject to the limitations set forth in Paragraph 11.05, a breach
by the Company of its representations and warranties or a breach by the Company
of its covenants set forth in this Agreement.
(b) Without limiting in any way the obligations of the Company under
Paragraph 11.O2(a) hereof, and notwithstanding any limitation contained in any
provision of this Agreement (including, without limitation Paragraph 11.05
hereof), the Company shall indemnify and hold harmless the Purchaser and
Meridian against:
(i) all Income Taxes of the Company and its Subsidiaries, including
Meridian and the Partnership, for each taxable year or other period ending on or
before or including (for the portion of the taxable year through the close of
business on) the Closing Date; and
(ii) all Taxes of the Company and its Subsidiaries, including Meridian
and the Partnership, attributable to the transactions contemplated by this
Agreement, including the Merger, the Related Assets and Liabilities Transaction,
the Limited Partnership Transaction, the Healthcare Transaction and the Excluded
Assets Transaction, and also including the federal Income Taxes the Company has
agreed to pay under Paragraph 9.01 of the BSL Merger Agreement;
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(iii) any breach by the Company of its obligations under Paragraph
6.01(k) or Paragraph 12.07 hereof; and
(iv) any dissenters' rights or other claims by former shareholders of
the Company exercising dissenters' rights in connection with the fairness of the
consideration paid in the transactions contemplated by this Agreement.
(c) Without limiting in any way the obligations of the Company under
Paragraph 11.02(a) hereof, and notwithstanding any limitation contained in any
provision of this Agreement including, without limitation, Paragraph 11.05
hereof, the Company shall pay to the purchaser any amount previously paid by the
Purchaser to the Company as a Reimbursable Marketing Expense or Reimbursable
Pre-Opening Expense that did not qualify or should not have been treated as a
Reimbursable Marketing Expense or Reimbursable Pre-Opening Expense and which
Purchaser sets forth in a notice of claim relating thereto delivered to the
Company within 120 days after the Closing Date.
11.03. Procedures.
(a) Third Party Claims-In General.
(i) A person seeking indemnification under this Article XI (the
"Indemnified Party") shall give prompt notice to the party against whom
indemnity is sought (the "Indemnifying Party") of the assertion of any third
party claim or the commencement of any third party suit, action or proceeding in
respect of which indemnity may be sought under this Article XI (collectively, a
"Third Party Claim") provided, however that delay in giving any such notice
shall relieve the Indemnifying Party of its obligations in respect of the Third
Party Claim only to the extent the delay results in actual prejudice to the
Indemnifying Party.
(ii) If a Third Party Claim is covered by the indemnity under Paragraph
11.02 above, other than items referred to in Paragraphs 11.02(a)(i), (b) or (c)
hereof, references herein to the Indemnifying Party shall be deemed to refer to
the Agent, and purchaser will give a Loss Notice (as defined below) to the
Escrow Agent and to the Agent in respect of such claim. If a Third Party Claim
is covered by the indemnity in paragraph 11.02(a)(i), (b) or (c) hereof
references to the Indemnifying Party shall be deemed to refer to the Company and
Purchase will give a Loss Notice to the Company in respect of such claim. The
Indemnifying Party shall have the right to participate in and control the
defense of any such Third Party Claim, including any suit, action or proceeding
relating thereto, at its own expense. If requested by the Indemnifying Party,
the Indemnified Party shall reasonably and in good faith cooperate with the
Indemnifying Party and its counsel in contesting any claim which the
Indemnifying Party elects to contest, including, without limitation, the making
of any related counterclaim against the person asserting the Third Party Claim
or any cross complaint against any person or providing related statements or
testimony.
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(iii) If the Indemnifying Party does not notify the Indemnified Party
in writing within twenty (20) business days of the Indemnifying Party's receipt
of such Loss Notice of its intent to assume the defense of the Third Party
Claim, the Indemnified Parry shall be entitled to take control of such Third
Party Claim and the defense thereof at the Indemnifying Party's cost and expense
(provided that the Indemnifying Party was obligated to indemnify the Indemnified
Party hereunder and further provided that if such Third Party Claim is subject
to the limitations described in Paragraph 11.05 hereof, then only to the extent
of any funds on deposit in the Escrow Account as provided in Paragraph 11.05),
which Third Party Claim shall be diligently prosecuted to a final conclusion or
settlement; provided, however, that the Indemnified Party may settle such Third
Party Claim as it may deem appropriate, in its discretion.
(iv) The Indemnifying Party shall not be liable under this Article XI
for any settlement effected without its consent of any Third Party Claim or any
litigation or proceeding in respect thereof for which indemnity may be sought
hereunder, except for any settlement as to which the Indemnifying Party did not
assume the defense and for which the Indemnifying Party was obligated to
indemnify hereunder.
(b) Additional Provisions Applicable to Third Party Claims and Breaches
of Representations, Warranties or Covenants to Paragraph 11.02(a)(ii). In the
event that any circumstances exist or any claim is made or threatened against
Purchaser after the Closing Date which the Purchaser believes has resulted or
will result in the Purchaser incurring a Loss that is subject to the Company's
indemnification obligation in Paragraph ll.O2(a)(ii) hereof:
(i) Purchaser will promptly deliver to the Escrow Agent and to the
Agent written notice (the "Loss Notice") setting forth a reasonable summary of
the nature of the Loss and the facts giving rise thereto and specifying the
Section of this Agreement to which such Loss relates and the amount thereof and,
if the Loss Notice involves a Third Party Claim, a copy of such claim and the
Purchaser's reasonable estimate of the amount sought by the third party.
(ii) The Agent shall have the right to dispute the Company's
responsibility for the Loss on behalf of the Former Holders by the delivery of
written notice (the "Dispute Notice") to the Escrow Agent within twenty (20)
business days after Purchaser's delivery of the Loss Notice to the Escrow Agent
and the Agent. If the Agent fails to deliver a Dispute Notice within such twenty
(20) business day period, or if the Agent timely delivers a Dispute Notice but
does not contest therein all the items included in the Loss Notice, the Escrow
Agent shall be authorized without further action by or approval of any party
hereto to disburse from the Escrow Account the amount which is the subject of
the Loss Notice (or the portion thereof that is not disputed in the Loss Notice)
to, or as directed by, the Purchaser, except that, in the case of a Loss Notice
which relates to a Third Party Claim, sufficient funds to cover the Losses which
are the subject thereof shall be retained by the Escrow Agent in the Escrow
Account until the final resolution thereof however effected, including by the
decision of a court of competent jurisdiction or by decision made upon
arbitration or other non-judicial or quasi-judicial dispute resolution or by a
duly executed settlement agreement, at which
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time the funds which the subject to any Loss Notice(s) shall be disbursed in
accordance with the terms of any such order, decision or settlement, as
applicable.
(iii) In the event the Agent submits a Dispute Notice within
the twenty (20) business day period provided for herein and the Agent and
Purchaser are unable to resolve their differences within twenty (20) business
days after the submission of a Dispute Notice, either the Agent or the Purchaser
may submit the matters which are the subject of the Loss Notice to arbitration
in accordance with the provisions of Paragraph 11.04 hereof and the Escrow
Agent, the Agent and the Purchaser shall be bound by and shall act in accordance
with the determination of the arbitrator.
(iv) In the event of a Loss Notice which relates to a Third
Party Claim, the matter submitted to arbitration shall be limited to whether the
Third Party Claim involves the breach of a representation, warranty or covenant
by the Company hereunder and the Dispute Notice shall state whether the Agent
intends to assume the defense of such Third Party Claim and/or whether the Agent
will permit the Purchaser and the Indemnified Parties to retain primary
responsibility for the settlement or the defense thereof, subject to the Agent's
right, at its expense, to retain counsel to monitor, but not to approve, any
such defense or settlement negotiations.
(v) The submission of a Dispute Notice to arbitration shall
not relieve the Agent of its obligation, at its expense, to defend any Third
Party Claim in the event it gives notice of its election to do so, unless and
until it is determined in such arbitration that the Third Party Claim does not
represent a breach of representation, warranty or covenant by the Company
hereunder.
(vi) In the event the arbitrator determines that a Loss Notice
which relates to a Third Party Claim is not the subject of an indemnifiable loss
under the terms of this Article 11, the Purchaser shall be required to reimburse
the Agent for any and all costs and expenses incurred in defending such Third
Party Claim until the Purchaser assumes the defense thereof, which shall in no
event occur later than 10 days after such determination is made. In the event
the arbitrator determines that a Loss Notice which relates to a Third Party
Claim is the subject of an indemnifiable loss under the terms of this Article
11, the Arbitrator shall retain jurisdiction until a final determination of said
Third Party Claim by order of a court of competent jurisdiction, by arbitration
or other non-judicial or quasi-judicial proceeding or by a duly executed
settlement agreement, at which time the arbitrator shall order disbursement of
the funds from the Escrow Account in accordance with such order or settlement.
(c) Other Claims. Promptly upon learning of the grounds of a claim for
indemnification that is subject to Paragraph 11.O2(a)(i), (b) or (c) hereof, the
Purchaser shall deliver to the Company a Loss notice specifying in reasonable
detail the grounds and amount of such claim. If such claim is not resolved in
sixty (60) days after such delivery, the Purchaser may exercise any rights and
pursue any remedies it may have hereunder, at law or otherwise in respect of
such claim directly against the Company.
11.04. Arbitration.
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(a) Any matters which are the subject of the indemnity provisions of
this Article XI shall be submitted for resolution to arbitration in Portland,
Oregon, or such other location as the Purchaser and the Agent may agree to,
under the Commercial Arbitration Rules of the American Arbitration Association
to which shall be added the provisions of the Federal Rules of Civil Procedure
relating to the Production of Evidence. Such arbitration shall be presided over
by a single arbitrator. If the Purchaser and the Agent do not agree on the
arbitrator within twenty (20) business days after the delivery by Agent of a
Dispute Notice, the arbitrator shall be selected by them from a list of five
potential arbitrators provided by the American Arbitration Association. Such
list shall be provided within 10 days of the expiration of said twenty (20)
business day period (or as soon thereafter as the American Arbitration
Association is able to do so); provided that if the American Arbitration
Association shall not have provided such a list within 20 days after the
expiration of said twenty business day period, then the arbitrator shall be
designated by the presiding judge of the county in which such arbitration is
held. The Agent shall delete one name from the list. The Purchaser shall delete
one name from the list. This process shall then be repeated in the same order
and the last remaining person on the list shall be the arbitrator. This
selection process shall take place within the two business days following both
parties' receipt of the list of five potential arbitrators. Hearings in such
arbitration proceeding shall commence within 20 days of the selection of the
arbitrator or as soon thereafter as the arbitrator is available. The arbitrator
shall deliver his or her opinion within 20 days after the completion of the
arbitration hearings. The arbitrator's decision shall be final and binding upon
the parties, and may be entered and enforced in any court of competent
jurisdiction by either of the parties.
(b) Unless otherwise ordered by the arbitrator, the arbitrator's
expenses shall he borne by the non-prevailing party.
11.05 Limitation on Claims.
(a) Purchaser shall have no right to recover with respect to any Losses
until the amount of all such Losses is equal to or greater than $150,000
individually or in the aggregate (the "Loss Threshold").
(b) Except with respect to the items referred to in Sections
11.02(a)(i), (b) or (c), as to which the Loss Threshold shall not apply,
Purchaser shall only be entitled to recover Losses suffered or incurred by it in
excess of the Loss Threshold.
(c) Any and all claims for the recovery of losses (other than claims
against the Company under Paragraphs 11.02(a)(i),(b)(except as relates to
Paragraph 6.01(k) hereof) or (c) hereof) must be brought by purchaser within one
year after the Closing Date and any claim for recovery of any Loss under Section
11.O2(b)(iii) as relates to Section 6.01(k) must be brought by Purchaser within
eighteen months after the Closing Date (in each case, the "Limitation Period");
provided, however, that Purchaser acknowledges and agrees that it shall not be
entitled to draw on the FV Escrow Account (or otherwise be indemnified from a
source other than the Escrow Account) as compensation for any Losses suffered by
it and with respect to which it is entitled to be indemnified
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hereunder until the same or so much thereof as may then be remaining has been
delivered to the Escrow Agent by BNP upon the release of BNP's interest in such
account pursuant to the BNP Loan Amendment Documents. Any claim against the
Company under Paragraph 11.02(a)(i),(b) or (c) hereof shall not be limited to or
satisfied by the amount in the Escrow Account and may be brought (except as
provided in Paragraph 11.O2(c) hereof and except with respect to Paragraph
11.02(b) as relates to Section 6.01(k) hereof) at any time prior to the
expiration of the statute of limitations applicable with respect to such claim.
(d) Except for items referred to in Paragraphs 11.02 (a)(i), (b) or (c)
hereof, the Purchaser's recourse for any and all such Losses pursuant to
Paragraph 11.02 shall be limited to the funds on deposit in the Escrow Account,
as the Escrow Account may be reduced by payments therefrom pursuant to the
provisions of this Agreement (or the agreement relating to the BSL Transaction).
(e) Any and all funds remaining in the Escrow Account at the end of the
Limitation Period (the "Remaining Escrowed Funds"), including any remaining
interest income, shall be released in accordance with the Escrow Agreement;
provided, however, that as to any Loss Notices submitted prior to the expiration
of the Limitation Period, including Loss Notices submitted to the Company under
Paragraph 11.03(e) hereof in excess of the Loss Threshold or the Financial
Statement Loss Threshold, as applicable, which remain unresolved at the end of
the Limitation Period, sufficient funds to cover the Losses which are the
subject thereof shall be retained by Escrow Agent in the Escrow Account until
the final solution thereof however effected, including in accordance with the
arbitration procedures set forth in Paragraph 11.04, or, in the case of a Third
Party Claim by the decision of a court of competent jurisdiction or upon
arbitration or other non-judicial or quasi-judicial decision made or by a duly
executed settlement agreement, at which time the funds which are the subject of
any such Loss Notice(s) shall be disbursed in accordance with the terms of any
such order, decision or settlement, as applicable.
11.06. Further Assurances. The parties agree to execute and to deliver
any and all documents as may be reasonably requested by the Escrow Agent to
evidence its assumption of the duties and obligations provided for herein.
11.07. Mitigation. Each Indemnified Party will use reasonable efforts
to mitigate any Losses for which it may claim indemnification under this Article
XI. Further, the indemnities provided by this Article XI shall apply only to
Losses for which the Indemnified Party is not, or is not entitled to be
reimbursed through third party insurance.
11.08. Adjustment to Purchase Price. Amounts paid for indemnification
under this Article XI shall be deemed to be an adjustment to the Purchase Price.
11.09. Income Taxes. The Company acknowledges and agrees that the funds
in the Escrow Account shall be deemed for purposes of the tax laws to be the
property of the Purchaser and accordingly that Purchaser shall be required to
pay Income Taxes on any interest earned thereon.
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The Company further acknowledges and agrees that the Purchaser shall have the
right to withdraw from interest earned on the Escrow Account sufficient funds to
pay said income taxes and that any interest on the Escrow Account available for
disbursement pursuant to the terms hereof shall be reduced by such amount.
11.10. Access to Books and Records. From the Closing Date until the
final determination of any matters which are the subject of a Loss Notice and a
Dispute Notice, the Agent and his representatives will have such access to the
books, records and accounts of the Purchaser and its employees as is relevant to
the resolution of such matters.
ARTICLE XII
MISCELLANEOUS
12.01. Notices. Any notice, request or other communication to be given
by any party hereunder shall be in writing and shall he sent by registered or
certified mail, postage prepaid, by overnight delivery, hand delivery or
facsimile transmission to the following address:
To the Company: Brim, Inc.
305 NE 102nd Avenue
Portland, Oregon 97220
Attn: A.E. Brim
Phone: 503-256-2070
Fax: 503-254-7619
With copy to: The Nathanson Group
1411 Fourth Avenue, Suite 905
Seattle, WA 98101
Attn: Randi S. Nathanson
Phone: 206-623-6239
Fax: 206-623-1738
To Purchaser: CC-Lantana, Inc.
200 West Madison, Suite 3800
Chicago, Illinois 60606
Attn: John Kevin Poorman
Phone: 312-750-8415
Fax: 312-750-8597
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With further Latham & Watkins
copy to: 5800 Sears Tower
Chicago, Illinois 60606
Attn: Stephen S. Bowen
Phone: 312-876-7652
Fax: 312-993-9767
To Agent: Lee Zinsli
482 SW Riverbend Drive
West Linn, OR 97068
Phone: 503-656-2718
Fax: 503-653-8136
Notices shall be effective upon actual receipt or refusal of receipt whether
sent by mail, overnight delivery, facsimile transmission or hand delivery,
12.02. Assignment. No party may assign, directly or indirectly, its
rights or obligations hereunder without the prior written consent of the other
parties. This Agreement shall be binding, upon and shall inure to the benefit of
the parties hereto and their respective successors and permitted assigns,
including successors by operation of law pursuant to any merger, consolidation
or sale of assets involving either party.
12.03. Sole Agreement. This Agreement may not be amended or modified in
any respect whatsoever except by an instrument in writing signed by the parties
hereto. This Agreement, the Other Required Documents, the Schedules and Exhibits
hereto and the Confidentiality Agreements, constitute the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersede all prior negotiations, discussions, writings and agreements between
them.
12.O4. Captions. The captions of this Agreement are for convenience of
reference only and shall not define or limit any of the terms or provisions
hereof.
12.05. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Oregon.
12.06. Counterparts. This Agreement may be executed simultaneously in
any number of counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument. The parties
agree and acknowledge that delivery of a signature by facsimile shall constitute
execution by such signatory.
12.07. Transactional Expenses. Except as otherwise provided herein,
whether or not the transactions contemplated by this Agreement or the Other
Required Agreements are consummated, each party shall pay its own fees and
expenses incident to the negotiation, preparation, execution, delivery and
performance hereof and thereof, including, without limitation, the fees and
expenses
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of its counsel, accountants and other experts. The Company shall pay all fees
and expenses associated with (i) obtaining estoppel certificates, releases lease
waivers, subordinations in connection with the transactions contemplated by this
Agreement, (ii) obtaining all permits, consents, approvals, authorizations as
are issued by, and making all such filings with, such third parties or
Governmental Authorities as are required in connection with the transactions
contemplated hereby, (iii) the investment banking services provided by Smith
Barney, (iv) all other person or entities providing services to the Company,
Meridian or the Partnership in connection with the preparation and negotiation
of this Agreement and the consummation of the transactions contemplated hereby
and (v) the costs incurred in defending and/or satisfying or settling any claims
brought against the Company by Nova Partners with respect to or in connection
with the placement of the BNP Loan (the "Nova Claim"), provided that if the Nova
Claim is settled and paid prior to the Closing, the Partnership, and not the
Company, shall bear $100,000 of the cost of such settlement. The Company shall
pay the cost of the Title Policy Endorsements.
12.08. Knowledge Defined. To the extent that any of the representations
and warranties contained in this Agreement are limited by the phrases "to the
knowledge of" or "the Company has no knowledge of" or "Purchaser has no
knowledge of" or words or phrases of similar import, the same shall mean, in the
case of the Company, to the actual knowledge of Messrs. A.E. Brim, K. David
McAllister, James M. Williams, Bruce A. Schoen, John Mook, Vern Reed, Craig J.
Rhea or Rick D. McDaniel after due and diligent inquiry with respect thereto,
which inquiry shall include inquiry of the on site administrator of the
Facility, and, in the case of Purchaser, to the actual knowledge of Penny
Pritzker or John Kevin Poorman, after due and diligent inquiry with respect
thereto.
12.09. Severability. If any provision of this Agreement shall for any
reason be held to be unlawfully broad as to any application, activity or
subject, it shall be construed, by limiting and reducing it, to be enforceable
to the extent compatible with applicable law. If, notwithstanding the preceding
sentence, any provision contained in this Agreement shall, for any reason, be
held to be illegal or unenforceable in any respect, such illegality or
unenforceability shall not affect any other provision of this Agreement, but
this Agreement shall be reasonably construed as if the illegal or unenforceable
provision had never been contained herein.
12.10. Further Assurances. The parties hereto shall use their
commercially reasonable efforts to do and perform or cause to be done and
performed all such further acts and things and shall execute and deliver all
such other agreements, certificates, instruments or documents as any other party
may reasonably request in order to carry out the intent and purposes of this
Agreement and the consummation of the transactions contemplated hereby.
12.11. Third Party Beneficiary. Nothing in this Agreement express or
implied is intended to and shall not be construed to confer upon or create in
any person not a party to this Agreement, any rights or remedies or obligations
under or by reason of this Agreement, including without limitation, any right to
enforce this Agreement, other than the rights granted to the Former Holders with
respect to the Remaining Escrowed Funds.
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12.12. Attorneys' Fees. In the event of a dispute between the parties
hereto with respect to the interpretation or enforcement of the terms hereof,
the prevailing party in any action resulting therefrom shall be entitled to
collect from the other its reasonable costs and attorneys' fees, including its
costs and fees on appeal.
12.13. Construction. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state or local
statute or law shall be deemed also to refer to all rules and regulations
promulgated thereunder, unless the context requires otherwise. The word
"including" shall mean "including without limitation."
12.14. Schedules. The Company and Purchaser acknowledge that at the
time of the execution of this Agreement the schedules referenced herein are not
attached hereto. Accordingly, the effectiveness of this Agreement shall be
subject to the Company and Purchaser approving such schedules by December 2,
1996 (or such later date as may be agreed upon by the Company and Purchaser) and
that once approved (i) the Company's representations, warranties and covenants
set forth in this Agreement shall be modified or amended in accordance with the
terms thereof and (ii) the schedules may be not amended or modified by the
Company without the prior approval of Purchaser.
12.15. Disclosure. Anything disclosed in this Agreement or in any of
the Exhibits or Schedules attached to this Agreement or any other document
delivered pursuant to this Agreement or in the Company Financial Statements or
the Meridian Financial Statements shall be deemed to have been disclosed for any
and all purposes to which said information relates, and to the extent that such
information constitutes an exception to any of covenants, representations or
warranties herein such covenants, representations or warranties shall not be
deemed to have been breached if such information as and where disclosed is
reasonably adequate to give the non-disclosing party adequate notice of the
exception to the applicable covenants, representations or warranties.
12.16. Expense Reimbursement. On or prior to January 15, 1997, the
Purchaser shall cause the Partnership to provide the Agent with an accounting of
the amount of the Reimbursable Marketing Expenses and the Reimbursable
Pre-Opening Expenses. Within five (5) business days thereafter, the Purchaser
shall pay to the Agent, for distribution to the Former Holders, the positive
difference, if any, between (i) the sum of the Reimbursable Marketing Expenses
and the Reimbursable Pre-Opening Expenses and (ii) $400,000.
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IN WITNESS WHEREOF, the parties hereby executes this Agreement as of the day
and year first set forth therein.
BRIM, INC.
By: /s/ James Wile
------------------------
Its: Sr. Vice President
------------------------
CC-LANTANA, INC.
By:
------------------------
Its:
------------------------
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AGENT'S ACKNOWLEDGMENT
The Agent hereby executes this Agreement subject to the approval of the
shareholders of the Company and, in the event such approval is given, solely for
the purpose of agreeing to act as the agent of such shareholders for the limited
purposes set forth herein. Subject to obtaining such shareholder approval, Agent
hereby represents and warrants that this Agreement has been duly and validly
executed and delivered by the Agent and constitutes a legal, valid and binding
obligation of the Agent and is enforceable against the Agent in accordance with
its terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
Agent acknowledges and agrees to the rights of the Purchaser with respect to the
interest earned on the Escrow Account as provided in Section 11.09 hereof.
/s/ Lee Zinski
----------------------------
Lee Zinski
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ANNEX A TO LEASE AGREEMENT
THIS ANNEX A TO LEASE AGREEMENT ("Annex A"), dated as of June 30, 1997,
between The Board of Trustees of Needles Desert Communities Hospital, duly
appointed by the Mayor of the City of Needles, California pursuant to Section
37603 of Title 4, Division 3, Part 2, Chapter 5, Article 7 of the Government
Code of the State of California ("Lessor"), and Principal-Needles, Inc.
("Lessee"), a Tennessee corporation.
WITNESSETH:
WHEREAS, Lessor is engaged in the provision of health care services in
Needles, California through the operation of Needles Desert Communities
Hospital, a 53-bed general acute care hospital (the "Hospital"); and
WHEREAS, Lessee is experienced in the business of operating, managing and
maintaining health care facilities, including, without limitation, providing or
arranging for health care services to be conducted through such facilities; and
WHEREAS, Lessor after due consideration and with the approval and consent
of the City Council of the City of Needles, California (the "City Council"), is
of the opinion that the lease of the Premises and the Equipment (as those terms
are defined in the Lease Agreement ("Lease") to which this Annex A is attached)
to Lessee is in the community's best interest in light of significant changes in
the health care industry; and
WHEREAS, the parties hereto have contemporaneously herewith entered into
the Lease.
NOW, THEREFORE, for and in consideration of the foregoing premises and the
agreements, covenants, representations and warranties hereinafter set forth and
other good and valuable consideration, the receipt and adequacy of all of which
are acknowledged and agreed, the parties hereto agree as follows:
1. Exclusive Right to Operate the Hospital and Certain Related Matters.
1.1 Exclusive Right to Operate Hospital. Lessor hereby grants to Lessee,
effective as of the Closing (as defined in Section 2.1), the exclusive right to
operate, for its own account and benefit, the Hospital and the business
conducted through the Hospital during the term of the Lease. Except as otherwise
specifically provided herein and in the Lease, such exclusive right shall
encompass all aspects of the Hospital and the business conducted through the
Hospital, including, without limiting the generality of the foregoing, exclusive
control over matters of all kind relating to professional, medical,
administrative, financial and technical services, personnel, marketing,
contracting, leasing, case management, equipment, inventory and supplies
(collectively, the "Business").
<PAGE> 60
1.2 License to Control and Use Certain Assets. In order to facilitate
Lessee's operation of the Hospital and the Business, Lessor hereby grants to
Lessee, effective as of the Closing, an exclusive irrevocable license to
exercise exclusive control over, and to exclusively use in Lessee's own name or
for Lessee's own account, any and all of the following assets of Lessor during
the term of the Lease solely for the purpose of carrying out Lessee's duties and
responsibilities herein and under the Lease:
(a) to the extent assignable or transferable under applicable law, all
licenses, certificates of need, certificates of exemption, franchises,
accreditations and registrations and other licenses or permits issued in
connection with the Business (the "Licenses"), including, without
limitation, the Licenses described in Schedule 1.2(a);
(b) all documents, records, operating manuals and files owned by
Lessor or its affiliates, pertaining to or used in connection with the
Business, including, without limitation, all patient records, medical
records, financial records, equipment records, construction plans and
specifications, but excluding Lessor's minute books and other City records;
(c) the name "Needles Desert Communities Hospital" and legally
permissible variations thereof; and
(d) the benefit of all goodwill associated with the foregoing.
1.3 Sale of Certain Assets. At the Closing, Lessor shall sell, transfer,
convey, assign and deliver to the Lessee (or its designee), and Lessee shall
purchase from Lessor, the following assets:
(a) all of Lessor's interest, to the extent assignable or transferable
by it under applicable law, in and to those contracts and agreements
relating to the Business set forth in Schedule 1.3(a) (the "Contracts");
(b) the deposits, escrows, prepaid taxes or other advance payments
relating to any expenses of the Business identified in Schedule 1.3(b) (the
"Prepaid Expenses");
(c) to the extent useable and not obsolete, all inventories of
supplies, drugs, food, janitorial and office supplies and other disposables
and consumables existing on the Closing Date (as defined in Section 2.1)
and located at the Hospital (the "Operating Inventory"); and
(d) that certain trade credit from Toshiba in the approximate amount
of $97,000 towards the purchase of equipment having a value in excess of
$253,000.
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The items referred to in Sections 1.2 and 1.3 are hereafter referred to,
collectively, as the "Assets".
1.4 Excluded Assets. The following items which are related to the
Assets are not intended by the parties to be covered by the license granted
under Section 1.2 or the sale and transfer under Section 1.3 and are excluded
from the Assets (collectively, the "Excluded Assets"): (i) all cash and cash
equivalents; (ii) short-term investments; (iii) patient accounts receivable,
including without limitation patient accounts receivable from Medicare, Medicaid
or Champus ("Agency Receivables"); (iv) notes and accounts receivable from
affiliates and others; (v) prepaid expenses not listed on Schedule 1.3(b), and
(vi) any other assets of Lessor related to the Hospital or the Business, or
otherwise, not specifically referred to in Section 1 hereof. Notwithstanding the
foregoing, Lessee shall use commercially reasonable efforts (but shall not be
required to initiate any collection proceedings) to collect all patient accounts
receivable of Lessor existing as of the date of Closing on behalf of Lessor, and
upon receipt thereof, shall deposit the same in a bank account designated by
Lessor. On or before the tenth day of each month Lessee shall provide Lessor
with a written summary report of the accounts receivable collected during the
preceding month. On or before the fifteenth (15th) day of each month, Lessor
shall pay Lessee a) a service fee in the amount of fifteen percent (15%) of the
amount of accounts receivable collected by Lessee during the preceding month,
and b) until repaid, twenty-five percent (25%) of the original principal amount
of the operating loan made by Lessee to Lessor pursuant to Section 11.23, below,
together with accrued interest thereon at the variable rate of the Prime Rate as
reported from time to time in the Money Rates section of the Wall Street
Journal.
1.5 Net Earnings; Expenses and Losses. Lessor acknowledges that from and
after the Closing, Lessee will operate the Hospital and the Business for its
sole and exclusive account and benefit, and accordingly shall be entitled to
retain all profits and benefits derived therefrom. Lessee shall pay all expenses
and costs, of every kind and description, associated with its operation of the
Hospital and the Business. In the event the Hospital and the Business is
operating at a loss at any time during the term of the Lease, Lessee shall not
be entitled to any payment, in kind or otherwise, from Lessor or the City
Council, and Lessee shall be solely responsible for covering any such loss.
1.6 Assignment and Assumption; Assets Free and Clear.
(a) Notwithstanding any other provision hereof to the contrary, all
Assets to be assigned and transferred to Lessee shall on the Closing Date,
be free and clear of all liabilities, liens and encumbrances, except for
the liens, liabilities and encumbrances expressly agreed to be assumed by
Lessee pursuant to the Assignment and Assumption Agreement (the "Assumption
Agreement") substantially in the form attached hereto as Appendix 1.6(a).
Except as provided in the Assumption Agreement, Lessee is not assuming and
shall not be deemed to have assumed any other liability or obligation of
Lessor or any of its affiliates, fixed or contingent, disclosed or
undisclosed, or otherwise.
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(b) To effect assignments and assumptions of Contracts contemplated
hereby and the Scheduled Leases (as that term is defined in Section 4.6)
which Lessee agrees to assume (the "Leases"), Lessee and Lessor shall
execute the Assumption Agreement. Except for those Contracts and Leases of
Lessor expressly assumed by Lessee in the Assumption Agreement, Lessee is
not undertaking and shall not be deemed to be responsible for any other of
Lessor's leases, agreements or contracts or for any indebtedness incurred
or arising with respect to any period on or prior to the Closing Date in
connection with the Assets or their operation, whether fixed or contingent,
disclosed or undisclosed, or otherwise.
(c) If, in the Assumption Agreement, Lessee assumes any liabilities of
Lessor and if there are, or are alleged to be, any liabilities of Lessor
related to those so assumed by Lessee as of the date immediately preceding
the Closing Date in excess of the amount of such liabilities so assumed,
Lessee shall not be required hereunder to assume or pay such items, but
instead shall promptly deliver such items to Lessor for payment, contest,
compromise or settlement as Lessor may determine. The amount of any
liability assumed by Lessee shall be determined in accordance with Section
1.7.
(d) With respect to any indebtedness secured by a lien on the Assets
which is not expressly assumed by Lessee in the Assumption Agreement,
Lessor shall discharge any such lien prior to or at the Closing.
1.7 Purchase of Prepaid Expenses and Operating Inventory.
(a) The purchase price of the Prepaid Expenses and the Operating
Inventory shall be the sum of the values determined in accordance with
Section 1.7(b) and Section 1.7(c) (the "Purchase Price").
(b) The value of the Prepaid Expenses shall be initially
determined based on the Interim Balance Sheet (as hereinafter defined), and
shall be subject to adjustment as provided in Section 1.8. Should any
dispute arise concerning such inventory, such dispute shall be referred to
the Accountants (as defined in Section 1.8) whose determination in respect
of such dispute shall be final.
(c) The value of the Operating Inventory shall be determined by a
physical inventory of such items to be conducted jointly by Lessor and
Lessee preceding the Closing Date or on such other day as mutually agreed
upon by Lessee and Lessor. Such inventory shall be conducted in accordance
with Lessor's prior practices, policies and procedures, and shall be
subject to adjustment as provided in Section 1.8. Should any dispute arise
concerning such inventory, such dispute shall be referred to the
Accountants (as defined in Section 1.8) whose determination in respect of
such dispute shall be final.
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(d) As of the Closing, Lessee and Lessor shall prorate, if
possible, property lease payments, property taxes and other assessments, as
well as all other income and expenses with respect to the Business which
are normally prorated upon the sale of assets of a going concern. Lessor
shall, to the extent practicable, order final readings of all power and
other utility charges to be made as of the Closing Date and shall pay when
due all charges in respect thereof. Lessee shall allow all employees of
Lessor who accept employment with Lessee to carry forward any paid time off
accrued within the twelve (12) months immediately preceding the Closing
Date with no reduction in the Purchase Price. Lessor shall be responsible
for any other accrued paid time off of its employees. In addition, should
any of Lessor's employees elect to "cash-out" rather than carry forward any
of their paid time off which accrued within the twelve (12) months
immediately preceding the Closing Date, Lessor shall be responsible for the
payment thereof.
1.8 Adjustments to Purchase Price.
(a) For purposes of determining adjustments to the Purchase Price
on the Closing Date and the amount of cash to be delivered at the Closing
in accordance with Section 1.7 hereof, such adjustments shall be made
initially on or prior to the Closing Date using Lessor's latest regularly
prepared unaudited balance sheet in respect of the Business (the "Interim
Balance Sheet"). The Interim Balance Sheet shall be as of a date not more
than forty-five (45) days prior to the Closing. Such initial calculations
shall be set forth on a schedule delivered by Lessor to Lessee with a copy
of the Interim Balance Sheet not less than three (3) days prior to the
Closing.
(b) Within one hundred twenty (120) days after the Closing Date
(or as soon thereafter as possible), the parties shall make final
adjustments to the Purchase Price as contemplated by Section 1.7 (the "Post
Closing Adjustments"). Lessor shall use its reasonable best efforts, and
Lessee shall fully cooperate with Lessor in such efforts, to prepare and
deliver to Lessee not later than ninety (90) days after Closing an audited
balance sheet of Lessor with respect to the Business as of the close of
business on the Closing Date (the "Closing Balance Sheet"). The Closing
Balance Sheet will be used to determine any Post Closing Adjustments and
shall be prepared in accordance with generally accepted accounting
principles applied on a basis consistent with the presentation of the June
30, 1996 balance sheet.
(c) Lessor shall deliver a schedule to Lessee detailing any Post
Closing Adjustments and detailing the differences between the Purchase
Price, as adjusted, and the amount paid as the Purchase Price on the
Closing Date. Such schedule shall be delivered to Lessee with a copy of the
Closing Balance Sheet.
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(d) Should Lessee dispute the Post Closing Adjustments proposed by
Lessor, Lessee shall promptly (and in no event later than fifteen (15) days
after receipt of the Closing Balance Sheet and the required schedule of
Post Closing Adjustments) deliver a schedule to Lessor detailing each
disputed Post Closing Adjustment and its proposed Post Closing Adjustments.
If after thirty (30) days after delivery of the Closing Balance Sheet,
Lessee and Lessor are unable to agree upon the amount of the Post Closing
Adjustments, Lessor and Lessee shall submit the matter to arbitration to be
determined by an accounting firm mutually acceptable to them. If Lessor and
Lessee are unable to agree on the choice of the accounting firm, they will
select a nationally recognized accounting firm (the "Accountants") by lot,
excluding their respective regular independent accounting firms. The
Accountants shall review the proposed Post Closing Adjustments and
determine the amount thereof, such determination to be made as soon as
practicable. In making such review and determination, the Accountants shall
utilize the terms and provisions of this Annex A, together with generally
accepted accounting policies and procedures applied on a basis consistent
with those utilized by Lessor in preparing Lessor's audited financial
statements as of June 30, 1996. The decision of the Accountants shall be
binding on both Lessor and Lessee. Each of Lessee and Lessor shall pay
one-half the expenses of engagement of the Accountants in respect of such
review and the resolution of any dispute concerning the Operating Inventory
and Post-Closing Adjustments.
(e) Within twenty (20) days of Lessee's receipt of the Closing
Balance Sheet and the required schedule of Post Closing Adjustments (or, if
Lessee disputes the Post Closing Adjustments, within ten (10) days of the
resolution or determination of the adjustments in accordance with Section
1.8(d) above), either (i) Lessee shall be entitled to receive from the
Lessor the amount by which the Purchase Price paid on the Closing Date
exceeds the Purchase Price, as adjusted, and Lessor shall pay Lessee in
cash or in other immediately available funds such additional amounts as may
be needed to cover the amount due Lessee, or, if such amount is $75,500 or
less, at Lessor's option, allow Lessee to offset such amount against the
next quarterly payment of Additional Rent (as defined in the Lease); or
(ii) Lessee shall pay Lessor in cash or other immediately available funds
the amount by which the Purchase Price paid on the Closing Date is less
than the Purchase Price, as adjusted.
1.9 Other Calculations. All accounts payable for Operating Inventory
ordered by Lessor in a manner prohibited by Section 6.3 hereof shall be retained
by Lessor and not purchased by Lessee, unless Lessee shall otherwise agree.
Additionally, before the Closing Date, Lessor shall calculate, as of the
Closing, the salary and other pay owed to its employees who are employed in
connection with the Business and whose employment by Lessor will terminate as of
the Closing, and Lessor shall distribute such amounts to such employees promptly
following the Closing.
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1.10 Cessation of Lessor's Operation. Effective as of the Closing,
Lessor shall cease its operation of the Hospital and the Business. Such
cessation shall include, without limitation, closing the books and accounts,
termination of all employees and payment of all amounts due to such terminated
employees as contemplated herein, and taking all other actions specified herein
and in the Lease and otherwise necessary to facilitate the transactions
contemplated herein and in the Lease.
1.11 Procedure with Respect to Patients in the Hospital at Closing. To
compensate Lessor for services rendered and medicine, drugs and supplies
provided by Lessor before the date hereof (the "Lessor Transition Services") to
patients admitted to the Hospital on or before the Closing Date but discharged
on or after the Closing Date (such patients being referred to herein as the
"Transition Patients"), the parties shall take the following actions:
(a) As soon as practicable after the Closing Date, Lessor shall
deliver to Lessee a statement itemizing the Lessor Transition Services
provided by Lessor prior to the Closing Date to those Transition Patients
for which reimbursement is made on a DRG (or similar "fixed price") basis
("DRG Transition Patients"). Lessee shall pay to Lessor an amount equal to:
(x) the total DRG and outlier payments including capital (before
deposit and deductible/copayments per the remittance advice) actually
received by Lessee on behalf of a particular DRG Transition Patient,
multiplied by a fraction, the numerator of which shall be the total
patient days related to the Lessor Transition Services provided to the
DRG Transition Patient, and the denominator of which shall be the sum
of (1) the total patient days related to the Lessor Transition
Services provided to the DRG Transition Patient and (2) the total
patient days related to services rendered and medicine, drugs and
supplies provided by Lessee on or after the date hereof (the "Lessee
Transition Services") to such DRG Transition Patient,
minus
(y) the amount of deposits and deductibles/copayments per the
remittance advice.
Such payment shall be made to Lessor within ten (10) days after Lessee's receipt
of such DRG or outlier payments, accompanied by copies of remittances and other
supporting documentation as reasonably required by Lessor.
(b) With respect to those Transition Patients for which Government
Program Reimbursement is made on a cost basis (the "Medicare Straddle
Patients"), Lessee shall pay to Lessor within ten (10) days after Lessee's
receipt of such payment an amount equal to:
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(x) the amount of cost-based reimbursement actually received by
Lessee for a particular Medicare/Medi-Cal Straddle Patient on or after
the date hereof multiplied by a fraction, the numerator of which shall
be the total number of days prior to the date hereof on which Lessor
provided Lessor Transition Services to the Medicare/Medi-Cal Straddle
Patient, and the denominator of which shall be the total number of
days of the Medicare/Medi-Cal Straddle Patient's stay at the Hospital;
minus
(y) the amount of deposits and deductibles/copayments per the
remittance advice.
(c) As of the Closing Date, Lessor shall prepare cut-off billings for
all patients not covered by Section 1.11(a) or Section 1.11(b) (the
"Straddle Patients"). Lessor shall be responsible for billing and
collecting all amounts due Lessor from Straddle Patients.
(d) If Lessee receives any amounts from the Medicare program for
periodic interim payments or costs paid for on a pass through basis (such
as capital costs) associated with the operation of the Hospital and
relating to periods prior to the Closing Date, the Lessee shall promptly
tender the amount applicable to the period prior to the Closing Date to
Lessor. If Lessor receives any amounts from the Medicare program for
periodic interim payments or pass through costs (such as capital costs)
associated with the operation of the Hospital relating to periods
subsequent to the Closing Date, Lessor shall promptly tender same to
Lessee. Lessee or Lessor shall receive periodic interim payments and pass
through costs payments (including capital costs) applicable to the period
of time owned by such party.
(e) If Lessee receives after Closing any deductibles/copayments due
Lessor from DRG Transition Patients, Lessee shall remit within ten (10)
days the full amount thereof to Lessor. If either party receives any amount
from any Government Reimbursement Program for cost-based patients which
relate to services rendered by the other party, the party receiving such
amount shall remit within ten (10) days the full amount thereof to the
other party.
(f) In the event that Lessee and Lessor are unable to agree on the
amount to be paid to Lessor under Section 1.11(a), (b), (c) or (d) above,
then such amount shall be determined by an accounting firm mutually
acceptable to Lessee and Lessor at their joint expense.
1.12 Excluded Liabilities. Except as expressly provided to the
contrary under Section 5.4, Section 7.7 or elsewhere herein, under no
circumstance shall Lessee be obligated to pay or assume, and none of the Assets
shall be or become liable for or subject
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to, any liability of Lessor, including, without limitation, the following,
whether fixed or contingent, recorded or unrecorded (collectively, the "Excluded
Liabilities"):
(a) indebtedness and other obligations or guarantees of Lessor of
any kind or nature, other than those specifically assumed by Lessee
pursuant to this Annex A;
(b) liabilities or obligations of Lessor in respect of periods
prior to and including Closing arising under the terms of the
Medicare, Medicaid, Blue Cross or other third party payor programs,
and any liability arising pursuant to the Medicare, Medicaid, Blue
Cross or any other third party payor program as a result of the
consummation of the transactions contemplated herein, including,
without limitation, recapture;
(c) federal, state or local tax liabilities or obligations of
Lessor in respect of periods prior to Closing or resulting from the
consummation of the transactions contemplated herein, including,
without limitation, any income tax, any franchise tax, any tax
recapture, any sales and/or use tax, any indigent care tax, any state
and local recording fees and taxes which may arise upon the
consummation of the transactions contemplated herein and, subject to
the provisions of Section 8.5 hereof, any FICA, FUTA, workers'
compensation taxes and any and all other taxes or amounts due and
payable as a result of the exercise by any employees of Lessor (who
are not hired by Lessee or who elect prior to or as of Closing not to
become employees of Lessee subsequent to Closing) of such employees'
rights to vacation, sick leave and holiday benefits accrued while in
the employ of Lessor;
(d) liability for any and all claims by or on behalf of Lessor's
employees relating to periods prior to Closing, including, without
limitation, liability for all employee benefits whether or not covered
by the Employee Retirement Income Security Act of 1974, as amended,
including without limitation, any pension, profit sharing, deferred
compensation, or any other employee health and welfare benefit plans,
liability for any EEOC claim, wage and hour claim, unemployment
compensation claim or workers' compensation claim, and liability for
all employee wages and benefits, including, without limitation,
accrued vacation, sick leave, holiday pay, severance pay (except as
otherwise agreed in writing by Lessor and Lessee), and related taxes
or other liability related thereto in respect Lessor's employees;
(e) liability arising out of or in connection with any employee
benefit plan or arrangement contributed to by Lessor or any affiliate
of Lessor;
(f) liabilities or obligations arising as a result of any breach
by any Lessor at any time of any contract or commitment that is not
assumed by Lessee;
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(g) liabilities or obligations arising out of any breach by
Lessor prior to Closing of any Contract;
(h) any obligation or liability attributable to periods prior to
or as of Closing and asserted under the federal Hill-Burton program or
other restricted grant and loan programs with respect to the ownership
or operation of the Assets;
(i) any liability arising out of or in connection with claims for
alleged acts or omissions relating to the ownership or operation of
the Hospital, the Business, or the Assets that occurred prior to
Closing;
(j) contracts and agreements between any Lessor and one or more
of Lessor's affiliates;
(k) any debt, obligation, expense or liability of the Lessor
arising out of or incurred solely as a result of any transaction of
Lessor occurring after Closing or for any violation by Lessor of any
law, regulation or ordinance at any time;
(l) liability arising out of the assignment at Closing of any
Contract, except for those Contracts for which the Lessor has obtained
appropriate consents to the assignment or notified Lessee that
required consents have not been obtained and Lessee has accepted the
assignment;
(m) any accounts payable attributable to legal and accounting
fees and similar costs incurred by Lessor that are directly related to
the sale of any of the assets of Lessor;
(n) any other current payable that has not been historically
accounted for by the Lessor as an "Account Payable", including any
payable related to compensation or fringe benefits for Lessor's
employees;
(o) any Medicare "recapture" which may be payable by Lessor in
connection with the transactions contemplated by the Lease and this
Annex A; and
(p) any consents or other documents required by any leasehold
mortgagee providing financing to Lessee in connection with this
transaction to be executed and delivered by Lessor.
2. Closing.
2.1 Closing. The consummation of all matters contemplated herein
(the "Closing") shall take place in Needles, California at the offices of Lessor
or other agreed upon location, at 10:00 A.M. local time on the last day of the
month in which all required
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regulatory and other approvals to the Closing have been obtained, but in no
event later than August 31, 1997 unless the parties hereto agree otherwise in
writing (the "Closing Date").
2.2 Action of Lessor at Closing. At the Closing, Lessor shall
deliver to Lessee the following:
(i) the Assumption Agreement;
(ii) a general bill of sale and assignment substantially in the
form attached hereto as Appendix 2.2(ii) (the "Bill of Sale")
conveying and assigning to Lessee all of the Assets described in
Section 1.3;
(iii) copies of resolutions duly adopted by Lessor and
resolutions duly adopted by the City Council authorizing and approving
Lessor's performance of the transactions contemplated hereby and the
execution and delivery of the documents described herein, certified as
true and of full force as of Closing by appropriate officers of
Lessor;
(iv) certificates, dated as of the Closing Date, of officers of
Lessor certifying that as of the Closing all of the representations
and warranties by or on behalf of Lessor contained in this Annex A are
true and correct and all covenants and agreements of Lessor to be
performed prior to or as of the Closing pursuant to this Annex A have
been performed;
(v) certificates of incumbency, dated as of the Closing Date, for
the officers of Lessor making certifications for Closing or executing
the Assumption Agreement or this Annex A;
(vi) subject to Section 1.4 hereof, all of Lessor's Contracts,
Leases, commitments, books, records and other data relating to the
Hospital, the Business and the Assets, and simultaneously with such
delivery will take all such steps as may reasonably be required to put
Lessee in actual operating control of the Hospital, the Business and
the Assets; and
(vii) such other documents as may be reasonably requested by
Lessee.
2.3 Action of Lessee at Closing. At the Closing, Lessee shall
deliver to Lessor the following:
(i) payment of the Purchase Price in cash or immediately
available funds;
(ii) the Assumption Agreement;
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(iii) copies of corporate resolutions duly adopted by Lessee
authorizing and approving Lessee's performance of the transactions
contemplated hereby and the execution and delivery of the documents
described herein, certified as true and of full force as of Closing by
appropriate officers of the Lessee;
(iv) a certificate, dated as of the Closing Date, of an officer
of Lessee certifying that as of the Closing all of the representations
and warranties by or on behalf of Lessee contained in this Annex A are
true and correct and the covenants and agreements of Lessee to be
performed prior to or as of Closing pursuant to this Annex A have been
performed;
(v) a certificate of incumbency, dated as of the Closing Date,
for the officers of Lessee making certifications for Closing or
executing the Assumption Agreement or this Annex A;
(vi) a certificate of qualification to do business of Lessee from
the State of California, dated the most recent practical date prior to
Closing;
(vii) evidence of the purchase by Lessor of the tail insurance
provided for under Section 7.9 hereof; and
(viii) such other documents as may be reasonably requested by
Lessor.
3. Operation of Hospital by Lessee.
3.1 General Description. Except as otherwise provided herein and in
the Lease, Lessee shall, at its sole cost and expense and for its own account
and benefit, provide the services it deems necessary and appropriate for the
operation of the Hospital and the Business. Without limiting the generality of
the foregoing, Lessee shall have full and complete authority and discretion (i)
in the management, supervision, direction and overall operation of the Hospital
and the Business for the purposes stated herein, (ii) as to all policy matters
and other decisions affecting such operation, management and maintenance of the
Hospital and Business, (iii) in the day-to-day business, operations and affairs
of the Hospital and the Business, and (iv) in planning and coordinating the
strategic operational direction of the Hospital and the Business. In all events,
Lessee's operation of the Hospital and the Business shall not cause the Hospital
to lose its accreditation as a general hospital by JCAHO, and all duties and
responsibilities herein and in the Lease to be performed by Lessee shall be
performed in compliance with all Legal Requirements, including without
limitation the provisions of Sections 37609.1 and 37615.4 of the Government Code
of the State of California.
3.2 Employees. Lessee shall, at is sole cost and expense, and for
its own account and benefit, recruit, employ, train, supervise, promote and/or
terminate all personnel it deems necessary for its operation of the Hospital and
the Business. Lessee shall use its best efforts to employ substantially all of
the personnel employed at the Hospital immediately
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prior to the Closing who wish to continue their employment at the Hospital after
the Closing. Notwithstanding the foregoing, Lessee does not commit to or
guarantee the continued employment of any individual, or to the maintenance of
certain staffing levels except as set forth in Section 3.11. From and after
closing Lessee shall be solely responsible for all matters associated with such
personnel, including, without limitation, payment, in kind or otherwise, of
compensation and benefits, payroll and other taxes imposed by federal, state and
local Legal Requirements (as that term is defined in the Lease), setting of
guidelines for raises, promotions, discipline and/or termination during the term
of the Lease.
3.3 Billings and Collection. Lessee shall be solely responsible for
all billing and collection activities necessary and required for its operation
of the Hospital and the Business. Lessee, in its sole discretion, shall
establish records, accounts and practicing guidelines, including, without
limitation, setoffs for its own purposes from the accounts, the placement of
accounts for collection, settlement and compromise of claims and institution of
legal action for recovery of accounts, for such billing and collection
activities.
3.4 Payor Contracts. Lessee will use reasonable efforts to obtain
and maintain payor contracts which are most advantageous to the Hospital for the
purpose of maximizing revenues.
3.5 Maintenance of Core Services. During the term of this Lease,
Lessee shall provide and be responsible for those basic services required by the
State of California from time to time for licensure as a general acute care
hospital, which basic services currently include medical, nursing, surgical,
anesthesia, laboratory, radiology, pharmacy and dietary services.
3.6 Hospital Board. During the term of the Lease, Lessee shall
maintain a seven (7) member hospital operating board ("Hospital Board")
consisting of three (3) members appointed by Lessor, one (1) member appointed by
Lessee from among a list of a least five (5) residents of the Needles,
California community selected by Lessor, two (2) members comprised of physicians
on the active medical staff of the Hospital selected by Lessee, and one (1)
member selected by Lessee. The Hospital Board shall be governed by Bylaws
substantially in the form attached hereto as Appendix 3.6, and shall (a) assist
in the development of and monitor reasonably necessary quality review and
utilization management programs relating to medical and non-medical professional
and technical staffs and patient care units; (b) monitor and evaluate activities
required by JCAHO, JCAHO Accreditation Standards and by other applicable law;
(c) evaluate practitioner performance through valid and reliable measurement
systems based when appropriate on objective, clinically-sound criteria; (d)
monitor clinical aspects of providing quality health care; (f) assist in the
development and adoption of criteria, policies, and procedures regarding
appointment, reappointment and alteration of medical staff status, granting
clinical privileges, disciplinary action and other matters referred by the
medical staff boards; and (h) assist in the development of reporting mechanisms
so that pertinent findings and recommendations from the foregoing activities are
shared with the medical staff. Any policies, procedures, guidelines and
directives adopted by the Hospital Board shall be consistent with the foregoing
responsibility. Lessee shall keep the Hospital Board informed of matters
relating to the operation of the Hospital, including without limitation
providing the Hospital Board with
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copies of its capital budgets, strategic plans, licensing and accreditation
surveys, reviews and reports, and summaries of its purchases of furniture,
fixtures and equipment and the costs of any leasehold improvements.
3.7 Financial Records; Tax Returns. Lessee shall maintain its own
books and records for the Hospital and the Business in accordance with generally
accepted accounting principles consistently applied during the term of the Lease
from which audited financial statements shall be prepared for each fiscal year
during the term of the Lease. Lessee shall prepare and timely file all tax
returns required to be filed.
3.8 Licenses; Permits; Insurance. Lessee shall obtain and maintain
all licenses, permits, other certificates and insurance necessary and required
to operate, manage and maintain the Hospital and the Business, in compliance
with all applicable Legal Requirements, as contemplated herein during the term
of the Lease. Lessor shall cooperate with Lessee in causing all such licenses
now issued in Lessor's name to be issued or reissued in Lessee's name.
3.9 Certain Health Care Services Matters. Lessee's participation
in health care services arrangements, such as Blue Cross, Medicare, Medicaid and
CHAMPUS, during the term of the Lease shall be in compliance with the terms and
conditions of such arrangements and shall not cause the Hospital to lose its
qualification for participation therein.
3.10 Indigent Care. During the term of this Lease, Lessee shall
provide care to indigent residents of the Needles, California community at a
level and in accordance with the Indigent Care Policy, a copy of which is
attached as Appendix 3.11. Lessee's obligation pursuant to this Section 3.10
shall be subject to change as appropriate in the discretion of Lessee in the
event of changes in governmental policy regarding the treatment of indigent
patients and payment policies relating to uninsured and underinsured patients.
3.11 Staffing Levels. Lessee will apply national staffing
standards to hospital staffing plans, allowing patient volume to guide final
staffing decisions. Notwithstanding the foregoing, Lessor acknowledges that
staff-to-patient ratios and similar quantitative measures are not necessarily
determinative of the quality of patient care, and Lessee is not, by virtue of
this provision, guaranteeing to Lessor the maintenance of any set staffing
levels.
4. Representations and Warranties of Lessor.
As of the date hereof, Lessor represents and warrants to Lessee that:
4.1 Capacity. Lessor has been duly appointed by the Mayor of the
City of Needles, California pursuant to Section 37603 of Title 4, Division 3,
Part 2, Chapter 5, Article 7 of the Government Code of the State of California
and has all requisite power and authority to operate and lease its properties
and to carry on its businesses as now being conducted.
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4.2 Powers; Absence of Conflicts With Other Agreements, etc.
(a) The execution, delivery and performance by Lessor of the
Lease and this Annex A and the other agreements and transactions
contemplated hereby:
(i) are within the power of Lessor, are not in
contravention of the terms of the any resolution or act or
governing instrument or any amendments thereto of Lessor and
have been duly authorized by the City Council as and to the
extent required; and
(ii) on the Closing Date, (A) will not result in any
breach of any indenture, agreement, lease or instrument to
which Lessor is a party or by which Lessor is bound, (B)
will not constitute a violation of any judgment, decree, or
order of any court of competent jurisdiction applicable to
Lessor, (C) will not violate any law, rule or regulation of
any governmental authority applicable to Lessor or any of
the Assets and (D) will not require any consent, approval or
authorization of, or notice to, or declaration, filing or
registration with, any governmental or regulatory authority.
(b) As of the Closing, this Annex A and the other agreements
and instruments contemplated hereby have been duly and validly
executed and delivered by Lessor. This Annex A and the other
agreements and instruments contemplated hereby constitute the
valid, legal and binding obligations of Lessor enforceable
against it in accordance with their terms except as such may be
limited by bankruptcy and other laws of general applicability
affecting sellers' and creditors' rights and general equitable
principles.
4.3 Financial Statements. Schedule 4.3 hereto consists of true,
correct and complete copies of Lessor's audited financial statements for the
year ended June 30, 1996 (collectively, the "Financial Statements"). The
Financial Statements have been prepared from and are in accordance with the
reconstructed books and records of Lessor, and, as such, are true, complete and
accurate, and fairly present the financial position of Lessor as of the dates
and for the periods indicated, in each case in accordance with generally
accepted accounting principles consistently applied ("GAAP"), during such
periods. Any financial statements of Lessor prepared as of a date after June 30,
1996 and delivered to Lessee previously or pursuant to this Annex A have been or
shall be subject to and prepared in accordance with the preceding representation
and the standards set forth therein.
4.4 Licenses. Lessor has all licenses and permits relating to the
ownership of the Assets and operation of the Business as are necessary and
required for such ownership and operation. Schedule 4.4 hereto contains a
complete description of all material licenses, permits, franchises, certificates
of need, certificate of need applications, and PRO memos, if any, and their
respective dates of termination or renewal, owned or held by Lessor relating to
the ownership, development or operation of the Assets or the Business, together
with
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any formal and specific notices or directives received from the agency
responsible for such Schedule 4.4 item, for which noncompliance with such notice
or directive would likely cause the revocation, suspension or material
diminution in term for such item. All items listed on Schedule 4.4 are, to the
best of Lessor's knowledge and belief, in good standing and, except as expressly
set forth on Schedule 4.4, are not subject to renewal within less than one (1)
year.
4.5 Certain Contracts. Schedule 4.5 lists all contracts to which
Lessor is a party involving obligations of Lessor in respect of the Business
(the "Scheduled Contracts"). Lessor has delivered to Lessee true and correct
copies of all Scheduled Contracts. All of such Contracts which Lessee has agreed
to assume pursuant to the Assumption Agreement are valid and binding obligations
of Lessor, are in full force and effect, and are enforceable against Lessor in
accordance with their terms except as such may be limited by bankruptcy and
other laws of general applicability affecting sellers' and creditors' rights and
general equitable principles. Except as expressly noted in Schedule 4.5, all
Contracts which Lessee has agreed to assume pursuant to the Assumption Agreement
are terminable at the option of Lessor on no more than ninety (90) days notice
without liability to Lessor. Lessor has not received any notice that the other
parties to the Contracts which Lessee has agreed to assume pursuant to the
Assumption Agreement are (i) in default under such Contracts or (ii) consider
Lessor to be in default thereunder. Except as expressly noted in Schedule 4.5,
to the best knowledge of Lessor, no party to any of the Contracts which Lessee
has agreed to assume pursuant to the Assumption Agreement intends to terminate
or materially adversely modify its agreement(s) with respect thereto, or
materially adversely change the volume of business done thereunder.
4.6 Certain Leases. Schedule 4.6 lists all leases to which Lessor
is a party in respect of the Business ("Scheduled Leases"). Lessor has delivered
to Lessee true and correct copies of all Scheduled Leases and all related
amendments, supplements, modifications and related documents (the "Scheduled
Lease Documents"). Except as set forth in Schedule 4.6, the Scheduled Lease
Documents are unmodified and in full force and effect, and there are no other
agreements, written or oral, between Lessor and any third parties claiming an
interest in Lessor's interest in the Scheduled Leases or otherwise relating to
Lessor's use and occupancy of any leased property. All such Scheduled Leases
which Lessee has agreed to assume pursuant to the Assumption Agreement are valid
and binding obligations of Lessor, are in full force and effect, and are
enforceable against Lessor in accordance with their terms except as such may be
limited by bankruptcy and other laws of general applicability affecting sellers'
and creditors' rights and general equitable principles; and no event has
occurred including, but not limited to, the execution, delivery and performance
of this Annex A and the consummation of the transactions contemplated hereby
which (whether with or without notice, lapse of time or both) would constitute a
default thereunder. Lessor has not received any notice that the other parties to
the Scheduled Leases which Lessee has agreed to assume pursuant to the
Assumption Agreement are (i) in default under such Leases or (ii) consider
Lessor to be in default thereunder. No property leased under any Scheduled Lease
which Lessee has agreed to assume pursuant to the Assumption Agreement is,
excepted for the Permitted Encumbrances, subject to any lien, encumbrance,
easement, right of way, building or use restriction, exception, variance,
reservation or limitation as might in any respect interfere with or impair the
present and continued use thereof in the usual and normal conduct of the
Business.
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4.7 Title to Assets and Related Matters. On the Closing Date,
Lessor will hold of record good, marketable and insurable title to all of the
Assets free and clear of all title defects, liens, pledges, claims, charges,
rights of first refusal, security interests or other encumbrances and not
subject to any rights of way, building or use restrictions, exceptions,
variances, reservations or limitations of any nature whatsoever, except with
respect to all such properties, (i) matters set forth in Schedule 4.7(a), and
(ii) liens for current taxes and assessments not in default (collectively,
"Permitted Encumbrances"). Copies of the most current title insurance policies,
commitments or binders issued to or in the possession of Lessor with respect to
the real property described in Schedule A to the Lease are set forth as part of
Schedule 4.7(b). Such real property and structures and all machinery and
equipment owned or leased by Lessor, are in good operating condition and repair
(ordinary wear and tear excepted), taking into account their respective ages and
consistent with their past uses, and are adequate for the uses to which they are
being put. Except as set forth on Schedule 4.7(c), such buildings and
improvements are structurally sound and are in good operating condition and
repair (ordinary wear and tear excepted). Lessor has not received any notice of
any violation of any building, zoning or other law, ordinance or regulation in
respect of such property or structures or their use by Lessor. To Lessor's best
knowledge, there is no existing, proposed or contemplated plan to modify or
realign any street or highway or any existing, proposed or contemplated eminent
domain proceeding that would result in the taking of all or any part of the
Hospital facilities or that would materially adversely affect the current or
planned use of the Hospital facilities or any part thereof. Schedule 4.7(d)
contains rent rolls for each building in which Lessor leases or subleases space
to tenants, which rent rolls identify each building and its total square
footage, and, with respect to each lease or sublease, identify (a) the tenant or
subtenant, (b) the number of square feet leased, (c) the term commencement date
and expiration date, (d) the annual or monthly rent and (e) tenant's suite
number.
4.8 Employee Benefit Plans. Schedule 4.8 lists (i) any "employee
benefit plans" as defined in ERISA (other than a defined contribution pension
plan not requiring any contribution by Lessor, Lessor's paid time off policy,
and employee group life and health insurance plans that are fully funded through
commercial insurance) and (ii) any defined benefit "employee pension benefit
plans" (as defined in ERISA).
4.9 Litigation or Proceedings. Schedule 4.9 contains a list of
each lawsuit or legal proceeding to which Lessor is a party or which arose out
of or in connection with the Business or which, to the best of Lessor's
knowledge, has been threatened against Lessor in connection with the Business.
Since June 30, 1996, Lessor has not been subject to any formal or informal (of
which Lessor has received notice) investigations or proceedings of the
California Department of Health, the United States General Accounting Office,
the Health Care Financing Administration or other similar governmental agencies
(except for any investigations being conducted in the ordinary course of
business and applicable to all hospitals) with respect to the Hospital. There
are no such claims, actions, proceedings or investigations of which Lessor has
received notice pending or, to the best of Lessor's knowledge, threatened
challenging the validity or propriety of the transactions contemplated by this
Annex A. Lessor is not now, and has not been, a party to any injunction, order,
or decree restricting the method of the conduct of its business or the marketing
of any of its services, nor has any governmental agency investigated or
requested (other than on a routine basis) information with respect to such
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methods of business or marketing of services; Lessor has not received any claim
that Lessor currently violates any federal, state, or local law, ordinance, rule
or regulation, which could have a material adverse effect on the Business and no
such claim is or has been threatened; and there have been no developments
materially adverse to Lessor with respect to any pending or threatened claim,
action or proceeding of an administrative or judicial nature, including but not
limited to those referred to in Schedule 4.9, and including without limitation
any such pending or threatened claim, action or proceeding arising from or
relating to (i) the assertion by any governmental authority of any retroactive
adjustment of the sums which Lessor was entitled to receive pursuant to
government or third party reimbursement programs such as (but not limited to)
Medicare and Medicaid, or (ii) any allegation by any governmental authority of
fraud or abuse by any current or former officers or employees of Lessor in
connection with the making of any application for reimbursement pursuant to the
government or third party reimbursement programs referred to in the preceding
clause (i).
4.10 Insurance. Schedule 4.10(a) is a list and brief description
of all policies or binders of fire, liability, product liability, workers'
compensation, health and other forms of insurance policies or binders currently
in force insuring Lessor against risks which will remain in full force and
effect (or will be replaced by substantially similar coverage) at least through
the Closing Date. Schedule 4.10(b) contains a description of all malpractice
liability insurance policies of Lessor. Except as set forth on Schedule 4.10(c),
(i) Lessor has never filed a written application for any insurance coverage
which has been denied by an insurance agency or carrier and (ii) Lessor has been
continuously insured for professional malpractice claims for at least the past
seven (7) years, including periods during which Lessor was self-insured.
Schedule 4.10(c) also sets forth a list of all claims for any insured loss in
excess of $5,000 per occurrence, filed by Lessor during the three (3) year
period immediately preceding the Closing Date, including but not limited to,
workers' compensation, general liability, environmental liability and
professional malpractice liability claims. Lessor is not in material default
with respect to any provision contained in any such policy and has not failed to
give any notice or present any claim under any such policy in due and timely
fashion.
4.11 Post-Balance Sheet Results. Except as set forth on Schedule
4.11, since June 30, 1996 with respect to the Business, there has not been:
(a) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the Business, taken as a
whole;
(b) any sale, lease, transfer or disposition by Lessor of the
Business; or
(c) any change or the occurrence of any fact or condition which
may be reasonably expected to have a material adverse effect on the
Business or the value of the Business, other than such changes, facts
and conditions, if any, affecting the City of Needles, California
hospital service area generally, the general economy or the healthcare
industry generally.
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4.12 Lessor's Employees. Schedule 4.12 contains a list of all of
Lessor's employees, their current salary or wage rates, department and a job
title or other summary of the responsibilities of such employees. Since June 30,
1996 there has not been any increase in the compensation payable or to become
payable by Lessor to any of Lessor's officers, employees or agents, or any bonus
payment or arrangement made to or with any such person, except as described in
Schedule 4.12. Lessor has not incurred any liability, or taken or failed to take
any action which will result in any liability, in respect of any failure to
comply with the Fair Labor Standards Act or any other applicable laws dealing
with minimum wages or maximum hours for employees. Except as set forth on
Schedule 4.12, all employees of Lessor are terminable at will by Lessor.
Schedule 4.12 includes a list of all employees of Lessor (other than "part-time
employees") who have been "terminated" or "laid-off" since January 1, 1997 (as
such quoted terms are defined in the Worker Adjustment and Retraining
Notification Act).
4.13 Labor Matters. Lessor has no collective bargaining agreements
with any labor union, and there are no current negotiations with a labor union.
Lessor is in compliance in all material respects with all applicable laws
respecting employment and employment practices, terms and conditions of
employment and wages and hours, and is not engaged in any unfair labor practice.
There is no unfair labor practice complaint against Lessor pending before the
National Labor Relations Board. There is no labor strike, dispute, slowdown or
stoppage actually pending or, to the best knowledge of Lessor, threatened
against or affecting Lessor. No grievance which might have an adverse effect on
Lessor or any such arbitration proceeding arising out of or under collective
bargaining agreements is pending, and no claim therefor exists. Lessor has not
experienced any employee strikes since the date the Hospital began operation.
4.14 Certain Representations With Respect to the Business.
(a) The Hospital has current contractual arrangements with
Blue Cross. Complete and accurate copies of the existing Blue
Cross contracts of the Hospital have been furnished to Lessee.
The Hospital is presently in compliance with all of the terms,
conditions and provisions of such contracts.
(b) The Hospital is duly accredited as a general hospital by
the Joint Commission on Accreditation of Healthcare Organizations
("JCAHO"), and a copy of its most recent report, list of
deficiencies, if any, and Certificate of Accreditation relating
to the Hospital is included in Schedule 4.14.
(c) The Hospital is qualified for participation in the
Medicare program. Complete and accurate copies of Lessor's
existing Medicare contracts for the Hospital have been furnished
to Lessee. The Hospital is presently in compliance with all of
the terms, conditions and provisions of such contracts.
(d) The Hospital is qualified for participation in the
Medicaid program. Complete and accurate copies of Lessor's
existing Medicaid contracts
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for the Hospital have been furnished to Lessee. The Hospital is
presently in compliance with all of the terms, conditions and
provisions of such contracts.
(e) The Hospital participates in the CHAMPUS program. The
Hospital is presently in compliance in all material respects with
all of the terms and conditions of such participation.
(f) Included in Schedule 4.14 are copies of the fire
marshall reports with respect to the Hospital since January 1,
1994. The Hospital is not in violation in any material respect of
any fire code.
(g) Except as set forth in Schedule 4.14, Lessor has
received no written notification that the Hospital is in
violation of local building codes, ordinances or zoning laws. The
building or buildings in which the Hospital is located comply in
all material respects with all local building codes, ordinances
and zoning laws and are in a state of good condition and repair,
normal wear and tear excepted.
(h) Included in Schedule 4.14 is a copy of all licensure
survey reports of the Hospital by the California Department of
Health since January 1, 1994.
(i) Included in Schedule 4.14 are copies of the Bylaws of
the Medical Staff of the Hospital and copies of minutes of
meetings thereof since January 1, 1996. No proceedings are
pending or threatened seeking to remove or limit the privileges
of any member of the medical staff of the Hospital.
(j) Complete and accurate copies of all appraisals, if any,
obtained by Lessor since January 1, 1994, relating to the
Hospital or any of its assets have been furnished to Lessee.
(k) The Hospital is licensed by the California Department of
Health as a general acute care hospital authorized to operate a
53-bed general acute care hospital in its existing facilities
located in the City of Needles, California. Except as set forth
in Schedule 4.14, the Hospital is presently in compliance in all
material respects with all the terms, conditions and provisions
of such licenses. Schedule 4.14 also contains a copy of such
licenses. The facilities, equipment, and operations of the
Hospital satisfy, without material exception, the applicable
hospital licensing requirements of the State of California.
4.15 Reimbursement Matters. Complete and accurate copies of all
Medicare cost reports and related forms filed during the past three years by
Lessor have been furnished to Lessee. To the best of knowledge and belief of
Lessor, the amounts set up as provisions for the Medicaid or Medicare
adjustments and adjustments by any other third party payors on the Financial
Statements are sufficient to pay any amounts for which Lessor may be
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liable. Lessor has received no written notices that Medicare or Medicaid have
any claims against it which may reasonably be expected to result in consolidated
net offsets against future reimbursement in excess of that provided for in such
financial statements. Neither Lessor nor any of its employees have committed a
violation of the Medicare and Medicaid fraud and abuse provisions of the federal
Social Security Act. Lessor agrees that Lessee may, in its discretion, reopen
cost reports for any period prior to Closing, and that Lessee shall be entitled
to retain any amounts which would be payable to Lessor as a result of any
adjustments thereto. Lessee agrees that it shall be responsible for any amounts
which may be payable by Lessor occasioned by Lessee's reopening thereof, and
agrees to indemnify and hold Lessor harmless from and against any such
liability.
4.16 Hill-Burton Funds. To the best of Lessor's knowledge, to the
extent funds have been received on behalf of Lessor or any predecessor of Lessor
to construct, improve or acquire any of the Assets under the "Hill-Burton" Act,
the financial obligation in respect of such funds has been fully satisfied, and
Lessee shall not be required to pay, or otherwise satisfy, any amounts as a
"recovery" or otherwise as a result of the consummation of the transactions
contemplated by this Annex A.
4.17 Taxes. Lessor has filed all tax returns required by law to be
filed and has paid all taxes, assessments and other governmental charges shown
thereon as due and payable, other than those presently payable without penalty
or interest or those being contested in good faith by appropriate procedures.
There are no liens with respect to taxes (except for liens with respect to
property taxes not yet due) upon any of the Assets. Lessor has not conducted the
Business or engaged in any transaction which would cause the transaction
contemplated hereby to be taxable under the California sales and use tax laws.
4.18 Equipment. All assets of Lessor consisting of equipment
listed on Schedule B to the Lease are in good operating condition and repair,
ordinary wear and tear excepted. Except as disclosed on Schedule 4.18, the only
transactions related thereto since June 30, 1996, have been additions thereto in
the ordinary course of business. All of such equipment (except for leased items
for which the lessors have valid security interests) at the Closing will be free
and clear of any lien or security interest or other encumbrance other than
Permitted Encumbrances.
4.19 Payments. Neither Lessor nor any affiliate or representative
thereof has, directly or indirectly, paid, delivered or agreed to pay or deliver
any fee, commission or other sum of money or item of property, however
characterized, to any person, government official or other party with respect to
the Hospital or the Business that has or is illegal under any federal, state or
local law.
4.20 Absence of Undisclosed Liabilities. Except as and to the
extent reflected or specifically reserved against (which reserves are believed
adequate in amount) in the Financial Statements or any financial statements
prepared in respect of Lessor's business thereafter, Lessor did not have, at the
date of such financial statements, any material liabilities or obligations of
any nature (whether accrued, absolute, contingent or otherwise and whether due
or to become due) required to be reflected thereon or included therein, except
for any liabilities
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which were incurred in the ordinary course of business consistent with past
practice or have been discharged or paid in full prior to the date hereof.
4.21 No Misleading Statements. No representation or warranty by
Lessor contained in the Lease or this Annex A, and no statement contained in any
Schedule (including any supplement or amendment thereto) and the documents to be
delivered at the Closing by or on behalf of Lessor to Lessee or any of its
representatives in connection with the transactions contemplated hereby (the
Schedules, including any supplement or amendment thereto, and such other
documents are herein referred to, collectively, as the "Additional Documents"),
and no written statement made or delivered by Lessor in connection with this
Annex A or the transactions contemplated hereby, contains or will contain any
untrue statement of a material fact, or, to the best of their knowledge after
due inquiry, omits or will omit to state any material fact necessary, in light
of the circumstances under which it was or will be made, in order to make the
statements herein or therein not misleading. Copies of all documents described
on any Schedule hereto shall be true, correct and complete, and all descriptions
of such documents shall be true and complete.
5. Representations and Warranties of Lessee. As of the date hereof Lessee
represents and warrants to Lessor the following:
5.1 Lessee Capacity. Lessee is a corporation duly organized,
validly existing and in good standing under the laws of the State of Tennessee
with all requisite power and authority to own, operate and lease its properties,
and carry on its business in California.
5.2 Corporate Authorization/Contract Binding. The execution,
delivery and performance by Lessee of the Lease and this Annex A and the other
agreements and transactions contemplated hereby are within Lessee's power, are
not in contravention of the terms of Lessee's Articles of Incorporation or
Bylaws, or any amendments thereto. No provisions exist in any document or
instrument to which Lessee is a party or by which Lessee is bound which would be
violated by the execution of, or the performance by Lessee, and the consummation
by Lessee of the transactions contemplated by, this Annex A. This Annex A will,
upon execution, constitute the valid, legal and binding obligation of Lessee,
enforceable against Lessee in accordance with its terms except as such may be
limited by bankruptcy and other laws of general applicability affecting sellers'
and creditors' rights and general equitable principles.
5.3 No Misleading Statements. No representation or warranty by
Lessee contained in the Lease or this Annex A, and no statement contained in any
of the documents to be delivered at the Closing by or on behalf of Lessee to
Lessor or any of its representatives in connection with the transactions
contemplated hereby, and no written statement made or delivered by Lessee in
connection with this Annex A or the transactions contemplated hereby, contains
or will contain any untrue statement of a material fact, or, to the best of its
knowledge after due inquiry, omits or will omit to state any material fact
necessary, in light of the circumstances under which it was or will be made, in
order to make the statements herein or therein not misleading.
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5.4 Full Disclosure. During the term of its management and
operation of the Business, which term began on November 1, 1996, and continuing
through the date of this Agreement, neither Lessee nor any of its Affiliates (as
that term is defined in the Lease) or any of their respective officers,
directors, employees or agents, has any actual notice or has any actual
knowledge of any fact or other information which would cause Lessor to be in
default of any representation, warranty, covenant or other agreement made by
Lessor in this Agreement or in the Lease. Lessee expressly agrees to forfeit any
and all rights of indemnification under Section 8.2 hereof or elsewhere herein
or in the Lease with respect to the breach of any such representation, warranty,
covenant or other agreement made by Lessor to the extent of any breach by Lessee
of the representation and warranty contained in this Section 4.4.
6. Covenants of Lessor. Lessor covenants and agrees as follows::
6.1 Information. Between the date of this Annex A and the Closing
Date, Lessor shall afford to the officers and authorized representatives of
Lessee reasonable access during normal business hours to the Hospital and to
Lessor's books and records and will furnish to Lessee such additional financial
data and other information relating to the Hospital or the Business as Lessee
may from time to time reasonably request. Lessor covenants and agrees to
cooperate reasonably with Lessee in Lessee's efforts (i) to make any required
filings and to obtain any governmental approvals necessary in order to
consummate the transactions contemplated hereby, (ii) to respond to any
governmental investigation of such transactions, and (iii) to defend any legal
or administrative proceedings challenging such transactions. Lessor will, upon
reasonable request, cooperate with Lessee, Lessee's representatives and counsel
in the preparation of any document or other material which may be required by
any governmental agency as a predicate to or result of the transactions herein
contemplated. With respect to Confidential Information provided by Lessor in
connection with and relative to the transactions contemplated by this Annex A,
Lessee covenants and agrees to use reasonable efforts to cause its officers,
employees, representatives and agents to hold all such Confidential Information
in strict confidence, unless compelled to disclose by judicial or administrative
process, and to return all originals and copies of any such written Confidential
Information to Lessor in the event for any reason the transactions herein are
not consummated. Any release to the public of information with respect to the
transactions herein will be made only in the form and manner approved by the
parties and their respective representatives. Lessee covenants and agrees that
it will not use, and will not knowingly permit others to use, any Confidential
Information in a manner detrimental to the Business or Lessor or to their
competitive disadvantage. For the purposes hereof, "Confidential Information"
shall mean all information of any kind concerning Lessor, obtained, directly or
indirectly, from Lessor in connection with the transactions contemplated by this
Annex A except information (i) ascertainable or obtained from public or
published information, (ii) received from a third party not known by Lessee to
be under an obligation to Lessor to keep such information confidential, (iii)
which is or becomes known to the public (other than through a breach of this
Annex A), or (iv) which was in Lessee's possession prior to disclosure thereof
to Lessee at any time prior to the commencement of Lessee's management and
operation of the Business on November 1, 1996.
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6.2 Operations. Between the date of this Annex A and the Closing
Date, with respect to the ownership of the Assets and operation of the Business,
Lessor will:
(a) carry on Lessor's business in substantially the same manner
as Lessor has heretofore and not make any material change in personnel
or operations, and not make any change in finance or accounting
policies;
(b) maintain the assets of the Business in substantially as good
working order and condition as at present, ordinary wear and tear
excepted;
(c) perform in all respects Lessor's obligations under agreements
relating to or affecting the Business;
(d) keep in full force and effect present insurance policies or
other comparable insurance coverage;
(e) use its reasonable best efforts to maintain and preserve
Lessor's business organization intact, retain Lessor's present
employees and maintain Lessor's relationship with suppliers, customers
and others having business relations with Lessor;
(f) within a reasonable time prior to Closing, permit Lessee to
make offers to any of Lessor's personnel who work at the Hospital for
employment by Lessee subsequent to the Closing, which personnel shall
be allowed to accept or reject such offers without penalty;
(g) terminate the participation of the employees that are hired
by Lessee in Lessor's employee health or welfare benefit plans, if
any, and comply with the terms and conditions of all such plans;
(h) not effect, grant or pay any increase in compensation to any
employee, officer or director of Lessor other than annual raises and
bonuses to employees and officers consistent with those effected,
granted or paid in prior years or otherwise pursuant to existing
policies; and
6.3 Certain Changes. Except as described in Schedule 6.3, between
the date of this Annex A and the Closing Date, Lessor will not, without the
prior written consent of Lessee:
(a) license or sell or agree to license or sell any of the Assets
except for the depletion of inventories sold in the ordinary course of
Lessor's business; or
(b) engage in any transaction out of the ordinary course of
business, including any sale, transfer, lease, encumbrance or granting
of a
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security interest in any portion of the Assets (except as provided in
Section 6.3(a) above); or
(c) acquire, or make any capital expenditure in respect of, any
additional items of property, plant or equipment having a value in
excess of $1,000 with respect to any one item or $10,000 in the
aggregate.
Lessor agrees to consult with Lessee with respect to entering into,
renewing or terminating any contract or lease relating to the Business and will
not enter into, renew or terminate any such contract or lease without the prior
written consent of Lessee.
6.4 Casualty. If any material part of the Hospital is damaged so
as to be rendered unusable or destroyed prior to Closing, Lessee may elect to
terminate the Lease and this Annex A and all obligations of the parties
hereunder.
6.5 Best Efforts to Close. Lessor shall use its best efforts to
proceed toward the Closing and to cause the conditions to Closing to be met as
soon as practicable and consistent with other terms contained herein. Lessor
shall notify Lessee as soon as practicable of any event or matter which comes to
Lessor's attention which may reasonably be expected to prevent the conditions to
Lessor's obligations being met.
6.6 Final Cost Report. Within one hundred fifty (150) days after
Closing, Lessor shall furnish to Lessee a copy of Lessor's final cost report
filed in respect of the Medicare and Medicaid programs, or any successor
governmental program, reflecting consummation of the transactions contemplated
hereby.
6.7 Consents. Lessor will use its reasonable best efforts to
obtain all permits, approvals, authorizations and consents of all third parties
necessary in the reasonable opinion of Lessee, prudent for the purpose of (i)
consummating the transactions contemplated hereby, or (ii) enabling the Lessee
to continue to operate the Business in the ordinary course after the Closing.
6.8 Insurance. Lessor shall take all action reasonably requested
by Lessee to enable it to succeed to the Workmen's Compensation and Unemployment
Insurance ratings, insurance policies, deposits and other interests of Lessor
and other ratings for insurance or other purposes established by Lessor. Lessee
shall not be obligated to succeed to any such rating, insurance policy, deposit
or other interest, except as it may elect to do so.
6.9 Notice; Efforts to Remedy. Lessor shall promptly give written
notice to Lessee upon becoming aware of the impending occurrence of any event
which would cause or constitute a breach of any of the representations,
warranties or covenants of Lessor contained or referred to in this Annex A and
shall use its reasonable best efforts to prevent or promptly remedy the same.
6.10 Supplements to Schedules. From time to time prior to the
Closing, Lessor will promptly supplement or amend the Schedules prepared
pursuant to Section
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4 hereof with respect to any matter hereafter arising which, if existing or
occurring at the date of this Annex A, would have been required to be set forth
or described in the Schedules or which is necessary to correct any information
in the Schedules which has been rendered inaccurate thereby; provided, however,
that upon delivery of any such supplement or amendment to the Schedules, Lessee
shall have the right to terminate this Annex A by notifying Lessor of its
election to so terminate.
6.11 Non-Competition. During the term of the Lease, neither Lessor
nor any of its subsidiaries or affiliates shall, without the prior written
consent of Lessee, directly or indirectly, (i) engage in the construction or
operation of any hospital or of any other health care facility which provides
services similar to the services provided by the Hospital or (ii) acquire, lease
or own, serve as a member or be a shareholder of or otherwise exercise
management control over a hospital or of any other health care facility which
provides services similar to the services provided by the Hospital, which, in
respect of (i) and (ii) above, is located within one hundred (100) miles of the
City of Needles, California.
6.12 Medical Office Building. Lessor acknowledges that Lessee may,
in the exercise of its sole discretion, determine to build or to have built a
medical office building ("MOB") on the campus of the Hospital. If Lessee so
determines that development of an MOB is appropriate or desirable, Lessor agrees
to use its reasonable best efforts to cooperate with Lessee with respect to the
financing and development of such MOB, provided that Lessor is not hereby
required to make any financial commitment with respect thereto.
7. Covenants of Lessee. Lessee covenants and agrees as follows:
7.1 Best Efforts to Close. Lessee shall use its best efforts to
proceed toward the Closing and to cause the conditions to Closing to be met as
soon as practicable and consistent with other terms contained herein. Lessor
shall notify Lessee as soon as practicable of any event or matter which comes to
Lessor's attention which may reasonably be expected to prevent the conditions to
Lessor's obligations being met.
7.2 Consents. Lessee will use its reasonable best efforts to
obtain all permits, approvals, authorizations and consents of all third parties
necessary in the reasonable opinion of Lessee, prudent for the purpose of (i)
consummating the transactions contemplated hereby, or (ii) enabling the Lessee
to continue to operate the Business in the ordinary course after the Closing.
7.3 Notice; Efforts to Remedy. Lessee shall promptly give written
notice to Lessor upon becoming aware of the impending occurrence of any event
which would cause or constitute a breach of any of the representations,
warranties or covenants of Lessee contained or referred to in this Annex A and
shall use its reasonable best efforts to prevent or promptly remedy the same.
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7.4 MIS System. Lessee shall provide a new management information
system for use in the operation of the Hospital within the first year of the
Lease. Lessee anticipates that the cost of such system shall be approximately
Four Hundred Thousand Dollars ($400,000).
7.5 New Equipment. Lessee shall purchase at least One Million
Dollars ($1,000,000) of new equipment for use in the Hospital within the first
two (2) years of the Lease. In addition, Lessee shall pay for that certain
"C-arm" previously ordered by Lessor. Notwithstanding the foregoing, title to
such "C-arm" shall be in the name of Lessor, and such "C-arm" shall be a part of
the "Equipment" (as that term is defined in the Lease) leased to Lessee pursuant
to the terms and conditions of the Lease. The equipment required to be purchased
by Lessee pursuant to this Section shall be in addition to the mechanical
upgrades purchased by Lessor pursuant to Section 3 of the Lease.
7.6 Working Capital. Lessee shall provide up to Two Million
Dollars ($2,000,000) in new working capital for use in the operation of the
Hospital.
7.7 Full Disclosure. On and from the date hereof continuing to and
including the Closing, Lessee covenants and agrees to disclose to Lessor in
writing any and all notices it or any of its Affiliates, or any of their
respective officers, directors, employees or agents, receive, and any actual
knowledge of any fact or other information which they now have or hereafter
acquire, which would cause Lessor to be in default of any representation,
warranty, covenant or other agreement made by Lessor in this Agreement or in the
Lease. Lessee expressly agrees to forfeit any and all rights of indemnification
under Section 8.2 hereof or elsewhere herein or in the Lease with respect to the
breach of any such representation, warranty, covenant or other agreement made by
Lessor to the extent of any breach by Lessee of the covenant and agreement
contained in this Section 7.7.
7.8 Best Efforts to Obtain Loan. Lessee shall use its best
efforts to obtain and close the loan referred to in Section 9.13 of this Annex
A or, at Lessee's option, shall waive such condition precedent to the Closing.
7.9 Tail Insurance. Lessee will obtain, at its expense, "tail"
malpractice insurance coverage which (a) provides coverage for an unlimited
period of time for claims asserted after Closing; (b) provides coverage of not
less than $1,000,000.00 per claim; (c) is provided by a carrier reasonably
acceptable to Lessor; and (d) names Lessor as an additional insured.
8. Indemnification.
8.1 Indemnity by Lessee. Lessee shall indemnify, defend and hold
harmless Lessor, its City Council, respective officers, directors, employees and
agents (jointly and severally, "Lessee Indemnified Parties") from and against
any and all liabilities, losses, damages, demands, claims, suits, actions,
judgments, causes of action, assessments, costs and expenses, including, without
limitation, interest, penalties, attorneys' fees, any and all expenses incurred
in investigating, preparing and defending against any litigation, commenced or
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threatened, or any claim whatsoever, and any and all amounts paid in settlement
of any claim or litigation (collectively, "Damages"), asserted against,
resulting to, imposed upon, or incurred or suffered by any of them, directly or
indirectly, as a result or arising from the following:
(i) any inaccuracy in or breach or nonfulfillment of any of the
representations, warranties, covenants or agreements made by Lessee in
this Annex A or the other agreements contemplated hereby;
(ii) any liability imposed on Lessor to the extent such liability
has been expressly assumed by Lessee pursuant to this Annex A or the
Assumption Agreement;
(iii) any misrepresentation in or any omission from any
certificate or other document (collectively, the "Additional
Documents") furnished or to be furnished by or on behalf of Lessee
under this Annex A;
(iv) any liability threatened or imposed on Lessor arising out of
Lessee's operation of the Business as manager of the Hospital from and
after November 1, 1996 and as lessee and operator from and after
Closing, whether or not such liability has been expressly assumed by
Lessee pursuant to any provision of this Annex A; and
(v) any liability threatened or imposed on Lessor arising out of
a breach by Lessee of Sections 5.4 or 7.7 which would otherwise not
have been threatened or imposed on Lessor had Lessee not breached
Section 5.4 or 7.7.
The indemnification obligations of Lessee with respect to those
matters set forth in subsections (i), (ii) and (iii), above, shall survive for a
period not to exceed the greater of (i) the applicable statute of limitations
period under California law, if any, or (ii) five (5) years. The indemnification
obligations of Lessee with respect to those matters set forth in subsections
(iv) and (v), above, shall survive indefinitely.
To be entitled to such indemnification, Lessee Indemnified Party
shall give Lessee prompt written notice of any breach or of the assertion by a
third party of any claim with respect to which Lessee Indemnified Party may
bring a claim for indemnification hereunder, and in all events must have
supplied such notice to Lessee within the period for the defense of such claims
by Lessee. Lessee shall have the right, at its own expense, to defend and
litigate any such third party claim, and such Lessee Indemnified Party shall
cooperate in good faith with Lessee to permit Lessee to do so. Should such
Lessee Indemnified Party settle or compromise any claim or matter for which an
indemnity would be payable by a Lessee hereunder without the prior written
consent of such Lessee, Lessee shall be relieved of any liability hereunder to
such Lessee with respect to such claim or matter.
8.2 Indemnity by Lessor and the City of Needles, California.
Subject to the provisions of Section 5.4 and Section 7.7, for a period not to
exceed the greater of (i) the applicable statute of limitations period under
California law, if any, or (ii) five (5)
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years from and after Closing, Lessor and the City of Needles, California
(jointly and severally, the "Lessor Indemnifying Party") shall indemnify, defend
and hold harmless Lessee and its respective officers, directors, employees,
shareholders and agents (jointly and severally, the "Lessor Indemnified
Parties") from and against any and all Damages asserted against, resulting to,
imposed upon, or incurred or suffered by any of them, directly or indirectly, as
a result or arising out from the following:
(i) any inaccuracy in or breach or nonfulfillment of any of the
representations, warranties, covenants or agreements made by Lessor in
this Annex A or the other agreements contemplated hereby;
(ii) any liability of Lessor or liability, including without
limitation professional malpractice or general liability claims and
claims of liability under either the Medicare or Medicaid programs,
arising out of the operation of the Business prior to the Closing
which is imposed on Lessee, except to the extent such liability has
been expressly assumed by Lessee pursuant to this Annex A or the
Assumption Agreement;
(iii) any misrepresentation in any certificate or other document
(collectively, the "Additional Documents") furnished or to be
furnished by or on behalf of Lessor under this Annex A; and
(iv) any liability threatened or imposed on Lessee arising out of
Lessor's operation of the Business on or before the Closing Date.
To be entitled to such indemnification, a Lessor Indemnified Party
shall give Lessor Indemnifying Party prompt written notice of any breach or the
assertion by a third party of any claim with respect to which a Lessor
Indemnified Party may bring a claim for indemnification hereunder, and in all
events must have supplied such notice to Lessor Indemnifying Party within the
applicable period for defense of such claims by Lessor Indemnifying Party. At
the request of Lessor Indemnifying Party, Lessor Indemnified Party shall contest
in good faith by appropriate proceedings any claim or matter for which an
indemnity may be payable by Lessor Indemnifying Party hereunder. In the
alternative, Lessor Indemnifying Party shall also have the right, at its own
expense, and at its option, to contest any such third party claim, and such
Lessor Indemnified Party shall cooperate in good faith with Lessor Indemnifying
Party to permit Lessor Indemnifying Party to do so. Should such Lessor
Indemnified Party settle or compromise any claim or matter for which an
indemnity may be payable by Lessor Indemnifying Party hereunder without the
prior written consent of Lessor Indemnifying Party, Lessor Indemnifying Party
shall be relieved of any liability hereunder with respect to such claim or
matter.
In addition to the foregoing, if any third party payor deducts
any amount from payments due Lessor Indemnified Party in respect of claims
against or amounts owed by Lessor Indemnifying Party, Lessor Indemnifying Party
will promptly reimburse Lessor Indemnified Party for the amounts so deducted
within ten (10) days after written demand therefor by Lessor Indemnified Party.
Lessor Indemnified Party agrees to give prompt written notice to Lessor
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Indemnifying Party of the assertion of any claim, formal or informal, by any
third party payor for which, if deducted by such third party payor, Lessor
Indemnified Party would be entitled to reimbursement by Lessor Indemnifying
Party hereunder and will cooperate in good faith, at no out-of-pocket cost to
Lessor Indemnified Party, with Lessor Indemnifying Party to permit Lessor
Indemnifying Party to mitigate the amount of any such claim by any such third
party payor.
8.3 Thresholds. Except for the indemnification obligations of
Lessee set forth in Sections 8.1(iv) and (v), above, for which there shall be no
threshold, Lessee shall be liable to a Lessee Indemnified Party under Section
8.1 only after total indemnification claims under Section 8.1 exceed $30,000 in
the aggregate for any year during the five (5) year indemnification period.
Lessor and The City of Needles, California shall be liable, jointly and
severally, to a Lessor Indemnified Party under Section 8.2 only after total
indemnification claims under Section 8.2 exceed $30,000 in the aggregate for any
year during the five (5) year indemnification period. Once such threshold is met
in any year, Lessee or Lessor and the City of Needles, California, as the case
may be, shall be liable for the amount of the claims in such year in excess of
such threshold.
9. Conditions Precedent to Obligations of Lessee. The obligations of Lessee
hereunder are subject to the satisfaction, on or prior to the Closing Date, of
the following conditions unless waived in writing by Lessee:
9.1 Representations/Warranties. The representations and warranties
of Lessor contained in this Annex A shall be true and correct as of the Closing
Date; and the covenants and conditions of this Annex A to be complied with or
performed by Lessor on or before the Closing Date pursuant to the terms hereof
shall have been duly complied with and performed.
9.2 Opinion of Lessor's Counsel. Lessee shall have received an
opinion from Best Best and Krieger LLP, counsel to Lessor and to the City of
Needles, California, dated as of the Closing Date and addressed to Lessee, to
the effect that: (i) Lessor has been duly appointed by the Mayor of the City of
Needles, California pursuant to Section 37603 of Title 4, Division 3, Part 2,
Chapter 5, Article 7 of the Government Code of the State of California; (ii)
Lessor has full power and authority to make, execute, deliver and perform the
Lease and this Annex A, and all proceedings required to be taken by Lessor to
authorize the execution and performance of the Lease and this Annex A, and to
sell, convey, assign, transfer and deliver the Assets described in Section 1.3,
as herein contemplated have all been duly taken and in accordance with any
applicable Sunshine Law; (iii) the City Council of the City of Needles has taken
all necessary action to approve and consent to, and has approved and consented
to Lessor to execute and perform the Lease and this Annex A; (iv) the Lease and
this Annex A and all, assignments and other instruments of conveyance and
transfer delivered hereunder constitute the valid and binding obligations of
Lessor, enforceable in accordance with their terms, subject to bankruptcy and
other similar laws affecting creditors' rights and debtors' relief generally and
subject to general principles of equity; (v) except as specifically set forth in
Annex A or any Schedule to Annex A, neither the execution and delivery of the
Lease and this Annex A nor the consummation of the asset sale transaction herein
contemplated conflicts with, or results in a breach of, any resolution or act or
governing instrument of Lessor or any
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material agreement or instrument known to Lessor's counsel to which Lessor is a
party or by which Lessor or the Assets are bound; and (vi) such other matters as
may be reasonably requested by Lessee.
9.3 Pre-Closing Confirmations. Lessee shall have obtained
documentation or other evidence confirming the following:
(a) confirmation and effective transfer or reissuance of the
appropriate licensure of the Hospital if and to the extent required by
the State of California for its continued operation after Closing; and
(b) confirmation of Medicare and Medicaid certification of the
Hospital if and to the extent required for its continued operation
after Closing.
9.4 Action or Proceeding. No action, proceeding, investigation or
administrative hearing before a court or any other governmental agency or body
shall have been instituted or threatened against Lessor or Lessee which seeks
injunctive relief in anticipation of the sale of the Assets and may reasonably
be expected to prohibit the sale of the Assets to Lessee or seeks damages in a
material amount by reason of the consummation of such sale.
9.5 Schedules. Lessee shall have been furnished with those
Schedules enumerated on the Table of Schedules updated to the most recent
practicable date prior to Closing to the extent of any changes therein to which
Lessor has knowledge and Lessee shall not have expressed reasonable objection to
Lessor in writing with respect thereto.
9.6 Consents; Licenses. All notices to, and consents,
authorizations, approvals and waivers from, third parties required for Lessor to
consummate the transactions contemplated hereby or required in connection with
Lessor's assignment and Lessee's assumption of any Contract or Lease shall have
been made and obtained. Lessee shall have reason to believe that the California
Department of Health shall issue to Lessee promptly after the Closing a license
to operate the Hospital and all presently authorized supplemental and special
services shall be so authorized for Lessee on and after Closing.
9.7 Proceedings and Documents Satisfactory. Lessee shall have
received such certificates, opinions and other documents as it or its counsel
may reasonably require in order to consummate the transactions contemplated
hereby, all of which shall be in form and substance reasonably satisfactory to
it and its counsel. All proceedings in connection with the transactions
contemplated herein and all certificates and documents delivered to Lessee
pursuant to this Annex A shall be reasonably satisfactory in form and substance
to Lessee and its counsel acting reasonably and in good faith.
9.8 Delivery of Certain Documents. At the Closing, Lessor shall
have delivered to Lessee all documents, agreements and instruments contemplated
by Section 2.2.
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9.9 Environmental Survey. Lessee shall have received
environmental assessments, satisfactory in form and substance, with respect to
the real property.
9.10 Adverse Changes. There shall not have occurred after June 30,
1996, any change in or effect on Lessor that is, or with reasonable certainty
might be, materially adverse to its business, prospects, operations, properties,
assets, liabilities or condition (financial or otherwise).
9.11 Bond Financing. Lessor's Bond indebtedness secured by the
Hospital shall have been paid off or defeased to the satisfaction of Lessee.
9.12 Approval of Schedules. Lessee and Lessor shall have mutually
agreed upon the content of each Schedule hereto.
9.13 New Loan. Lessee shall have obtained and closed a loan with
an institutional lender satisfactory to Lessee on terms and conditions
satisfactory in all respects to Lessee in an amount deemed by Lessee necessary
to consummate the transactions contemplated by the Lease and this Annex A.
10. Conditions Precedent to Obligations of Lessor. The obligations of
Lessor hereunder are subject to the satisfaction, on or prior to the Closing
Date, of the following conditions unless waived in writing by Lessor:
10.1 Representations/Warranties. The representations and warranties
of Lessee contained in this Annex A shall be true and correct as of the Closing
Date; and the covenants and conditions of this Annex A to be complied with or
performed by Lessee on or before the Closing Date pursuant to the terms hereof
shall have been duly complied with and performed.
10.2 Opinion of Lessee's Counsel. Lessor shall have received from
Waller Lansden Dortch & Davis, A Professional Limited Liability Company, counsel
to Lessee, an opinion dated as of the Closing Date addressed to Lessor, in form
and substance satisfactory to Lessor to the effect that: (i) Lessee is a
corporation validly existing and in good standing under the laws of the State of
Tennessee and is duly qualified to do business in the State of California; (ii)
the execution, delivery and performance of the Lease and this Annex A has been
duly authorized by all requisite action; (iii) Lessee has full power and
authority to make, execute, deliver and perform the Lease and this Annex A, and
all proceedings required to be taken by Lessee to authorize the execution and
performance of the Lease and this Annex A as herein contemplated have all been
duly and properly taken; (iv) the Lease and this Annex A constitute valid and
binding obligations of Lessee, enforceable in accordance with their terms,
subject to bankruptcy and other similar laws affecting creditors' rights or
debtors' relief generally and subject to general principles of equity; (v)
neither the execution and delivery of the Lease and this Annex A, nor the
consummation of the transactions therein or herein contemplated, nor the
compliance and fulfillment of the terms and conditions thereof or hereof will
conflict with, or result in a breach of the terms, conditions or provisions of,
or constitute a default under the Articles of Incorporation or Bylaws of Lessee
or any agreement or instrument
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known to Lessee's counsel to which Lessee is a party or by which Lessee is bound
or affected; and (vi) such other matters as may be reasonably requested by
Lessor. Lessee's counsel's opinion may state that such counsel is not admitted
to practice in any state other than the State of Tennessee and may be limited to
the laws of the State of Tennessee, the General Corporation Law of the State of
Delaware, and the federal laws of the United States; provided however, that
Lessee's counsel shall assume, in giving such opinion, that the laws of the
State of California are identical with the laws of the State of Tennessee.
10.3 Action or Proceeding. No action, proceeding, investigation or
administrative hearing before a court or any other governmental agency or body
shall have been instituted or threatened against Lessee or Lessor which seeks
injunctive relief in anticipation of the transactions contemplated herein and
may reasonably be expected to prohibit the transactions contemplated herein or
seeks damages in a material amount by reason of the consummation of such
transactions.
10.4 Proceedings and Documents Satisfactory. Lessor shall have
received such certificates, opinions and other documents as it or its counsel
may reasonably require in order to consummate the transactions contemplated
hereby, all of which shall be in form and substance reasonably satisfactory to
it and its counsel. All proceedings in connection with the purchase of the
Assets set forth herein and all certificates and documents delivered to Lessor
pursuant to this Annex A shall be reasonably satisfactory in form and substance
to Lessor and its counsel acting reasonably and in good faith.
10.5 Delivery of Certain Documents. At the Closing, the Lessee
shall have delivered to Lessor all documents, agreements and instruments
contemplated by Section 2.3.
10.6 Approval of Schedules. Lessee and Lessor shall have mutually
agreed upon the content of each schedule hereto.
10.7 Pre-Closing Confirmations. Lessor shall have obtained
documentation or other evidence confirming the following:
(a) confirmation and effective transfer or reissuance of the
appropriate licensure of the Hospital if and to the extent required by
the State of California for its continued operation after Closing; and
(b) confirmation of Medicare and Medicaid certification of the
Hospital if and to the extent required for its continued operation
after Closing.
10.8 Consents; Licenses. All notices to, and consents,
authorizations, approvals and waivers from, third parties required for Lessor to
consummate the transactions contemplated hereby or required in connection with
Lessor's assignment and Lessee's assumption of any Contract or Lease shall have
been made and obtained. Lessor shall have reason to believe that the California
Department of Health shall issue to Lessee promptly after the Closing
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a license to operate the Hospital and all presently authorized supplemental and
special services shall be so authorized for Lessee on and after Closing.
10.9 Bond Financing. Lessor's Bond indebtedness secured by the
Hospital shall have been paid off or defeased to the satisfaction of Lessee.
10.10 Adverse Changes. There shall not have occurred after
June 30, 1996, any change in or effect on Lessee that is, or with reasonable
certainty might be, materially adverse to its business, prospects, operations,
properties, assets, liabilities or condition (financial or otherwise).
10.11 Fair Market Value Opinion. Lessor shall have received a
written fair market value opinion from Arthur Anderson LLP covering the
transactions contemplated by this Annex A and the Lease, with which Lessor, in
its sole discretion, is satisfied.
11. General.
11.1 Appendices, Schedules and Other Instruments. Each Appendix,
Schedule and Certificate, if any, to this Annex A shall be considered a part
hereof as if set forth herein in full.
11.2 Pre-Closing Access. In addition to Lessor's covenants in
Section 5.1, Lessor shall give Lessee, its accountants, its counsel, and other
representatives reasonable access to the premises, books and records, and
offices of the Hospital, and make such information in respect thereof as Lessee
may reasonably request available to Lessee, as may be necessary for Lessee to
examine the Assets being acquired. No such inspection by Lessee shall interfere
with Lessor's conduct of business in the ordinary course.
11.3 Additional Assurances. The provisions of this Annex A shall
be self-operative and shall not require further agreement by the parties except
as may be herein specifically provided to the contrary; provided, however, at
the request of either party, the other party shall execute such additional
instruments and take such additional acts as are reasonably necessary to
effectuate this Annex A.
11.4 Consents, Approvals and Discretion. Whenever this Annex A
requires any consent or approval to be given by either party or either party
must or may exercise discretion, the parties agree that such consent or approval
shall not be unreasonably withheld or delayed and such discretion shall be
reasonably exercised.
11.5 Choice of Law. THE PARTIES AGREE THAT THIS ANNEX A SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE
STATE OF CALIFORNIA.
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11.6 Benefit; Assignment. Subject to the provisions herein to the
contrary, this Annex A shall inure to the benefit of and be binding upon the
parties hereto and their respective legal representatives, successors and
assigns; provided, however, that no party may assign this Annex A without the
prior written consent of the other party.
11.7 Brokerage. Lessor on one hand and Lessee on the other hand
agree to indemnify the other parties from and against all loss, cost, damage or
expense arising out of claims for fees or commissions of brokers employed or
alleged to have been employed by such indemnifying party.
11.8 Cost of Transaction. Whether or not the transactions
contemplated hereby shall be consummated, the parties agree as follows: (i)
Lessor will pay the fees, expenses, and disbursements of Lessor and its agents,
representatives, accountants, and counsel incurred in connection with the
subject matter hereof and any amendments hereto; and (ii) Lessee shall pay the
fees, expenses and disbursements of Lessee and its agents, representatives,
accountants and counsel incurred in connection with the subject matter hereof
and any amendments hereto. Lessor shall pay any transfer taxes and recording
fees resulting from the consummation of the transactions contemplated hereby.
11.9 Confidentiality. It is understood by the parties that the
information acquired by, and the documents and instruments delivered to, Lessee
or the shareholder, affiliates, officers, employees or agents of Lessee
(collectively, "Agents"), by Lessor or Lessor's officers, employees or agents
(collectively, "Lessor" and "Lessor's Agents") are of a confidential and
proprietary nature. Lessee agrees that it will and will use its best efforts to
cause Agents to maintain the confidentiality of all such information, documents
or instruments acquired by or delivered to Lessee and Agents in connection with
the negotiation of this Annex A or in compliance with the terms, conditions and
covenants hereof and only to disclose such information, documents and
instruments to such duly authorized persons as are necessary to effect the
transaction contemplated hereby. Lessee further agrees that if the transactions
contemplated hereby are not consummated, Lessee and Agents will promptly return
all documents and instruments acquired from Lessor or its affiliates and all
copies thereof in their possession to Lessor, and will not use any such
non-public information in any way to compete with Lessor or Lessor's respective
affiliates, successors or assigns or in a manner which would be detrimental to
the businesses, financial affairs or reputations of Lessor or Lessor's
respective officers and affiliates, successors and assigns. Lessee for itself
and Agents recognizes that any breach of this Section 10.9 would result in
irreparable harm to Lessor and Lessor's respective officers and affiliates and
that therefore either Lessor or any of Lessor's respective officers and
affiliates shall be entitled to an injunction to prohibit any such breach by
Lessee and Agents in addition to all of their other legal and equitable
remedies. Nothing in this Section 10.9 shall prohibit the use of such
confidential information, documents or information for such governmental filings
as are required by law or governmental regulations or the disclosure of such
confidential information if such disclosure is compelled by judicial or
administrative process.
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11.10 Waiver. The waiver by either party of a breach or violation
of any term or provision of this Annex A shall not operate as, or be construed
to be, a waiver of any subsequent breach of the same provision by any party or
of the breach of any other term or provision of this Annex A. The delay or a
failure of a party to transmit any written notice hereunder shall not constitute
a waiver by such party of any default hereunder or of any other or further
default under this Annex A except as may expressly be provided for by the terms
of this Annex A.
11.11 Tax Allocation. The allocation of the Purchase Price for tax
purposes shall be made in a manner reasonable determined by Lessor and disclosed
to Lessee in writing prior to the Closing. Such allocation shall be set forth in
a statement prepared in accordance with Section 1060 of the Internal Revenue
Code of 1986, as amended, which statement shall be prepared in a manner
generally consistent with the form of Internal Revenue Service Form 8594. Lessee
and Lessor shall cooperate in the preparation of such statement of allocation
and each party hereto shall file a copy of such statement as required by
applicable law.
11.12 Interpretation. Each of the parties has agreed to the use
of the particular language of the provisions of this Annex A including all
attached Appendices and Schedules, and any questions of doubtful interpretation
shall not be resolved by any rule or interpretation against the draftsman but
rather in accordance with the fair meaning thereof, having due regard to the
benefits and rights intended to be conferred upon the parties hereto and the
limitations and restrictions upon such rights and benefits intended to be
provided.
11.13 Notice. Any notice, demand or communication required,
permitted, or desired to be given hereunder shall be in writing and shall be
deemed effectively given when personally delivered or mailed by prepaid
certified mail, return receipt requested, addressed as follows:
Lessor: Board of Trustees
Needles Desert Communities Hospital
Needles, California 92363
Attention: Chairman
with a copy to:
City of Needles, California
817 Third Street
Needles, California 92363
Attention: City Attorney
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and
Best Best & Krieger LLP
3750 University Avenue, Suite 400
Riverside, California 92502-1028
Attention: George M. Reyes, Esq.
Lessee: Principal-Needles, Inc.
109 Westpark Drive, Suite 180
Brentwood, Tennessee 37027
Attention: Chief Executive Officer
with a copy to:
Waller Lansden Dortch & Davis,
A Professional Limited Liability Company
Nashville City Center
511 Union Street, Suite 2100
Nashville, Tennessee 37219
Attention: Franklin A. Berryman, Esq.
or to such other address, and to the attention of such other person or officer
as any party may designate, with copies thereof to the respective counsel
thereof as notified by such party.
11.14 Severability. In the event any provision of this Annex A is
held to be invalid, illegal or unenforceable for any reason and in any respect,
such invalidity, illegality, or unenforceability shall in no event affect,
prejudice or disturb the validity of the remainder of this Annex A, which shall
be in full force and effect, enforceable in accordance with its terms,
including, without limitation, those terms which contemplate or require the
further agreements of the parties. Furthermore, in lieu of such illegal, invalid
or unenforceable provision, there shall be added automatically as a part of this
Annex A provision as similar in terms to such illegal, invalid or unenforceable
provision as may be possible and still be legal, valid or enforceable.
11.15 Gender and Number. Whenever the context of this Annex A
requires, the gender of all words herein shall include the masculine, feminine
and neuter, and the number of all words herein shall include the singular and
plural.
11.16 Divisions and Headings. The divisions of this Annex A into
sections and subsections and the use of captions and headings in connection
therewith are solely for convenience and shall have no legal effect in
construing the provisions of this Annex A.
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11.17 Consented Assignment. Anything contained herein to the
contrary notwithstanding, this Annex A shall not constitute an agreement to
assign any claim, right, contract, license, lease, commitment, sales order or
purchase order if an attempted assignment thereof without the consent of another
party thereto would constitute a breach thereof or in any material way affect
the rights of Lessor thereunder, unless such consent is obtained. If such
consent is not obtained, or if an attempted assignment would be ineffective or
would materially affect Lessor's rights thereunder so that Lessee would not in
fact receive all such rights, Lessor shall cooperate in any reasonable
arrangement designed to provide for Lessee the benefit under any such claims,
rights, contracts, licenses, leases, commitments, sales orders or purchase
orders, including, without limitation, enforcement, at no out-of-pocket cost to
Lessor, of any and all rights of Lessor against the other party or parties
thereto arising out of the breach or cancellation by such other party or
otherwise.
11.18 Survival. All statements made by the parties hereto herein
or in the Schedules or in any other financial statement, document, instrument,
certificate, exhibit or list delivered to each other hereunder by or on behalf
of parties hereto shall be deemed representations and warranties of the parties
hereto regardless of any investigation made by or on behalf of Lessee.
Furthermore, the representations, warranties, covenants and agreements made by
the parties in this Annex A shall survive the Closing for a period of five (5)
years, except for the representations and warranties of Lessor set forth in
Section 3.7 which shall survive indefinitely.
11.19 Entire Agreement; Amendment. This Annex A supersedes all
prior contracts, understandings and agreements, whether written or oral, and
constitutes the entire agreement of the parties respecting the within subject
matter and no party shall be entitled to benefits other than those specified
herein. As between or among the parties, no oral statements or prior written
material not specifically included herein shall be of any force and effect; the
parties specifically acknowledge that in entering into and executing this Annex
A, the parties rely solely upon the representations and agreements contained in
this Annex A and no others. No terms, conditions, warranties, or
representations, other than those contained herein and no amendments or
modifications hereto, shall be binding unless made in writing and signed by the
party to be charged.
11.20 Counterparts. This Annex A may be executed in multiple
originals or counterparts, each and all of which shall be deemed an original and
all of which together shall constitute but one and the same instrument.
11.21 Risk of Loss. Notwithstanding any other provision hereof to
the contrary, the risk of loss in respect of casualty to the Assets shall be
borne by Lessor through the time of Closing and by the Lessee thereafter.
11.22 Due Diligence. The parties acknowledge and agree that they
have executed this Annex A (i) prior to Lessee having completed its due
diligence with respect to the transactions described in this Annex A, and (ii)
without there being attached hereto all of
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<PAGE> 97
the Schedules required by this Lease, or, in the case where a Schedule has been
attached, it may not contain all of the information required to make it
complete. Lessor shall provide full and complete Schedules on or before July 24,
1997, and may amend or supplement any theretofore submitted Schedules on or
before such date. Such finally submitted complete Schedules submitted on or
before July 24, 1997, shall be deemed part of this Lease and incorporated herein
as of the date hereof as if originally submitted to Lessee and attached hereto
as of the date hereof. Lessee shall have until July 31, 1997 (the "Due Diligence
Period") to review the Schedules and complete its due diligence. The Due
Diligence Period may be modified by mutual written agreement of Lessor and
Lessee, and shall be extended a reasonable period of time to allow Lessee to
consider and conduct due diligence with respect to the Schedules.
Notwithstanding the foregoing, if for any reason in its sole discretion, Lessee
is dissatisfied with the result of its due diligence, whether it relates to the
Schedules or otherwise, Lessee may terminate this Annex A and the Lease, and
thereafter this Annex A and the Lease, and the rights and obligations of the
parties under this Annex A and the Lease shall be null and void.
11.23 Loan of Operating Funds. Between the date of the execution
of this Annex A and the Closing Date, Lessee shall loan to Lessor the amount of
any cash flow shortfall related to the operation of the Hospital. Each advance
shall be evidenced by a promissory note, bearing interest at the variable rate
of the Prime Rate as published from time to time in the Money Rates section of
the Wall Street Journal, payable in four equal installments of principal plus
accrued interest thereon commencing on the fifteenth (15th) day of the month
following the month of Closing, and secured by a first priority security
interest in all of Lessor's accounts receivable relating to the Business.
11.24 Payment of Additional Amount. Lessee shall pay Lessor an
additional $100,000 at Closing. Such amount shall be used by Lessor to pay a
portion of the obligations of Lessor to Leon Berger pursuant to his severance
arrangements with Lessor.
11.25 Confirmation of Financial Ability to Perform. Lessee shall
provide Lessor on or before the execution of this Annex A with a letter from the
private equity firm of Golder, Thoma, Cressey, Rauner, Inc. confirming Lessee's
financial ability to consummate the transactions described herein.
11.26 Guaranty by Principal Hospital Company. Lessee shall cause
Principal Hospital Company to guaranty Lessee's obligations under the Lease and
this Annex A pursuant to that certain Guaranty substantially in the form
attached hereto as Appendix 11.26.
11.27 Fair Market Value Opinion. The parties acknowledge and agree
that Lessor has executed this Annex A prior to receiving a written fair market
value opinion from Arthur Anderson LLP covering the transactions contemplated by
this Annex A and the Lease. Notwithstanding any other provision in this Annex A
and the Lease, if, for any reason in its sole discretion, Lessor is dissatisfied
with the written fair market value opinion obtained from Arthur Anderson LLP,
then Lessor may terminate this Annex A and the Lease, and,
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<PAGE> 98
thereafter, this Annex A and the Lease, and the rights and obligations of the
paries under this Annex A and the Lease, shall be null and void.
11.28 Hill-Burton Obligations. In the event that any obligation or
liability is asserted, or any action is brought, against either Lessor or Lessee
under the federal Hill-Burton program or other restricted grant and loan
programs arising out of the ownership and operation of the Hospital by Lessor
prior to the Closing or with respect to the consummation of the transactions
contemplated by the Lease and this Annex A, Lessor and Lessee shall cooperate in
good faith with one another to defend against such assertion or action.
IN WITNESS WHEREOF, the parties hereto have caused this Annex A to be
executed in multiple originals by their duly authorized officers and their
corporate or official seals duly affixed hereto, all as of the day and year
first above written.
PRINCIPAL-NEEDLES, INC.
By: /s/ Christine A. Craft
----------------------------------
Name: Christine A. Craft
-----------------------------
Title: Vice President, Acquisitions
and Development
----------------------------
THE BOARD OF TRUSTEES OF NEEDLES
DESERT COMMUNITIES HOSPITAL
By: /s/ Evelyn R. Connelly
----------------------------------
Name: Evelyn R. Connelly
-----------------------------
Title: President
----------------------------
APPROVED BY AND AGREED TO:
THE CITY COUNCIL OF THE
CITY OF NEEDLES, CALIFORNIA
By: /s/ Murl L. Shaver
------------------------------
Name: Murl L. Shaver
------------------------
Title: Mayor
-----------------------
APPROVED AS TO FORM BY
THE CITY ATTORNEY FOR THE
CITY OF NEEDLES, CALIFORNIA
By: /s/ Robert Hargreaver
------------------------------
Name: Robert Hargreaver
------------------------
Title: City Attorney
-----------------------
40
<PAGE> 99
SCHEDULES
1.2(a) Licenses
1.3(a) Contracts
1.3(b) Prepaid Expenses
4.3 Financial Statements
4.4 Licenses
4.5 Certain Contracts
4.6 Certain Leases
4.7(a) Permitted Encumbrances
4.7(b) Title Policies
4.7(c) Structural Defects
4.7(d) Rental and Lease Payments
4.7(e) UCC Searches
4.8 Employee Benefits Plans
4.9 Litigation
4.10 Insurance Policies
4.11 Post-Balance Sheet Results
4.12 Lessor's Employees
4.14 JCAHO Accreditation
4.18 Undisclosed Liabilities
6.3 Certain Changes
APPENDICES
1.6(a) Form of Assignment and Assumption
2.2(ii) Form of Bill of Sale
3.6 Hospital Board Bylaws
3.11 Indigent Care Policy
11.27 Form of Guaranty
v
<PAGE> 1
Exhibit 10.23
PURCHASE AND SALE AGREEMENT
THIS AGREEMENT is made and entered into as of the 25th day of November,
1996 by and between Brim, Inc. ("Brim"), an Oregon corporation, Brim Senior
Living, Inc. ("BSL"), an Oregon corporation and Brim Pavilion, Inc., an Oregon
corporation ("BPI") (collectively "Seller") and Plaza Enterprises, L.L.C., a
Nevada limited liability company ("Purchaser").
RECITALS
A. Seller is the owner of certain rights and interests related to three
medical office buildings in Portland, Oregon, Scottsdale, Arizona and Los
Angeles, California.
B. Seller is interested in selling those rights and interests and
Purchaser is interested in acquiring the same.
C. Seller and Purchaser are interested in documenting the terms and
conditions under which said purchase and sale shall occur.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants of the parties set forth herein, IT IS HEREBY AGREED AS
FOLLOWS:
AGREEMENT
PURCHASE AND SALE.
1. On the terms and subject to the conditions set forth herein, Seller
shall sell, assign, transfer and convey to Purchaser and Purchaser shall
purchase and accept the following assets:
a. All of Seller BPI's right, title and interest in and to its general
partnership interest (the "Pavilion Partnership Interest") in
Physician's Pavilion Partners Limited Partnership, an Oregon limited
partnership (the "Pavilion Partnership");
b. All of Seller BPI's right, title and interest in and to its general
partnership interest (the "Scottsdale Partnership Interest") in
Scottsdale Limited Partnership, an Oregon limited partnership (the
"Scottsdale Partnership");
c. All of Seller BSL's right, title and interest in and to that Lease
of Real Property and Lease-Back of Real Property Agreement dated
November 28, 1989 between BSL and the County of Los Angeles (the "MLK
Lease") with respect to the real property located in Los Angeles,
California and more particularly described in Exhibit A (the "MLK Real
Property") and all of BSL's right, title and interest in (i) the
fixtures and improvements located on the MLK Real Property including
that two story, 10,250 square foot medical office building known as the
MLK Medical Office Building (collectively the "MLK MOB"), and (ii) any
and
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<PAGE> 2
all security deposits, pre-paid rents or other similar sums paid to
and/or being held by Seller in connection therewith (the "MOB Cash")
(Seller's right, title and interest in the MLK Lease and the MLK MOB
are collectively referred to as the "MLK Interests").
d. All of Seller Brim's right, title and interest in and to that
Medical Office Building Management Agreement dated December 1, 1993
between Physicians Pavilion Partners Limited Partnership and Brim, as
successor in interest by merger to Brim Enterprises, Inc.
(the "Pavilion Management Agreement").
e. All of Seller Brim's right, title and interest in and to that
Medical Office Building Management Agreement dated December 26, 1991
between Scottsdale Limited Partnership and Brim, as successor in
interest by merger to Brim Enterprises, Inc. (the "Scottsdale
Management Agreement").
Hereinafter the foregoing shall sometimes be collectively referred to
as "Seller's Assets."
PURCHASE PRICE
2. The purchase price payable by Purchaser to Seller for Seller's Assets shall
be equal to the sum of (i) Four Hundred Six Thousand Five Hundred and no/100
Dollars ($406,500.00) and (ii) the outstanding principal balance due under that
Promissory Note dated November 20, 1990 executed by BSL in favor of US National
Bank of Oregon and any and all documents executed in conjunction therewith (the
"MLK Loan Documents"), a true and correct copy of which are attached hereto as
Exhibit B. The purchase price shall be payable by the delivery of immediately
available funds at Closing in the amount of $406,500 as the same may be adjusted
by the net costs and prorations provided for in Paragraph 5 and reduced by the
amount of the MOB Cash, if any and (iii) the assumption at Closing of the MLK
Loan Documents. The cash portion of the purchase price shall be allocated among
the Seller's Assets as follows:
<TABLE>
<S> <C>
Pavilion Partnership Interest $347,000
Scottsdale Partnership Interest $ 2,499
MLK Real Property, MLK MOB,
MLK Lease $ 57,000 (plus assumption of the
debt evidenced by the MLK cost
documents)
Management Agreements $ 1
</TABLE>
In the event that prior to the Closing Date, a material portion of the
MLK Real Property or the MLK MOB shall have been damaged or destroyed by fire or
other casualty, or shall have been taken or condemned by any public or
quasi-public authority under the power of eminent domain, Purchaser shall not
have the right to terminate but the purchase price due at Closing which is
allocable to the MLK Interests (calculated by reference to the cash portion of
the purchase price associated thereto and the then outstanding principal balance
due under the MLK Loan Documents) shall be reduced by such amount as is fair and
equitable in light of the nature of such damage or
2
<PAGE> 3
destruction and Seller shall assign to Purchaser all of its rights to any
insurance proceeds or condemnation award and all claims in connection therewith.
CLOSING
3. Provided all of the conditions to closing set forth in Paragraphs 13 and 14
have been satisfied or waived, the Closing of the purchase and sale under this
Agreement (the "Closing") shall take place on the date on which the closing of
the Other Brim Transactions (as defined below) occurs (the "Closing Date").
Closing shall occur at the offices of Seller or at such other place as Purchaser
and Seller may mutually agree. Time is of the essence hereto.
CONVEYANCE
4. Conveyance of the Seller's Assets to Purchaser shall be effected by (i) an
Assignment and Assumption Agreement in the form attached hereto as Exhibit C,
duly executed by Seller BPI in the case of the Pavilion Partnership Interest and
the Scottsdale Partnership Interest and (ii) an Assignment and Assumption
Agreement and Bill of Sale in the form attached hereto as Exhibit D, duly
executed by Seller BSL in the case of the Pavilion Management Agreement, the
Scottsdale Management Agreement, and the MLK Interests and (iii) an Assignment
and Assumption Agreement and Bill of Sale in the form attached hereto as Exhibit
E, duly executed by Seller Brim in the case of the Pavilion Management Agreement
and the Scottsdale Management Agreement (collectively, the "Conveyancing
Documents"). Title to the MLK Interests, the Pavilion Partnership Interest and
the Scottsdale Partnership Interest shall be conveyed from Seller to Purchaser
free and clear of all liens, charges, easements and encumbrances of any kind,
and on and as of the Closing Date, the MLK Real Property, the MLK MOB, the
Pavilion Real Property and Improvements (as hereinafter defined) and the
Scottsdale Real Property and the Scottsdale Improvements (as hereinafter
defined) shall each be vested in the fee owner thereof free and clear of all
liens, charges, easements and encumbrances of any kind other than the following
(the "Permitted Encumbrances"):
a. A lien for real estate taxes that are not yet due and payable;
b. Such items of record as would be reflected in a title report
prepared with respect to the MLK Real Property, the Pavilion Real
Property and the Scottsdale Real Property;
c. The effect of laws, ordinances and governmental regulations binding
thereon, including, but not limited to, all applicable building,
zoning, land use and environmental ordinances and regulations affecting
such real property interests;
d. The MLK Lease, the MLK Subleases, the Airspace Lease, the Master
Lease, the Pavilion Subleases and the Scottsdale Leases (as such terms
are hereinafter defined); and
e. Any Liens evidencing, or securing the obligations under, the MLK
Loan Documents.
3
<PAGE> 4
COSTS, PRORATIONS AND ADJUSTMENTS
5. The costs of the transaction and the expenses related to the ownership and
operation of the Seller's Assets shall be allocated between Seller and Purchaser
as follows:
a. Seller shall pay any transfer or documentary stamp or excise tax due
on the recording of the assignment and transfer of the MLK Interests
and the quitclaim deed referenced in Paragraph 4.
b. All revenues which can be identified as of the Closing Date, which
relate to the period prior to the Closing Date and which have not been
collected by Seller as of the Closing Date, including but not limited
to rent due from Los Angeles County under the MLK Lease and
distributions due to Seller BPI with respect to the Pavilion
Partnership Interest and the Scottsdale Partnership Interest (the
"Pre-Closing Revenues") and all expenses which can be identified as of
the Closing Date, which relate to the period prior to the Closing Date
and which have not been paid as of the Closing Date, including
principal and interest due under the MLK Loan Documents (the
"Pre-Closing Expenses") related to the ownership or operation of the
Seller's Assets shall be the property and/or responsibility of Seller;
provided, however, that the net amount thereof shall serve to increase
or decrease the cash portion of the purchase price due from Purchaser
to Seller at Closing, after which Purchaser shall be entitled to retain
all such Pre-Closing Revenues when collected after Closing and shall be
obligated to pay all such Pre-Closing Expenses after Closing.
c. If and to the extent Seller BSL is responsible therefor under the
terms of the MLK Lease and the amount thereof can be identified at
Closing, real and personal Property taxes with respect to the MLK Real
Property and/or the MLK MOB shall be prorated as of the Closing Date,
with Seller BSL responsible therefor for the period prior to the
Closing Date; provided, however, that the net amount thereof shall
serve to increase or decrease the cash portion of the purchase price
due from Purchaser to Seller at Closing, after which Purchaser shall be
obligated to pay all such taxes as and when the same come due after
Closing.
d. If and to the extent Seller BSL is responsible therefor under the
terms of the MLK Lease, Seller BSL shall arrange for a final statement
with respect to all utilities serving the MLK Real Property and the MLK
MOB as of the Closing Date and shall pay all fees identified thereon
and Purchaser shall arrange for all such utilities to be billed in its
name from and after the Closing Date and shall pay all fees due
therefor as of the Closing Date.
e. Purchaser and Seller shall each pay their own attorney's fees.
f. Purchaser and Seller shall share any escrow fees on a 50-50 basis.
g. Purchaser shall pay any and all costs, fees and expenses related to
its assumption of the MLK Loan Documents.
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<PAGE> 5
h. Purchaser shall be responsible for all of the expenses related to
the ownership and operation of the Seller's Assets from and after the
Closing Date, including any expenses which relate to the period prior
to the Closing Date whether or not included in the Pre-Closing Expenses
for which Purchaser receives a credit at Closing.
POSSESSION
6. At Closing, Purchaser shall be entitled:
a. To exercise and enjoy all of the rights and privileges appurtenant
to or arising from the Pavilion Partnership Interest and the Scottsdale
Partnership Interest including, without limitation, the right to
receive distributions, the right to manage the applicable partnership
as the general partner thereof, and the right to vote as a partner in
the applicable partnership on matters submitted to partnership vote or
consent;
b. To exercise and enjoy all of the rights and privileges of the
"Developer" under the MLK Lease;
c. To exercise and enjoy all of the rights and privileges of the
"Manager" under the Pavilion Management Agreement and the Scottsdale
Management Agreement; and
d. To possession of the MLK MOB.
In each case subject to the rights and/or obligations of the other
party or parties to, as applicable, the Agreement of the Scottsdale Limited
Partnership Agreement dated December 26, 1991 (the "Scottsdale Partnership
Agreement"), the First Amended and Restated Agreement of Limited Partners of the
Physicians' Pavilion Partners Limited Partnership dated November 25, 1992 (the
"Pavilion Partnership Agreement"), the MLK Lease, the Pavilion Management
Agreement and the Scottsdale Management Agreement, the MLK Subleases, the
Pavilion Subleases and the Scottsdale Leases.
REPRESENTATIONS AND WARRANTIES
7. Each of Brim, BPI and BSL hereby warrants and represents to Purchaser with
respect to itself but not with respect to the other entity comprising Seller
that:
a. Status of Seller. It is a corporation duly organized, validly
existing and in good standing under the laws of the State of Oregon and
is duly qualified to do business in the States of Arizona and
California to the extent such qualification is required in connection
with its ownership of that portion of the Seller's Assets pertaining to
real or personal property located in such states.
5
<PAGE> 6
b. Seller's Authority. It has full power and authority to execute and
to deliver this Agreement and all related documents, and to carry out
the transaction contemplated herein. This Agreement is valid, binding
and enforceable against each of Brim, BPI and BSL in accordance with
its terms, except as such enforceability may be limited by creditors'
rights laws and applicable principles of equity. The execution of this
Agreement and the consummation of the transaction contemplated herein
do not result in a breach of the terms and conditions of nor constitute
a default under or violation of its charter or any law, regulation,
court order, mortgage, note, bond, indenture, agreement, license or
other instrument or obligation to which it is now a party or by which
it or any of its assets may be bound or affected.
c. Title. With respect to the title of the Seller's to the Seller's
Assets the Seller's represent as follows:
A. Seller BPI represent that:
(i) BPI has good and marketable title to the Pavilion
Partnership Interest and the Scottsdale Partnership Interest
free and clear of all liens and encumbrances.
(ii) The Pavilion Partnership has a valid, enforceable and
insurable leasehold interest in the airspace above the
Pavilion Real Property under and pursuant to that certain
Airspace Lease, free and clear of all liens or encumbrances
other than the Master Lease, those certain subleases listed in
Exhibit F to this Agreement (the "Pavilion Subleases"), and
the other liens and encumbrances permitted by the terms
hereof;
(iii) The Airspace Lease, in the form attached to this
Agreement as Exhibit G, is in full force and effect and
unmodified, and no event or circumstance exists or has
occurred that, with notice, the passage of time, or both,
would constitute a default under the Airspace Lease by either
OHSU or the Pavilion Partnership;
(iv) The Pavilion Partnership has good, marketable and
insurable fee title to the Pavilion Improvements, and the
Pavilion Partnership owns, or has a valid and enforceable
right to use, all of the other properties and assets occupied
by, used in or necessary to the conduct of the Pavilion
Partnership's business, in each case free and clear of all
liens and encumbrances other than the Master Lease, the
Pavilion Subleases and those other liens and encumbrances
permitted by the terms hereof;
(v) The Master Lease and each of the Pavilion Subleases, in
the form delivered to Purchaser before the date of the
Agreement, is in full force and effect and unmodified, and no
event or circumstance exists or has occurred that, with
notice, the passage of time, or both, would constitute a
default under either the Master Lease or
6
<PAGE> 7
any such Pavilion Subleases by either Pavilion Partnership,
OHSU or the physician subtenant thereunder;
(vi) With respect to the loan to the Pavilion Partnership and
secured, among other things, by the Airspace Lease and the
Pavilion Improvements, no event or circumstance exists or has
occurred that, with notice, the passage of time, or both,
would constitute a default under any document or instrument
evidencing or securing such loan;
(vii) Neither the Pavilion Partnership nor any real or
personal asset that it owns is currently in default or
violation of any regulation, court order, mortgage, note,
bond, indenture, agreement, license or other instrument or
obligation to which it or such assets are a party or are bound
or affected;
(viii) The Scottsdale Partnership has good, marketable,
insurable fee simple title to the Scottsdale Real Property and
Improvements, and the Scottsdale Partnership owns, or has a
valid and enforceable right to use, all of the other
properties and assets occupied by, used in or necessary to the
conduct of the Scottsdale Partnership's business, in each case
free and clear of all liens and encumbrances other than those
certain physician leases listed in Exhibit H to this Agreement
(the "Scottsdale Leases"), and the other liens and
encumbrances permitted by the terms hereof;
(ix) Each of the Scottsdale Leases is in full force and effect
and unmodified, and no event or circumstance exists or has
occurred that, with notice, the passage of time, or both,
would constitute a default under any Scottsdale Leases by
either the Scottsdale Partnership or a physician tenant
thereunder;
(x) With respect to the loan to the Scottsdale Partnership and
secured, among other things, by the Scottsdale Real Property
and Improvements, no event or circumstance exists or has
occurred that, with notice, the passage of time, or both would
constitute a default under any document or instrument
evidencing or securing such loan;
(xi) Neither the Scottsdale Partnership nor any real or
personal asset that it owns is currently in default or
violation of any regulation, court order, mortgage, note,
bond, indenture, agreement, license or other instrument or
obligation to which it or such assets are a party or are bound
or affected;
B. Seller BSL represents that:
(i) BSL has a valid, enforceable and insurable leasehold
interest in the MLK Real Property under and pursuant to the
MLK Lease, free and clear of all liens or encumbrances other
than those certain physician subleases listed in Exhibit I to
this
7
<PAGE> 8
Agreement (the "MLK Subleases"), and the other liens and
encumbrances permitted by the terms hereof;
(ii) The MLK Lease, in the form attached to this Agreement as
Exhibit J, is in full force and effect and unmodified, and
that no event or circumstance exists or has occurred that,
with notice, the passage of time, or both, would constitute a
default under the MLK Lease by either the County of Los
Angeles or BSL;
(iii) BSL has good, marketable and insurable fee title to the
MLK MOB, and BSL owns, or has a valid and enforceable right to
use, all of the other properties and assets occupied by, used
in or necessary to the conduct of its business at the MLK MOB,
in each case free and clear of all liens and encumbrances
other than the MLK Subleases and those other liens and
encumbrances permitted by the terms hereof;
(iv) Each of the MLK Subleases is in full force and effect and
unmodified, and that no event or circumstance exists or has
occurred that, with notice, the passage of time, or both,
would constitute a default under any such MLK Subleases by
either BSL or the physician subtenant thereunder.
(v) Neither BSL nor any real or personal asset that it owns in
connection with the business conducted at the MLK MOB is
currently in default or violation of any regulation, court
order, mortgage, note, bond, indenture, agreement, license or
other instrument or obligation to which it or such assets are
a party or are bound or affected;
C. Seller's Brim represents that each of the Pavilion
Management Agreement and the Scottsdale Management Agreement,
in the forms delivered to Purchaser before the date of this
Agreement, is in full force and effect and unmodified, and
that no event or circumstance exists or has occurred that,
with notice, the passage of time, or both, would constitute a
default under either such agreement by either party thereto.
As used in this Paragraph 7(c) and elsewhere in this Agreement, the
following terms shall have the following meanings:
Scottsdale Real Property means that certain real property
owned by the Scottsdale Partnership and more particularly
described in Exhibit K.
Scottsdale Improvements means all the fixtures and
improvements on the Scottsdale Real Property.
OHSU means Oregon Health Sciences University.
8
<PAGE> 9
Pavilion Real Property means that certain real property owned
by OHSU and more particularly described in Exhibit L.
Airspace Lease means that certain Air Rights Lease between the
Pavilion Partnership and OHSU dated November 25, 1992,
pursuant to which Pavilion Partnership has the right to use,
and has constructed the Pavilion Improvements in a portion of,
the airspace above the Pavilion Real Property.
Pavilion Improvements means all of the improvements
constructed and owned by the Pavilion Partnership pursuant to
the Airspace Lease.
Master Lease means that certain Master Lease between OHSU and
the Pavilion Partnership dated December 12, 1991, under which
OHSU leases space in the Pavilion Improvements.
d. Necessary Action. It will proceed with all due diligence to take all
action and obtain all consents prior to Closing necessary for it to
lawfully enter into and carry out the terms of this Agreement.
e. Taxes and Tax Returns. All tax returns, reports and filings of any
kind or nature required to be filed by it prior to Closing with respect
to its ownership and/or operation of the portion of the Seller's Assets
owned and/or operated by it or required to be filed prior to Closing by
the Scottsdale Partnership or the Pavilion Partnership have been
properly completed and timely filed in material compliance with all
applicable requirements and all taxes or other obligations which are
due and payable by it have been timely paid.
f. Litigation. There is no litigation, investigation, or other
proceeding pending or, to the best of its knowledge, threatened against
or relating to it, its properties or business, or the properties or
business of the Scottsdale Partnership or the Pavilion Partnership
which litigation, investigation or proceeding could have a material
adverse effect on the value of the Seller's Assets, or which would
prevent it from performing its obligations hereunder, and the
transaction contemplated herein has not been challenged by any
governmental agency or any other person, nor does it know or have
reasonable grounds to know, of any basis for any such litigation,
investigation or other proceeding. For purposes hereof, litigation, an
investigation or other proceeding shall be deemed to be pending if the
same has been served on it or it has otherwise been advised either
orally or in writing of the pendency thereof.
g. Books and Records. All of the books and records maintained by it
with respect to its ownership and/or operation of the portion of the
Seller's Assets owned by it are true and correct in all material
respects.
h. The MLK Loan Documents. Seller BSL represents that attached hereto
as Exhibit B is a true and correct copy of the MLK Loan Documents.
Seller BSL further represents that
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the MLK Loan Documents are in full force and effect and have not been
modified or amended except as set forth in Exhibit B. Seller BSL has no
knowledge or notice that it is in default of any of its obligations
under the MLK Loan Documents nor is it aware of any default or any
action which, with the passage of time or the giving of notice or both
would constitute such a default. Seller BSL represents and warrants
that the MLK Real Property, the MLK MOB, and the MLK Lease have
collectively been accounted for on its books and records under
generally accepted accounting principles as a contract receivable.
i. Environmental Matters. Except in accordance with, and in full
compliance with, any and all applicable governmental laws, regulations
and requirements (collectively, the "Environmental Laws") relating to
environmental and occupational health and safety matters and hazardous
materials, substances or wastes (as defined from time to time under any
applicable federal, state or local laws, regulations or ordinances),
(A) Seller BSL has not released into the environment, or discharged,
placed or disposed of any such hazardous materials, substances or
wastes or caused the same to be so released into the environment or
discharged, placed or disposed of at, on or under the MLK Real Property
or the MLK MOB, Seller BSL has not installed any underground storage
tanks on the MLK Real Property and Seller BSL has not used the MLK Real
Property as a dump for waste material and (B) Seller BPI has not
released nor has the Scottsdale Partnership or the Pavilion Partnership
released into the environment, or discharged, placed or disposed of any
such hazardous materials, substances or wastes or caused the same to be
so released into the environment or discharged, placed or disposed of
at, in or under the Pavilion Real Property or the Scottsdale Real
Property, respectively, Seller BPI has not installed any underground
storage tanks on the Pavilion Real Property or the Scottsdale Real
Property, respectively, and neither Seller BPI, the Scottsdale
Partnership nor the Pavilion Partnership has used the Scottsdale Real
Property or the Pavilion Real Property respectively as a dump for waste
material. To the best of Seller BSL's knowledge without a Phase I
Assessment of the MLK Real Property having been conducted by Seller
BSL, and to the best of Seller BPI's knowledge without a Phase I
Assessment of the Pavilion Real Property or the Scottsdale Real
Property having been conducted, (A) no hazardous materials, substances
or wastes are located on the MLK Real Property or the MLK MOB or the
Pavilion Real Property or the Scottsdale Real Property, respectively
or have been released by Seller BSL or Seller BPI into the environment
or discharged, placed or disposed of in, on or under the MLK Real
Property or the MLK MOB or the Pavilion Real Property or the Scottsdale
Real Property by Seller BSL or Seller BPI, respectively; no underground
storage tanks are located on the MLK Real Property or the Pavilion Real
Property or the Scottsdale Real Property, respectively; the MLK Real
Property has never been used by Seller BSL as a dump for waste material
and the MLK Real Property and the MLK MOB and the prior uses of the MLK
Real Property and the MLK MOB by Seller BSL and the Pavilion Real
Property and the Scottsdale Real Property and all prior uses thereof by
Seller BPI or by the Pavilion Partnership or the Scottsdale
Partnership, respectively at all times complied with all Environmental
Laws. Nothing herein shall be construed as a representation or warranty
by Seller BSL with respect to any compliance or non-compliance by Los
Angeles County with respect to its use of and operations at the MLK
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Real Property and the MLK MOB or by Seller BPI with respect to any
compliance or non-compliance by any of the tenants under the Pavilion
Subleases or the Scottsdale Leases.
j. Compliance with Law. With respect to the compliance of Seller's
Assets with applicable law, the Sellers represent as follows:
A. Seller BSL represents that:
(i) The MLK Real Property and the MLK MOB are in compliance
with all currently applicable municipal, county, state and
federal laws, regulations, ordinances, standards and orders
and with all municipal, health, building and zoning by-laws
and regulations (including, without limitation, the building
and zoning codes) where the failure to comply therewith or to
obtain a waiver therefrom could have a material adverse effect
on the business, property, condition (financial or otherwise)
or operation thereof;
(ii) There are no outstanding deficiencies or work orders of
any authority having jurisdiction over the MLK Real Property
or the MLK MOB requiring conformity to any applicable statute,
regulation, ordinance or by-law pertaining thereto; and
(iii) It is not aware of any claim, requirement or demand of
any agency supervising or having authority over the MLK MOB to
rework or redesign it or to provide additional furniture,
fixtures or equipment so as to conform to or comply with any
existing law, code or standard which has not been fully
satisfied prior to the date hereof or which will not be
satisfied prior to the Closing Date.
B. Seller BPI represents that:
(i) The Pavilion Property and the Scottsdale Property are in
compliance with all currently applicable municipal, county,
state and federal laws, regulations, ordinances, standards and
orders and with all municipal, health, building and zoning
by-laws and regulations (including, without limitation, the
building and zoning codes) where the failure to comply
therewith or to obtain a waiver therefrom could have a
material adverse effect on the business, property, condition
(financial or otherwise) or operation thereof;
(ii) There are no outstanding deficiencies or work orders of
any authority having jurisdiction over the Pavilion Property
or the Scottsdale Property requiring conformity to any
applicable statute, regulation, ordinance or by-law pertaining
thereto; and
(iii) It is not aware of any claim, requirement or demand of
any agency supervising or having authority over the Scottsdale
Property to rework or redesign
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<PAGE> 12
it or to provide additional furniture, fixtures or equipment
so as to conform to or comply with any existing law, code or
standard which has not been fully satisfied prior to the date
hereof or which will not be satisfied prior to the Closing
Date.
The representations and warranties of Seller in this Paragraph 7 shall
be true and correct in all respects, are made by Seller both as of the date
hereof and as of the date of Closing.
8. Purchaser hereby warrants and represents to Seller that:
a. Status of Purchaser. Purchaser is a limited liability company duly
organized and validly existing under the laws of the state of Nevada
and is in existence or good standing (as applicable) under the laws
thereof and is or prior to Closing will be duly qualified to do
business in the States of Oregon, Arizona and California if such
qualification is necessary for Purchaser to lawfully acquire the
Seller's Assets or otherwise carry out its obligations under this
Agreement.
b. Authority. Purchaser has full power and authority to execute and to
deliver this Agreement and all related documents, and to carry out the
transactions contemplated herein. This Agreement is valid, binding and
enforceable as against Purchaser in accordance with its terms, except
as such enforceability may be limited by creditors' rights laws and
applicable principles of equity. The execution of this Agreement and
the consummation of the transaction contemplated herein do not result
in a breach of the terms and conditions of nor constitute a default
under or violation of Purchaser's Certificate of Formation or Operating
Agreement or any law, regulations, court order, mortgage, note, bond,
indenture, agreement, license or other instrument or obligation to
which Purchaser is a party or by which Purchaser or any of the assets
or Purchaser may be bound or affected.
c. Litigation. There is no litigation, investigation or other
proceeding pending or, to the best of Purchaser's knowledge, threatened
against or relating to Purchaser, its properties or business which is
material to this Agreement, or which would prevent Purchaser from
performing its obligations hereunder, nor does Purchaser know or have
reasonable grounds to know of any basis for any such action. For
purposes hereof, litigation, an investigation or a proceeding shall be
deemed to be pending if the same has been served on Purchaser or
Purchaser has been advised either orally or in writing of the pendency
thereof.
d. Necessary Action. Purchaser will proceed with all due diligence to
take all action and obtain all consents prior to Closing necessary for
it to lawfully enter into and carry out the terms of this Agreement.
9. BROKER
Each party hereby represents and warrants to the other party that it
has not contacted or entered into any agreement with any real estate broker,
agent, finder, or any other party in connection
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<PAGE> 13
with this transaction and that it has not taken any action which would result in
any real estate broker's, finder or other fees or commissions being due and
payable to any other party with respect to the transaction contemplated by this
Agreement. Each party hereby indemnifies and agrees to hold the other party
harmless from any loss, liability, damage, cost, or expense (including
reasonable attorney's fees) resulting to the other party by reason of a breach
of the representation and warranty made by the indemnifying party in this
paragraph. Notwithstanding anything to the contrary contained in this Agreement,
the indemnity set forth in this paragraph and any sums due pursuant to such
indemnity shall constitute separate agreements in causes of action in addition
to any liquidated damages provided for in this Agreement.
COVENANTS
10. Seller. Each of Brim, BPI and BSL covenants on its own behalf and not on
behalf of the other entity for the benefit of Purchaser as follows:
a. Pre-Closing. Between the date hereof and the Closing Date, except
as contemplated by this Agreement or with the consent of Purchaser:
i. Other than as set forth in Paragraph 4 it will satisfy and discharge
or cause to be satisfied and discharged all claims, liens, security
interests, tenancies and encumbrances on Seller's Assets owned by it
and on the Pavilion Real Property, the Pavilion Improvements, the
Scottsdale Real Property and the Scottsdale Improvements (other than
the Permitted Encumbrances);
ii. It will file and/or cause the Pavilion Partnership and the
Scottsdale Partnership to file all tax returns, reports and filings of
any kind or nature required to be filed by it or by such Partnership
and will timely pay all taxes or other obligations which are due and
payable by it with respect to the portion of the Seller's Assets owned
by it;
iii. It will not take or permit to be taken any action inconsistent
with its obligations under this Agreement or which could hinder or
delay the consummation of the transactions contemplated by this
Agreement, and, in the case of Seller BSL, it will continue until the
Closing to fulfill any obligations which it may have under the MLK
Lease, the MLK Subleases, the Scottsdale Management Agreement or the
Pavilion Management Agreement and, in the case of Seller BPI, it will
continue until Closing to fulfill any obligations which it may have as
the general partner of the Scottsdale Partnership and the Pavilion
Partnership and will cause each such Partnership to continue until the
Closing to fulfill any obligations which it may have under the Airspace
Lease, the Master Lease, the Pavilion Subleases and the Scottsdale
Leases;
iv. In the case of Seller BSL, it will maintain in force the existing
hazard and liability insurance policies, or comparable coverage, for
the MLK Real Property and the MLK MOB as now in effect; and, in the
case of Seller BPI, it will cause the Pavilion Partnership and the
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<PAGE> 14
Scottsdale Partnership to maintain in force the existing hazard and
liability insurance policies, or comparable coverage, for the Pavilion
Real Property and Improvements and the Scottsdale Real Property and
Improvements (by, if applicable, requiring performance by the Manager
under the Pavilion Management Agreement and the Scottsdale Management
Agreement).
v. It will not enter into, or, if applicable, cause or permit the
Pavilion Partnership or the Scottsdale Partnership to enter into, any
contract or commitment affecting the portion of the Seller's Assets
owned by it except in the ordinary course of business and it will
advise Purchaser of any contracts or commitments which it or either
such Partnership enters, whether in the ordinary course of business or
otherwise;
vi. During normal business hours, (i) Seller BSL will provide Purchaser
and its agents with access (in the company of a representative of
Seller) on 24 hours notice to the MLK Real Property and the MLK MOB and
at such times Seller BSL shall permit Purchaser to inspect the books
and records and the physical and structural condition thereof;
provided, however, that Purchaser's satisfaction therewith shall not be
a condition to Purchaser's obligation to close the transaction provided
for herein and (ii) Seller BPI, in its capacity as general Partner of
the Pavilion Partnership and the Scottsdale Partnership, will provide
Purchaser and its agents with access (in the company of a
representative of Seller) on 24 hours notice to, as applicable, the
Pavilion Real Property and Improvements and the Scottsdale Real
Property and Improvements, and at such times Seller BPI shall permit
Purchaser to inspect the books and records pertaining thereto and the
physical and structural condition thereof;
vii. It will timely pay or perform or cause to be paid or performed all
obligations which are due and payable with respect to or that arise out
of any contract or agreement binding upon the portion of the Seller's
Assets owned by it including, without limitation, all such obligations
or agreements of the Scottsdale Partnership or the Pavilion
Partnership;
viii. It will proceed with all due diligence to secure any consents
which may be necessary for the sale of the Seller's Assets and, in the
case of Seller BSL, for the assumption by Purchaser of the MLK Loan
Documents;
ix. Seller BSL and Seller BPI will provide Purchaser within ten (10)
days after execution of this Agreement with copies of any appraisals,
surveys, inspection and testing documentation or reports, including,
but not limited to, environmental reports, structural report or
geological reports which may be in its possession with respect to the
(i) MLK MOB and the MLK Real Property, (ii) the Pavilion Real Property
and Improvements and (iii) the Scottsdale Real Property and
Improvements.
b. Closing. On the Closing Date, each of Brim, BPI and BSL agrees for
the benefit of Purchaser on its own behalf and not on behalf of the
other entity that it will:
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i. Execute and deliver to Purchaser the Conveyancing Documents which
are due from it with respect to the portion of the Seller's Assets
owned by it and such endorsements, assignments and other instruments of
transfer and conveyance as shall be necessary to transfer and assign
the portion of the Seller's Assets owned by it to Purchaser as herein
provided;
ii. Deliver to Purchaser a certificate dated as of the Closing Date,
certifying in such detail as Purchaser may reasonably specify the
fulfillment of the conditions set forth in Paragraph(s) 13(a) and (b)
subject to the limitations set forth in Paragraph 25 and setting forth
the incumbency of the officers executing documents on behalf of it, a
copy of the resolutions adopted by its Board of Directors and, if
applicable, shareholders, authorizing the transaction provided for
herein and the execution of this Purchase Agreement and the other
documents contemplated herein and attaching a certificate of good
standing or legal existence issued by each of the Oregon and California
Secretary of State in the case of Seller BSL, by each of Oregon and
Arizona in the case of Seller BPI and by each of the Oregon and Arizona
Secretary of State in the case of Seller Brim within no more than
thirty (30) days prior to Closing; and
iii. Pay its share of the Closing costs in accordance with Paragraph 5
c. Post-Closing. After the Closing of this Agreement, each of Seller
Brim, Seller BPI and Seller BSL agrees as follows:
(i) Upon Purchaser's request and at Purchaser's sole cost and expense,
it will take such actions and properly execute and deliver to Purchaser
such further instruments of assignment, conveyance and transfer as, in
the reasonable opinion of its counsel or counsel for Purchaser, may be
reasonably necessary to assure, complete and evidence the full and
effective transfer and conveyance of the portion of the Seller's Assets
owned or controlled by it.
(ii) Brim, BPI and BSL will recognize, on Brim's consolidated federal
income tax return for taxable year 1996, a gain equal to the amount of
the goodwill and going concern value of the Brim, BPI and BSL
transferred to the Purchaser as a result of the transaction provided
for herein (and each of Brim, BPI and BSL shall make the election
required by Section 197(f) of the Code). The amount of such goodwill
and going concern value will be determined in accordance with the
allocation of the purchase price contemplated by Section 2 hereof. Brim
agrees to recognize and pay federal income tax at a 35% rate on the
amount of gain specified in this paragraph, notwithstanding any loss,
deduction, credit or other allowance or offset to which it may
otherwise be entitled under any provision of the Code or the
regulations promulgated thereunder.
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11. Purchaser
a. Pre-Closing. Between the date hereof and the Closing Date, except
as contemplated by this Agreement or with the consent of Seller,
Purchaser agrees that:
i. Purchaser will not take any action inconsistent with its obligations
under this agreement or which could hinder or delay the consummation of
the transaction contemplated by this Agreement;
ii. Purchaser will proceed with all due diligence to obtain all
consents and approvals necessary to permit the consummation of the
transaction contemplated by this Agreement.
b. Closing. On the Closing Date, Purchaser agrees that it will:
i. Pay the Purchase Price due at Closing;
ii. Pay its share of the Closing costs as provided in Paragraph 5;
iii. Deliver to Seller a certificate of a responsible member of its
Management Committee dated as of the Closing Date, certifying in such
detail as Seller may reasonably specify the fulfillment of the
conditions set forth in Paragraph(s) 14(a) and (b) subject to the
limitations set forth in Paragraph 26 and setting forth the incumbency
of the member(s) of the Management Committee executing documents on
behalf of Purchaser, a copy of the resolutions adopted by Purchaser's
Members authorizing the transaction provided for herein and the
execution of this Purchase Agreement and the other documents
contemplated herein and attaching a certificate of existence or good
standing, as applicable, issued by the Nevada and, if applicable,
Arizona, Oregon, California and Texas offices of the Secretary of State
within no more than thirty (30) days prior to Closing;
iv. Execute the Conveyancing Documents;
c. Post-Closing. After the Closing of this Agreement, Purchaser agrees
that it will:
i. Provide Seller with access during normal business hours to any books
or records which Seller may need to file or to defend tax returns or
other filings filed prior or subsequent to the Closing Date which
relate to periods prior to the Closing Date; and
ii. Take such actions and properly execute and deliver such further
instruments as Seller may reasonably request to assure, complete and
evidence the transaction provided for in this Agreement.
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12. Mutual
Following the execution of this Agreement, Purchaser and Seller agree:
a. If any event should occur, either within or without the knowledge or
control of Purchaser or Seller, which would prevent fulfillment of the
conditions to the obligations of any party hereto to consummate the
transaction contemplated by this Agreement, to use its or their
reasonable efforts to cure the same as expeditiously as possible; and
b. To cooperate fully with each other in preparing, filing prosecuting,
and taking any other actions which are or may be reasonable and
necessary to obtain the consent of any governmental instrumentality or
any third party or to accomplish the transaction contemplated by this
Agreement.
CONDITIONS
13. All obligations of Purchaser under this Agreement are subject to
fulfillment, prior to or at Closing, of each of the following conditions, any
one or all or which may be waived in writing by Purchaser:
a. Seller's Representations and Warranties True at Closing. Seller's
representations and warranties contained in this Agreement or in any
certificate delivered in connection with this Agreement or the
transactions contemplated herein shall be true in all material respects
at and as of the date of Closing as though such representations and
warranties were then again made.
b. Seller's Performance. Seller shall have performed all of its
obligations under this Agreement that are to be performed prior to or
at Closing to the extent the same have not been waived by Purchaser in
accordance with the terms hereof.
c. No Defaults. Seller shall not be in default, where said default
cannot be cured by Closing, under any mortgage, contract, lease or
other agreement to which Seller is a party or by which Seller is bound
and which affects or relates to the Seller's Assets.
d. Approvals. Purchaser and/or Seller shall have received all consents
and approvals as may be necessary for Seller to sell and Purchaser to
purchase the Seller's Assets.
e. Financing. Purchaser shall have secured the consent of the lender
to its assumption of the MLK Loan Documents and to the concurrent
release of Seller from any further liability thereunder and all of the
documents necessary to evidence the same shall have been executed and
delivered into escrow by Purchaser and the lender.
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f. Other Brim Transactions. The closing of those transactions described
in Exhibit M shall have occurred (the "Other Brim Transactions").
In the event any of the foregoing conditions is not satisfied by Seller
or Purchaser, as appropriate, or waived by Purchaser prior to Closing, Purchaser
shall have the right to terminate this Agreement in accordance with the
provisions of Paragraph 16.
14. CONDITIONS TO SELLER'S OBLIGATIONS
All obligations of Seller under this Agreement are subject to the
fulfillment, prior to or at Closing, of each of the following conditions, any
one or all of which may be waived by Seller in writing:
a. Purchaser's Representations and Warranties True at Closing.
Purchaser's representations and warranties contained in this Agreement
or in any certificate or document delivered in connection with this
Agreement or the transactions contemplated herein shall be true in all
material respects at and as of the date of Closing as though such
representations and warranties were then again made.
b. Purchaser's Performance. Purchaser shall have performed its
obligations under this Agreement that are to be performed prior to or
at Closing to the extent the same have not been waived by Seller in
accordance with the terms hereof.
c. Approvals. Purchaser and/or Seller shall have received all consents
and approvals as may be necessary for Seller to sell and Purchaser to
purchase the Seller's Assets.
d. Financing. Purchaser shall have secured the consent of the lender
to its assumption of the MLK Loan Documents and to the concurrent
release of Seller from any further liability thereunder and all of the
documents necessary to evidence the same shall have been executed and
delivered into escrow by Purchaser and the lender.
e. Other Brim Transactions. The closing of the Other Brim Transactions
shall have occurred.
In the event any of the foregoing conditions is not satisfied by Seller
or Purchaser, as appropriate, or waived by Seller prior to Closing, Seller shall
have the right to terminate this Agreement in accordance with the provisions of
Paragraph 16.
INDEMNIFICATION
15. Seller and Purchaser acknowledge and agree that Purchaser is more familiar
with the Seller's Assets than the owners of the Seller will be immediately after
the Closing due to the fact that the affect of the Other Brim Transactions will
be to change the ownership and control of Seller Brim and
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Seller BSL immediately after the Closing of the transactions provided for herein
and therein. Accordingly, it is the intent of the parties that Seller shall on
the Closing Date be relieved of all obligations and liabilities with respect to
the Seller's Assets regardless of whether the same relate to the period prior to
or after the Closing Date and that Seller shall have no liability hereunder for
a breach of its representations and warranties or covenants. It is further
understood and agreed that Purchaser's sole remedy in the event of a breach
prior to Closing by Seller of its representations, warranties or covenants
hereunder shall be to terminate this Agreement prior to Closing and that,
failing that, Purchaser shall be deemed to have waived any rights which it may
otherwise have against Seller with respect to a breach thereof. Seller and
Purchaser further acknowledge and agree that consistent with the foregoing
intent of the parties, Purchaser shall indemnify and hold each of Seller Brim,
Seller BSL and Seller BPI, as applicable, harmless from and against:
a. Any and all costs, damages, expenses, liabilities and obligations
relating to the ownership of the Seller's Assets whether the same
relate to the period prior to or after the Closing Date;
b. Any and all damage, loss or liability resulting from any
misrepresentation of a material fact, breach of warranty or
nonfulfillment of any agreement on the part of Purchaser under this
Agreement or from any misrepresentation in any certificate furnished or
to be furnished by Purchaser to Seller hereunder;
c. Any and all damage, loss or liability resulting from the failure to
secure any third party consents required in connection with the
transactions contemplated herein, including, but not limited to the
consent of the landlord under the MLK Lease and the consent of the
owners under the Pavilion and Scottsdale Management Agreements; and
d. Any and all actions, suits, proceedings, demands, assessments,
judgments, reasonable costs and other reasonable expenses, including,
but not limited to, reasonable attorney's fees, incident to any of the
foregoing.
TERMINATION
16. a. This Agreement may be terminated and the transaction contemplated herein
abandoned at any time prior to Closing:
i. By mutual agreement of the parties; provided, however, the parties
shall not agree to such a termination unless the parties to the
transactions which are the subject of the Other Brim Agreements have
agreed to a termination thereof; and provided, further, that the
parties shall be required to agree to such a termination in the event
the parties to the transactions which are the subject of the Other Brim
Agreements have agreed to a termination thereof;
ii. By Seller, if any of the conditions set forth in Paragraph 14
shall have become incapable of fulfillment prior to the Closing Date
or such earlier date as may be specifically
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provided for the performance thereof (as the same may be extended)
through no fault of Seller and the same shall not have been waived by
Seller;
iii. By Purchaser, if any of the conditions set forth in Paragraph 13
shall have become incapable of fulfillment prior to the Closing Date or
such earlier date as may be specifically provided for the performance
thereof (as the same may be extended) through no fault of Purchaser and
the same shall not have been waived by Purchaser;
iv. By either Seller or Purchaser in the event of a material breach by
the other party of its obligations hereunder;
v. If the Closing has not occurred by the Outside Closing Date
specified in the Other Brim Agreements, which, Seller and Purchaser
acknowledge, as of the date of the execution of this Agreement is
December 31, 1996.
c. Neither party to this Agreement may claim termination or pursue any
other remedy referred to in Paragraph 16(a) on account of a breach of a
condition, covenant or warranty by the other, without first giving such
other party written notice of such breach and not less than ten (10)
days within which to cure such breach; provided, however, in no event
shall the Closing Date be postponed beyond the Outside Closing Date.
d. In the event of the termination of this Agreement by Seller under
Paragraphs 16(a)(ii) or (iv) or under Paragraph 16(a)(v) in the event
the Closing has failed to occur as a result of a material breach by
Purchaser of its obligations hereunder, Seller shall be entitled to
pursue such remedies as may be available to it as law or in equity with
respect thereto.
e. In the event of the termination of this Agreement by Purchaser under
Paragraphs 16(a)(iii) or (iv) or under Paragraph 16(a)(v) in the event
the Closing has failed to occur as of a material breach by either or
any combination of the entities comprising Seller of its obligations
hereunder, Purchaser shall have the right as Purchaser's sole and
exclusive remedies either to (i) terminate this Agreement after which
neither party shall have any further rights or obligations hereunder or
(ii) seek specific performance against the breaching entity of its
obligations hereunder.
NOTICES
17. Any notice, request or other communication to be given by any party
hereunder shall be in writing and shall be sent by registered or certified mail,
postage prepaid, by overnight courier guaranteeing overnight delivery or by
facsimile transmission (if confined verbally or in writing by mail as
aforesaid), to the following address:
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To Seller: c/o Brim, Inc.
305 NE 102nd Avenue
Portland, OR 97020
Attn: A. E. Brim, President
Phone No.: 503-256-2070
FAX No.: 503-254-7619
To Purchaser: Plaza Enterprises, L.L.C.
305 NE 102nd Avenue
Portland, OR 97020
Attn: K. David McAllister
Phone No.: 503-256-2070
FAX No.: 503-254-7619
Notice shall be deemed given three (3) business days after deposit in
the mail, on the next day if sent by overnight courier and on receipt if sent by
facsimile (and confirmed verbally or by mail as aforesaid).
SOLE AGREEMENT
18. This Agreement may not be amended or modified in any respect whatsoever
except by instrument in writing signed by the parties hereto. This Agreement,
together with all other agreements referenced herein and all exhibits and
schedules hereto, constitutes the entire agreement between the parties hereto
and supersedes all prior negotiations, discussions, writings and agreements
between them.
SUCCESSORS
19. The terms of this Agreement shall be binding upon and inure to the benefit
of and be enforceable by and against the heirs and successors of the parties
hereto, it being specifically understood and agreed that Purchaser shall have
the right to assign in whole or in part its rights and obligations hereunder to
an affiliate; provided no such assignment shall relieve Purchaser of its
obligations hereunder and provided, further, that Purchaser shall provide Buyer
with notice of any such assignment and such assignee shall assume all of
Purchaser's obligations hereunder in writing.
CAPTIONS
20. The captions of this Agreement are for convenience of reference only and
shall not define or limit any of the terms or provisions hereof.
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SURVIVAL/LIMITATION OF ACTIONS
21. The covenants, warranties and representations of Seller shall not survive,
and shall terminate at, Closing. The covenants, warranties and representations
and indemnity obligations of Purchaser shall survive the Closing Date.
GOVERNING LAW
22. This Agreement shall be governed by and construed in accordance with the
laws of the State of Oregon.
SEVERABILITY
23. Should any one or more of the provisions of this Agreement be determined to
be invalid, unlawful or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions hereof shall not in any way be
affected or impaired thereby.
COUNTERPARTS
24. This Agreement may be executed in any number of counterparts, each of which
shall be an original; but such counterparts shall together constitute but one
and the same instrument. This Agreement may be executed (i) on an original, (ii)
a copy of an original, or (iii) by a facsimile transmission copy of an original
followed within five (5) calendar days with execution of an original.
THIRD PARTY BENEFICIARY
25. The provisions of this Agreement are not intended to confer any benefits
upon any person or entity not a party to this Agreement other than Encore Senior
Living, LLC which shall be a third party beneficiary of the indemnity provisions
of Paragraph 15 hereof with respect to the MLK Lease, the MLK MOB, the MLK Cash
and the MLK Real Property.
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IN WITNESS WHEREOF, the parties hereby execute this Agreement as of the day
and year first set forth above.
SELLER: BRIM, INC.
By: /s/ A. E. Brim
--------------------------------
Its: President
-------------------------------
BRIM SENIOR LIVING, INC.
By:
--------------------------------
Its: Vice President
-------------------------------
BRIM PAVILION, INC.
By:
--------------------------------
Its: President
-------------------------------
PURCHASER: PLAZA ENTERPRISES, L.L.C.
By: /s/ K. David McAllister
-------------------------------
Its: Member-Executive Committee
------------------------------
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Exhibit 10.27
LEASE AGREEMENT
THIS LEASE AGREEMENT dated December 17, 1996, by and between BRIM INC.,
an Oregon corporation, with its principal offices at 305 N.E. 102nd, Portland,
Oregon 97220, hereinafter called LESSOR, and ENCORE SENIOR LIVING, LLC, a
Delaware limited liability company, with its principle offices at 305 N.E.
102nd, Portland, Oregon 97220, hereinafter called LESSEE.
WITNESSETH:
The Lessor hereby leases to the Lessee and Lessee hereby leases from
the Lessor, the following described property (the "Premises") to wit:
Office space located at 305 NE 102nd, City of Portland, State of
Oregon, upon the property (the "Building") described as Lots 14 and 15 Hudson
Acres, County of Multnomah, State of Oregon comprised of an aggregate of 7,174
square feet (exclusive of staircases, elevators, bathrooms, common circulation
space and conference rooms), approximately 2,980 square feet of which is
located on the second floor and 3,164 square feet of which is located an the
third floor, all as shown more fully on Exhibit A. In addition, the Premises
shall include the non-exclusive right to use the following common areas within
the Building: common circulation space, including circular stairs, facsimile
and copy rooms and conference rooms (the "Common Areas"). The total square
footage of the Common Areas is 4,924 square feet, 24% of which or 1,030 square
feet of which shall be allocated to Lessee as follows:
Circulation Space 534 square feet
Facsimile and Copy Rooms 106 square feet
Conference rooms 390 square feet
Further, Lessee shall have the right to use 20% of the space in the
basement of the Building for archive storage purposes and the same shall be
deemed be a portion of the Premises leased hereunder.
AGREEMENT
1. TERM. Subject to the extension options provided for in Paragraph 32, Lessee
shall have and to hold the above described Premises for a term of twenty-seven
(27) months commencing on the consummation of the merger of Brim Senior
Living,("BSL") and Lessee (the "Commencement Date"). Lessor and Lessee will
execute and attach herein as Exhibit B a written confirmation of the
Commencement Date.
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2. MAINTENANCE, USE AND POSSESSION. Lessee, or any of its affiliated companies,
shall use the Premises for general office purposes and for no other purpose
without prior written consent of Lessor. Lessee, at the expiration of the Term,
shall deliver the Premises in good repair and condition, with the exception of
damages beyond the control of Lessee, reasonable use, and ordinary wear and
tear. Lessee shall not unreasonably annoy, obstruct, or interfere with the
rights of other tenants in the Building and shall not use Premises for any
unlawful purpose or so as to constitute a nuisance. During the term hereof, in
order to facilitate Lessee's use of the Premises for the purpose stated herein,
Lessor shall, at Lessor's expense, maintain in good condition and repair the
exterior of the Building, including the windows, parking lot, landscaping, and
the interior of the Building, including the common areas, systems, the lobby,
the elevators and the stairways. Notwithstanding the foregoing, subject to the
provisions of Paragraph 21, Lessee shall reimburse Lessor for all costs and
expenses for maintenance and repairs incurred by Lessor as a result of Lessee's
negligence or intentional misconduct.
3. RENT. Lessee hereby covenants and agrees to pay Lessor, without any demand,
offset, deduction or counterclaim whatsoever, a monthly rent of $9,565 for the
term of the lease. Monthly rent shall be paid on the first day of each and every
calendar month.
Rent not paid within 20 days of due date shall bear interest at the
rate of 9% per annum from the due date until paid. Lessor may at its option
impose a late charge of five percent (5%) of the amount due for rent payments
made more than 20 days late in lieu of interest for the first month of
delinquency, without waiving any other remedies available for default. Failure
to impose a late charge shall not be a waiver of Lessee's right hereunder.
Monthly rental shall remain fixed regardless of minor discrepancies in
square footage.
4. NOTICES. For the purpose of notice or demand, the respective parties shall be
served by personal delivery or by certified mail, return receipt requested,
addressed to the Lessee at its principal office address, 305 N.E. 102nd,
Portland, Oregon 97220, and to the Lessor at its mailing address, 305 N.E.
102nd, Portland, Oregon 97220, or to such other addresses as either party may
specify by notice to the other. Notice shall be effective when received or when
receipt is refused.
5. ORDINANCES AND REGULATIONS. The Lessee hereby covenants and agrees to comply
with all applicable laws, ordinances, rules, and regulations of any public
authority having jurisdiction over the Premises at Lessee's sole cost and
expense, but only insofar as such laws, ordinances, rules and regulations
pertain to the manner in which the Lessee shall use the Premises.
6. SIGNS. The Lessee will not place any signs on the exterior of the Building in
which the Premises are located without the prior written consent of the Lessor,
with the exception that Lessee may add its name in comparable lettering to the
front entrance. Lessor will provide a listing for Lessee on the main directory.
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7. UTILITIES AND SERVICES. Lessor agrees, at its expense, to continuously
furnish water, sewer, electricity, elevator service, heat and air conditioning
customary for building of the same nature, use, class and location as the
Building. Janitorial service and trash removal will be provided in accordance
with the regular schedule of the Building which may change from time to time.
Lessee shall comply with all government laws or regulations regarding the use or
reduction of use of utilities on the Premises. Lessee acknowledges and agrees
that the building shall be locked between the hours of 6:00 PM and 7:30 AM and
that a receptionist shall be on duty in the main lobby during normal business
hours of operation Monday through Friday, except holidays, and that the
foregoing shall constitute the sole security with respect to the Premises
provided by Lessor.
Interruption of services or utilities shall not be deemed an eviction
or disturbance of Lessee's use and possession of the Premises, render Lessor
liable to Lessee for damages (other than in the event such interruption is due
to the negligence or wilful misconduct of Lessor) or, except as specifically
provided herein, relieve Lessee from performance of Lessee's obligations under
this Lease. Lessor shall take all reasonable steps to correct any interruptions
in services. Lessee shall provide its own protection for power furnished to
computers and other equipment. Notwithstanding the foregoing, in the event
services or utilities are interrupted for a period of more than three (3)
consecutive days, the rent due from Lessee shall be abated in its entirety from
and after such three day period unless and until such services are restored.
Lessor shall further make available to Lessee throughout the Term
hereof, the telephone equipment, including the switching systems and telephones,
as well as the services of Lessor's receptionist, which is currently located at
the Building or such replacement equipment as may be acquired by Lessor at any
time during the Term, provided such replacement equipment does not reduce or
otherwise adversely affect the telephone service available to Lessee. Lessee
shall pay all costs and expenses of telephone services provided to Lessee by
third party providers, including all local and long distance calls made by
Lessee or its employees and a pro rata share of any service maintenance fees
charged to Lessor.
8. EQUIPMENT. Lessee shall install in the Premises only such office and other
equipment as is customary and shall not alter the plumbing or wiring of the
Premises or Building without prior written approval from the Lessor. Lessor must
approve the location of exceptionally heavy articles. All telecommunications
equipment, conduit, cables and wiring and any additional air-conditioning
requirements because of heat generating equipment or special lighting installed
by Lessee shall be installed and operated at Lessee's expense.
9. ALTERATIONS. Except as otherwise provided herein, Lessee shall not make any
alterations, additions or improvements to the Premises, change the color of the
interior or install any wall or floor covering without Lessor's prior written
consent. Lessee shall have the right to make alterations, additions or
improvements to the Premises with prior notice to, but without the consent of,
Lessor if the cost thereof does not exceed $10,000 in the aggregate and the same
do not affect the structure or systems of the Building and/or it is not
foreseeable that it would unreasonably interfere with Lessor's occupation, use
or enjoyment of the portion of the Building occupied by it. Any such
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improvements, alterations, wiring cables or conduit installed by Lessee shall at
once become part of the Premises and belong to Lessor except for removable
machinery and unattached movable trade fixtures. Lessor shall have the right to
approve the contractor used by Lessee for any work in the Premises. Any such
alterations shall be made at such times and in such manner as not to
unreasonably interfere with occupation, use and enjoyment of the remainder of
the Building by other tenants thereof.
Lessor may, at its option, condition its consent to any such
alteration, additions or improvements on Lessee's agreement to remove the same
at the end of the Lease Term and to repair any damage to the Premises caused by
such removal.
10. QUIET ENJOYMENT. The Lessor covenants and agrees that Lessee, upon payment
of monthly rent, and performing the covenants and other obligations herein,
shall and may peaceably and quietly hold and enjoy the said Premises and common
areas, including, but not limited to, sidewalks, entrances, exits, lobbies,
restrooms and lounges for the term aforesaid. Lessee shall have nonexclusive
use of the so called "Garden Room" which is located on the first floor of the
Building behind the elevators, the elevators and conference rooms located on
the third and fourth floors of the Building. Lessee's access to the Garden Room
shall not be subject to any limitations other than general availability, it
being understood and agreed that Lessee and Lessor shall each be required to
reserve the Garden Room through the Building receptionist no less than eight
(8) hours prior to the anticipated use thereof but shall be permitted to use
the Garden Room even if the same has not been reserved so long as it is not
otherwise occupied.
11. LESSOR'S RIGHT TO INSPECT AND DISPLAY. Lessor shall have the right at all
times during the term of this Lease to enter Premises for the purpose of
examining or inspecting same and for making such repairs or alterations as the
Lessor shall reasonably deem necessary in order to fulfill its maintenance and
repair obligations hereunder. The Lessor shall also have the right to enter the
Premises at all reasonable hours for the purpose of showing the Premises to any
prospective tenants ninety (90) days prior to the termination of this Lease.
Except in case of emergency, Lessee shall be given reasonable advance notice of
Lessor's intent to enter Premises and such entry shall be at such times and in
such manner as to minimize interference with the reasonable business use of
Premises by Lessee.
12. FIRE AND OTHER DESTRUCTION OF PREMISES.
A. MAJOR DAMAGE. In the case of major damage to the Building, Lessor may
elect to terminate this Lease by notice in writing to Lessee within sixty
(60) days from the date of such damage. Major damage means damage by fire
or other casualty to the Building which will cost more than twenty-five
percent (25%) of the pre-damage value of the Building to repair. If this
Lease is not terminated following major damage, Lessor shall promptly
restore the Premises to the condition existing just prior to the damage
subject to Paragraph 12C. Rent shall cease on the date of damage until the
date restoration work being performed by Lessor is substantially complete
or until the Lessee resumes use and occupancy of the
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Premises, whichever shall first occur. Notwithstanding the foregoing, the
rent shall not abate if such damage is caused by Lessee's negligence or
intentional misconduct.
B. PARTIAL DAMAGE. In the case of any damage that is not major damage,
Lessor shall undertake to restore, rebuild or repair the Premises. If such
work is not accomplished within sixty (60) days, and such failure does not
result from causes beyond the control of Lessor, the Lessee shall have the
right to terminate this Lease by written notice to the Lessor within thirty
(30) days after expiration of said sixty day period. Rent shall be reduced
from the date of damage in proportion to the area of the Premises not
usable by Lessee. Notwithstanding the foregoing, the rent shall not abate
if such damage is caused by Lessee's negligence or intentional misconduct.
C. LIMITATION OF LESSOR LIABILITY. The Lessor shall not be liable for any
inconvenience or interruption of business of the Lessee occasioned by fire
or other casualty other than where the same is due to the negligence or
wilful misconduct of Lessor. Lessor shall not be obligated to carry fire,
casualty or extended damage insurance on the person or property of the
Lessee or any person or property which may now or hereafter be placed in
the leased Premises.
13. CONDEMNATION. If, during the term of Lease, or any renewal thereof, the
whole of the Premises, or such portion thereof as will make the Premises
unusable for the purpose leased, is condemned by public authority for public
use, then in either event, the term hereby granted shall cease and come to an
end as of the date of the vesting of title in such public authority or when
possession is given to such public authority, whichever event last occurs. Upon
such occurrence the rent shall be proportioned as of such date and any prepaid
rent shall be returned to the Lessee. Lessor shall be entitled to the entire
award for such taking except for any statutory claim of the Lessee for injury,
damage or destruction of Lessee's business accomplished by such taking.
Notwithstanding the foregoing, Lessee may pursue a separate award to recover
the cost of Lessee's moving expenses and improvements to the Premises paid for
by Lessee and the loss of any trade fixtures or personal property, provided
that such separate award shall not reduce the award or judgement recoverable by
Lessor. If a portion of the Premises is taken or condemned by public authority
far public use so as not to make the remaining portion of the Premises unusable
for the purposes leased, this Lease will not be terminated, but shall continue.
In such case, the rent shall be equitably and fairly reduced or abated for the
remainder of the term in proportion to the amount of the Premises taken. In no
event shall the Lessor be liable to the Lessee for any business interruption
diminution in use or for the value of any unexpired term of this Lease.
14. ASSIGNMENT AND SUBLEASE. This Lease shall bind and inure to the benefit of
the parties, their respective heirs, successors and assigns, provided that
Lessee shall not assign its interest under this Lease or sublet all or any
portion of the Premises, other than to an affiliate of Lessee, without first
obtaining Lessor's consent in writing. No assignment shall relieve Lessee of its
obligation to pay any rent due or perform other obligations required by this
Lease unless agreed to in writing by Lessor, and no consent by Lessor to one
assignment or subletting shall be a consent
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to any further assignment or subletting. Lessor shall be permitted to grant or
to withhold its consent to any assignment or subletting in its sole and absolute
discretion. In the event Landlord refuses to consent to an assignment or
subletting and as a result a portion of the Premises remains unoccupied for a
period of ninety (90) consecutive days, Lessor and Lessee agree to negotiate in
good faith with respect to an amendment to the Lease in order to reduce the area
which is included in the Premises and the rent due with respect thereto and to
document such amendment within thirty (30) days thereafter. For purposes hereof,
an assignment of the Lease by operation of law as a result of the merger,
consolidation or sale of all or substantially all of the assets or membership
interests of Lessee, other than to an affiliate, shall be deemed to be an
assignment of this Lease.
Lessor shall not lease that portion of the Building indicated on
Exhibit C, other than to an affiliate of Lessor, without first obtaining
Lessee's consent, which consent shall not be unreasonably withheld.
15. SURRENDER AND HOLDOVER. Lessee may hold over at the end of the term without
extending the term or renewing the Lease provided that Lessor has not given
thirty (30) days prior written notice to Lessee to vacate on the expiration
date. Tenancy shall continue on a month to month basis at the same monthly rent
in effect at the end of the Lease term and upon the same terms and conditions as
herein set forth until terminated by either party by providing thirty (30) days
prior written notice to the other party prior to the desired termination date.
Acceptance by the Lessor of rent after such termination shall not constitute a
renewal of this Lease or a consent to occupancy, except as set forth in this
Section 15, nor shall it waive Lessor's first right of reentry or any other
right contained herein.
On termination of this Lease, Lessee shall deliver all keys to Lessor
and surrender the Premises in same condition as at the commencement of the term,
subject only to damage beyond control of Lessee and to reasonable wear and tear
from ordinary use. Lessee shall remove all of its furnishings and trade fixtures
that remain its property and Lessee may dispose of it in any manner without
liability. Lessee shall have no obligation to remove any alterations made by
Lessee which do not require the consent of Lessor under Section 9 or which have
been consented to by Lessor in accordance with Section 9 and where such consent
was not specifically conditioned on such removal.
16. SUBORDINATION. Lessee's rights under this Lease are and shall always be
subordinate to the operation and effect of any such mortgage, deed of trust,
assignment of leases or other security instrument or operating agreement now or
hereafter placed by Lessor against or governing the Building or related
improvements and land on which the Premises are located or any part thereof.
This clause shall be self operative and no further instrument of subordination
shall be required. In confirmation thereof, Lessee shall execute such further
assurances as may be reasonably required by Lessor or any mortgagee, trustee,
beneficiary, or assignee under such mortgage, deed of trust, assignment of
leases or other security instrument. The foregoing notwithstanding, any
mortgagee, trustee, beneficiary, Lessee or assignee may elect that this Lease
shall have priority over its mortgage, deed of trust or other security
instrument and upon notification of such election by any such mortgagee or
beneficiary to Lessee, this Lease shall be deemed to have priority over said
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mortgage, deed of trust, assignment of leases or other security instrument
whether this Lease is dated prior to or subsequent to the date of such mortgage,
deed of trust, assignment of leases or other security instrument. Lessee agrees
to execute all instruments reasonably required by any such mortgagee, trustee,
beneficiary, or assignee to confirm such priority or subordination, as the case
may be. Lessee hereby attorns to any successor to Lessor's interest in this
Lease, and shall recognize such successor as Lessor hereunder. Lessee agrees to
execute all instruments requested by such successor to confirm such attornment.
17. TRANSFER OF BUILDING. If the Building is sold or otherwise transferred by
Lessor or any successor, Lessee shall attorn to the purchaser or transferee and
recognize it as the Lessor under this Lease, and, provided the purchaser or
transferee assumes all obligations hereunder, the transferor shall have no
further liability hereunder.
18. ESTOPPEL CERTIFICATES. Either party, within ten (10) days after notice from
the other, will execute, acknowledge and deliver to the other party a
certificate certifying whether or not this Lease has been modified and is in
full force and effect; whether there are any modifications or alleged breaches
by the other party; the dates to which rent has been paid in advance and the
amount of any security deposit or prepaid rent; and any other facts that may
reasonably be requested. Failure to deliver the certificate within the specified
time shall be conclusive upon the party of whom the certificate was requested
that the Lease is in full force and effect and has not been modified except as
may be represented by the party requesting the certificate. If requested by the
holder of any encumbrance, Lessee will agree to give such holder notice of an
opportunity to cure any default by Lessor under this Lease.
19. INDEMNIFICATION. Each of Lessee and Lessor (the "Indemnifying Party") shall
indemnify, defend and save the other (the "Indemnified Party") harmless from any
claim, liability, damage or losses occurring on the Premises arising out of any
activity by the Indemnifying Party, its agents, employees, guests or invitees or
resulting from the Indemnifying Party's failure to comply with any term of the
Lease. Neither Lessor nor its managing agent shall have any liability to Lessee
because of loss or damage to Lessee's property or for death or bodily injury
caused by the acts or omissions of other tenants of the Building, by third
parties (including criminal acts) or because of fire, Acts of God or for any
other reason unless caused by the negligence or wilful misconduct of Lessor or
any of its agents or employees. If Lessee's use of the Premises results in
Lessor's insurance premium for the Building to be increased, Lessee agrees to
pay, as Additional Rent, the entire cost of such increase.
20. INSURANCE. Lessee shall carry liability insurance with limits of not less
than $1,000,000 combined single limit bodily injury and property damage. Such
insurance shall have an endorsement naming Lessor as an additional insured and
covering the liability insured under this Paragraph 20 of this Lease. Lessee
shall furnish to Lessor a certificate evidencing such insurance which shall
state that the coverage shall not be canceled or materially changed without ten
(10) days prior written notice to Lessor. A renewal certificate shall be
furnished at least ten (10) days prior to expiration of any policy. Lessor shall
carry replacement value property insurance and liability insurance on the
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Building with limits of not less than $1,000,000. Such insurance shall have an
endorsement naming Lessee as an additional insured as to the liability
insurance. Lessor shall furnish to Lessee a certificate evidencing such
insurance which shall state that the coverage shall not be canceled or
materially changed without ten (10) days prior written notice to Lessee. A
renewal certificate shall be furnished at least ten (10) days prior to
expiration of any policy. Should either Lessor or Lessee fail to secure the
insurance coverage required by the terms hereof, the other party shall have the
right to secure such coverage on behalf and in the name of the defaulting party
and upon demand the cost thereof shall be immediately due and payable to the
party which secured such coverage.
21. WAIVER OF SUBROGATION. Lessee shall be responsible for insuring its personal
property and trade fixtures located on the Premises and any alterations or
tenant improvements it has made to the Premises. Subject to each of Landlord and
Tenant maintaining the insured required by the terms hereof, Lessor and Lessee
hereby waive all rights to recover against each other or against any
shareholder, director, officer, employee, agent, customer, or invitee thereof
for any loss or damage arising from any cause covered by any insurance proceeds
which are actually recovered for such loss or damage. Lessor and Lessee shall
cause their respective insurers to issue appropriate waiver of subrogation
rights endorsements to all policies of insurance carried pursuant to this Lease.
Lessee shall cause all other occupants of the Premises claiming by, though or
under lessee to execute and deliver to Lessor a waiver of claims similar to the
waiver in this paragraph and to obtain such waiver of subrogation rights
endorsements.
22. MAINTENANCE AND REPAIR. Lessor shall, at its expense, make all repairs and
replacements to Building and Premises, including the heating and air
conditioning system, which are necessary to maintain Building and Premises in
safe, dry and tenantable conditions and in reasonably good order and repair.
Lessor shall have the right to erect scaffolding and other apparatus necessary
for the purpose of making repairs, and, absent Lessor's negligence or wilful
misconduct, Lessee shall have no claim against Lessor for any interruption or
reduction or services or interference with Lessee's occupancy which lasts for
less than three consecutive days, and no such interruption or reduction shall be
construed as constructive or other eviction of Lessee but any such interruption
or reduction or interference which lasts for more than three consecutive days
shall entitle Lessee to an abatement of its rent in its entirety from and after
such three day period until such services or occupancy are restored. Repair of
damage caused by negligent or intentional acts or breach of this Lease by
Lessee, its employees or invitees shall be at Lessee's expense.
Lessor shall have no liability for failure to perform required
maintenance and repair unless written notice of such maintenance or repair is
given by Lessee and Lessor fails to commence efforts to remedy the problem in a
reasonable time and manner.
23. REGULATIONS. Lessor shall have the right but shall not be obligated to make,
revise and enforce regulations or policies consistent with this Lease for the
purpose of promoting safety, health (including regulation or prohibition of
smoking), order, economy, cleanliness, and good service to all Lessees of the
Building. All such regulations and policies shall be complied with as if part of
this Lease.
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24. RELOCATION OR EXPANSION OF PREMISES. Lessor and Lessee acknowledge and
agree that during the Lease Term it may be necessary for either or both of them
to relocate or expand within Building to accommodate changes in space
requirements. Lessor and Lessee agree to negotiate in good faith with respect to
the terms and conditions on which such expansion/relocation shall occur but
neither Lessor nor Lessee shall be in default in the event they are unable to
agree upon the terms and conditions thereof unless they have breached the good
faith negotiation obligation provided for herein.
25. CONSTRUCTION OF LANGUAGE. The terms Lease, Lease Agreement or Agreement
shall be inclusive of each other, and to include renewals, extensions or
modifications of the Lease. Words of any gender used in this Lease shall be held
to include any other gender, and words in the singular shall be held to include
the plural and the plural to include the singular when the sense requires. The
paragraph headings and titles are not a part of this Lease and shall have no
effect upon the construction or interpretation of any part thereof.
26. DEFAULT. If any default made by either party in the performance or
compliance with any of the terms or conditions of this Lease is not rectified
within thirty (30) days after actual receipt of written notice from the other
party, the other party may seek remedies for default under Paragraph 27.
Any of the following shall constitute a default by Lessee under this
Lease:
A. Lessee's failure to pay monthly rent or any other charge
under this Lease within thirty (30) days after it is due, or
failure to comply with any other team or conditions within
thirty (30) days following written notice from Lessor
specifying the noncompliance. If such noncompliance cannot be
cured within the 30-day period, this provision shall be
satisfied if Lessee commences correction within such period
and thereafter proceeds in good faith and with reasonable
diligence to affect compliance as soon as possible.
B. Lessee's insolvency, business failure or assignment for the
benefit of its creditors. Lessee's commencement of proceedings
under any provision of any bankruptcy or insolvency law or
failure to obtain dismissal of any petition filed against it
under such laws within the time required to answer, or the
appointment of a receiver for Lessee's properties.
C. Assignment or subletting by Lessee in violation of
Paragraph 14.
D. Vacation or abandonment of the Premises without the prior
written consent of Lessor or failure to occupy the Premises
within twenty (20) days after notice tendering possession.
27. REMEDIES FOR DEFAULT. In the event of default by either party in the
performance or compliance with any of the terms or conditions of this Lease that
is not rectified as provided for under Paragraph 26, or in the case of default
by Lessee under Paragraph 26, either party shall have
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the right to the following remedies which are intended to be cumulative and in
addition to any other remedies provided under applicable law.
A. Either party may at its option terminate this Lease forthwith by
notice to the other party of the intent to terminate. With or without
termination, Lessor, in the event of a default by Lessee, may retake
possession of the Premises and may use or relet the Premises without
accepting a surrender or waiving the right to damages. Following such
retaking of possession, efforts by Lessor to relet the Premises shall
be sufficient if Lessor follows its usual procedures for finding
tenants for the space at rates not less than the current rates for
other comparable space in the Building. If Lessor has other vacant
space in the Building, prospective tenants may be placed in such other
space without prejudice to Lessor's claim to damages or loss of rentals
from Lessee.
B. Either party may recover all damages caused by the other party's
default and may sue periodically to recover damages as they occur
through the Lease term. No action for accrued damages shall bar a later
action for damages subsequently accruing.
C. Either party may make any payment or perform any obligation which
the other party has failed to perform, in which case the damaged party
shall be entitled to recover from the other party upon demand all
amounts so expended, plus interest from the date of the expenditure at
the rate of nine percent (9%) per annum. Any such payment or
performance by the damaged party shall not waive the other party's
default.
D.
28. ATTORNEYS' FEES. In any litigation arising out of this Lease, the prevailing
party shall be entitled to recover attorneys' fees at trial and on any appeal.
29. NONWAIVER. Failure by either Lessor or Lessee to promptly enforce any
regulation, remedy or right of any kind under this Lease shall not constitute a
waiver of the same and such right or remedy may be asserted at any time after
Lessor or Lessee, as applicable, becomes entitled to the benefit thereof
notwithstanding delay in enforcement.
30. ENVIRONMENTAL CONCERNS. In the event any material and/or substance contained
within the Building or on or under the land upon which the Building is located
is determined to be "hazardous" by any federal, state or local law, and subject
to the following sentence, Lessor shall assume all liability for the removal and
damage caused by the material and/or substances. Except in the ordinary course
of business in compliance with applicable laws governing the use of hazardous
substances and in such quantities as may be permitted under such applicable
laws, Lessee shall not cause or permit any hazardous materials to be brought
upon the Building or Premises; provided, however, that as to hazardous
substances brought upon the Building or Premises by Lessee or any employees or
agents of Lessee (whether or not in compliance with applicable laws), Lessee
shall
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indemnify and hold harmless Lessor from and against any and all damages
resulting from the presence of such hazardous materials in the Building or
Premises.
31. PARKING. Lessor, at no additional expense to Lessee, should provide
twenty-two (22) nonexclusive parking stalls within the parking lot located
adjacent to the Building.
32. RENEWAL OPTIONS. Provided that Lessee is not in default under this Lease,
Lessee shall have the option to renew this Lease for two successive terms of two
years each. All terms and conditions of this Lease shall remain the same during
the renewal terms except for monthly rent, which shall he adjusted to fair
market rental value of the Premises as of the renewal date. The option shall be
exercised by written notice of Lessor not less that ninety (90) days prior to
the last day of the original term. If parties fail to agree on fair market rent,
rent shall be determined by a third party mutually acceptable to Lessor and
Lessee, the cost of which shall be shared equally. The decision of the third
party will be final and binding upon the parties.
33. LESSEE RIGHT TO PURCHASE. In the event that Lessor desires to sell the
Building, Lessor agrees to give Lessee or its assignee, a right to purchase the
Building before offering the Building for sale to the public. Accordingly Lessor
agrees that, for a period of twenty (20) days after Lessor advises Lessee of its
good faith desire to sell the Building, it shall negotiate exclusively with
Lessee or its assignee with respect to the terms and conditios on which such a
sale would occur. In the event Lessor and Lessee or its assignee are able to
reach agreement within said twenty (20) day period they shall proceed in good
faith and with all reasonable diligence to agree on the terms of a Purchase and
Sale Agreement and to consummate said transaction. In the event either Lessor
and Lessee or its assignee are unable to agree upon the terms and conditions of
said purchase within said initial twenty (20) day period or are subsequently
unable to agree in the terms of a Purchase and Sale Agreement or to consummate
the purchase and sale transaction (other than as a result of the failure of
Lessor to negotiate in good faith) Lessor shall be free to sell the Building to
a third party and neither Lessor shall have any further obligations to Lessee
under this Paragraph 33 nor shall Lessee have any further rights under this
Paragraph 33 with respect to the purchase and sale of the Building; provided,
however, that any sale of the Building to a third party shall be subject to
Lessee's leasehold rights under this Lease.
34. RIGHT OF FIRST REFUSAL. In the event at anytime during 1997, any or all the
offices identified on Exhibit D are vacated by their current occupants, who the
parties acknowledge and agree are Lee Zinsli. Kathy Sego and Tony Golda, Lessor
shall advise Lessee in writing that said offices are available for the occupancy
of Lessee and Lessee have the right at anytime during the remainder of 1997
(whether or not Lessor has otherwise put said offices to use) to advise Lessor
of its desire to lease the relevant office(s) for the same rent per square foot
as Lessee is then paying for the Premises under the terms of this Lease. In the
event Lessee fails to exercise the right of first refusal granted hereunder
during 1997, Lessor shall then be permitted to lease the affected office(s) to
any other party without any further obligation to Lessee.
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35. OREGON LAW. The law of the State of Oregon shall govern and control the
terms of this Lease.
36. CONSTRUCTION. This Lease Agreement shall be construed as if drafted by both
Lessor and Lessee jointly.
37. TIME IS OF THE ESSENCE. Time is of the essence of this Lease and each and
every provision hereof.
38. ENTIRE AGREEMENT. This Lease and the attached Exhibits, constitute the
entire agreement of the parties and supersede all prior written and oral
agreements and representations. This Lease shall not be modified or amended
except by written agreement signed by both parties.
39. LANDLORD LIABILITY. Notwithstanding anything to the contrary in this Lease,
Lessee's sole recourse against Lessor is to the interest of Lessor in the
Premises and the Building. Lessee shall not have the right to satisfy any
judgment against Lessor from any other assets of Lessor; provided, however, that
this paragraph shall not limit Lessee's right to seek injunctive relief or
specific performance against Lessor. For the purposes of this paragraph, the
term "Lessor" shall include any successor in interest to Lessor, and any
shareholders, directors, officers or employees thereof.
IN WITNESS WHEREOF, Lessee and Lessor have caused this instrument to be
executed as of the date first above written, by their respective officers or
parties thereunto duly authorized.
LESSOR: BRIM, INC.
By: /s/ Martin S. Rash
--------------------------
Name: Martin S. Rash
Its: President
LESSEE: ENCORE SENIOR LIVING, LLC
By: /s/ James Williams
--------------------------
Name: James Williams
Its: President
12
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EXHIBIT A
PREMISES
Lots 14 and 15, Hudson Acres, as shown and recorded in Plat Book 804, Page 15,
in the public records of County of Multnomah, State of Oregon.
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EXHIBIT B
CONFIRMATION OF LEASE COMMENCEMENT DATE
Lessor and Lessee do hereby confirm that the Term of the foregoing
Lease commenced on ___________, 1996.
Brim, Inc.
By: ___________________________
Its: __________________________
Encore Senior Living, LLC
By: ___________________________
Its: __________________________
14
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EXHIBIT C
SPACE SUBJECT TO LEASE RESTRICTIONS
[SEE ATTACHED FLOOR PLAN]
15
<PAGE> 16
EXHIBIT D
RIGHT OF FIRST REFUSAL SPACE
[SEE ATTACHED FLOOR PLAN]
16
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated April 30, 1997, except for Note 16, and Notes 1 and
17, as to which the dates are May 8, 1997 and October , 1997, respectively, in
the Registration Statement (Form S-1) and related Prospectus of Province
Healthcare Company (formerly known as Brim, Inc. until January 16, 1997 and as
Principal Hospital Company from January 16, 1997 until October , 1997) for the
registration of 6,555,000 shares of its common stock.
Ernst & Young LLP
Nashville, Tennessee
October , 1997
The foregoing consent is in the form that will be signed upon the
completion of the reincorporation described in Note 17 to the consolidated
financial statements.
Ernst & Young LLP
Nashville, Tennessee
October 8, 1997
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Province Healthcare Company (formerly known as Brim, Inc. until
January 16, 1997 and as Principal Hospital
Company from January 16, 1997 until October 1997)
We consent to the use of our reports included herein and to the reference
to our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Portland, Oregon
October 8, 1997
<PAGE> 1
Exhibit 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated July 25, 1997 and August 23, 1994 with respect to
the consolidated financial statements of Memorial Hospital
Foundation -- Palestine, Inc., in the Registration Statement (Form S-1) and
related Prospectus of Province Healthcare Company (formerly known as Brim, Inc.
until January 16, 1997 and as Principal Hospital Company from January 16, 1997
until October 1997) for the registration of common stock.
Harrell, Rader, Bonner & Bolton
Palestine, Texas
October 8, 1997
